The Mortgage
Arranging a Mortgage
Money makes the world go round, and a mortgage gives you the power to buy a home. This isn’t the most fun step in buying a home, but it’s vital.
Who do you talk to?
There are hundreds of banks, credit unions and other lenders out there who would love your monthly mortgage payments. So talk to everybody. Now is not the time to be money-shy! Talk to your banker and call around to other banks. Ask people you know. REALTORS® are very knowledgeable about Mortgages and have lots of good advice.
Call a Mortgage Broker.
Mortgage brokers are another great resource. They find low rates for a living, and they usually don’t get paid unless you sign a mortgage through them, so they’re highly motivated to get you the best deal.
Your best mortgage might be the seller’s mortgage.
You can sometimes take over or ‘assume’ the seller’s mortgage. This is a great idea if the seller is locked into a lower interest rate than you can get right now. Your REALTOR® can help you.
Mortgage Terminology
Mortgage term – Typically from six months to five years, the ‘term’ refers to how long the bank has agreed to lend you the money. At the end of the term, you usually renegotiate a new term.
Amortization – The length of time it will take you to pay off the whole mortgage. Often as long as 40 years, if you don’t accelerate your payments. The longer your amortization, the lower your monthly payments, but the more you pay in interest over time.
Interest rates – Interest is the cost of borrowing money, and the interest rate tells you exactly how much. Using the mortgage calculator, check the difference between borrowing $100,000 at 6% and at 9% at the same amortization. Surprising, no?
That interest rate not only affects how much you pay, it also affects how much you can borrow. So remember to keep searching for the best rate!
How big a down payment?
You want as small a mortgage as possible, which means making the biggest down payment possible. Just remember to set money aside for all the fees associated with buying a home. Not to mention moving, repairs, renovations, new furniture...think ahead.
The RRSP Home Buyers’ Plan – A little sweet relief.
If you’re a first-time homebuyer with money in an RRSP, you can withdraw up to $20,000 without paying any income tax. If your spouse is also eligible, that’s $40,000. Ask your REALTOR® how to best take advantage of this plan.
Lock into an interest rate - for how long?
It’s a tough question. What if you ‘lock in’ for five years and rates go into a period of decline? That could mean you’re stuck paying more than you had to for a long time. But if rates were to steadily climb over the next five years, locking in for five years now would be a great move. For many, a long-term mortgage offers peace of mind in knowing that their mortgage payments will stay the same for several years. Your REALTOR® will have a lot of good advice.
What you need to apply for a mortgage.
- Letter of employment confirmation – Ask your employer for a letter that confirms your position, your pay and how many years you’ve been with the company.
- List your assets – Your car, stocks, bonds, GICs. Show which assets will be used for your down payment.
- List your liabilities – Car payments, student loans, credit card debt. List all the money you owe, and note how you’re paying it off.
- Social Insurance Number – And your chequing account number, and your lawyer’s contact information
- Information about the house you want to buy - The home is your security on the mortgage, so the lender wants to know all about it.
To get an idea of how much mortgage you can afford, and what the monthly payments might be, try out my Mortgage Calculators.
For detailed information on mortgages and the home buying process in general, you can visit the Canadian Mortgage and Housing Corporation website.
For my personal recommendations on who to go to when you need to arrange a mortgage in the Moncton area, please visit my Local Resources page.
