Tag Archives: Home Ownership

Preparing For Your First Mortgage

Four moves to make when getting ready for your first mortgage.

Happy couple holding for sale and sold signs in front of a new house

You First Mortgage

Step 1: Know What You Want

Should your mortgage be fixed or variable?

Fixed Mortgage Rate:

Enables you to “lock in” a predetermined rate for a set amount of time (term).

Variable Mortgage Rate:

This type of mortgage rate changes monthly according to the mortgage lender’s prime rate. Anyone handling a variable Canadian mortgage rate has to have the ability to manage modifications to their monthly payments.

Open or Closed Mortgage?

If you are not prepared to pay a sizable lump sum in the coming future, typically a closed mortgage would be the best option for you.

Open Mortgage:

An open mortgage is a versatile alternative that enables you to make substantial payments or settle the whole mortgage without a penalty. Open mortgage rates are more than closed mortgage rates. This form of mortgage allows you to settle large amounts of your loan prior to completion of the mortgage term.

Closed Mortgage:

Not too many individuals need the flexibility to settle their best mortgage rate prior to completion of the term. If you have a closed mortgage you are going to be penalized if you try to pay off the loan early and the charge can be rather substantial.

Step 2: Knowledge is Power!

Searching for the best rates can save you money on your low mortgage rate.

Step 3: Speak with a Mortgage Broker

Brokers are able to assist in determining what you will be able to manage, what your options are, and help you through the process.

Step 4: Discuss Your Mortgage

As soon as you have prepared, you are ready to put your mortgage broker to work by having them negotiate a rate.
Take the first step towards homeownership now. Get pre-approved for a low mortgage rate.

Seller’s Market vs. Buyer’s Market

Understanding the housing market

buy sell

Seller’s Market vs. Buyer’s Market

Have you ever wondered who decides how much a house is worth and how they do it? The market is influenced by a variety of factors, all adding to the final asking price. A few of the factors include:

  • Tempo of the market– the speed at which homes are currently selling
  • Confidence in the economy– prices have the tendency to go up when confidence is high
  • Competition within the market– a packed market tends to result in lower prices
  • Financial Institutions– a professional appraiser will determine the property’s lending value
  • Insurance Companies– a broker will calculate the property’s replacement value
  • The buyer and the seller– ultimately, buyers and sellers decide the final purchase price, which in turn influences the market

Seller’s Market vs. Buyer’s Market

Instability in the market scares people– sometimes right out of moving. A better understanding of the market will help you choose the best time to sell.

Cycles in the market are strongly influenced by the economy. The economy can produce both a shortage and a surplus of housing. In a seller’s market many buyers are competing for a limited number of houses. Prices on houses tend to be higher in a seller’s market. Conversely, in a buyer’s market there are plenty of houses to choose from. This surplus of housing can slow rising prices, as well as cause price reductions, which can ultimately impact your low mortgage rate.

Knowing the market is an important factor when selling or buying a home. Be sure to research the current market and best mortgage rate, or hire a real estate professional who is aware of the complexities.

Canadians take, on average, 11 months to plan their Canadian mortgage rate home purchase and 88 percent indicate that they have a good sense of how much they can afford. (Source: CAAMP).

Buy First, or Sell First

This is one of the biggest concerns for sellers. Unless you time both the purchase and sale perfectly, you could end up in one of two scenarios: living in a motel temporarily, or paying two mortgages at the same time. Neither sounds very appealing. Here are a few things you can do to avoid this dilemma:

Make it ‘conditional’ that your offer to purchase stands only if your current home sells. However, in a hot market (i.e. seller’s market), the seller could reject your offer for a more suitable one.

If you receive an offer, negotiate the closing date until the sale of your home is complete. Again, this could lead to a withdrawal of the offer if it does not work with the potential buyer’s schedule.

Should I Use RRSPs For A Down Payment?

Bulk up your down payment with help from your Registered Retirement Savings Plan.

Loan App

Loan Application

The Home Buyers’ Plan (HBP) is a program from the Government of Canada that allows first time home buyers to withdraw up to $25,000 from their RRSP towards their Canadian mortgage rate down payment for their first home, tax free.

How Does the Home Buyer’s Plan Work?

You can use your RRSP to help buy a new home, but in order to ensure the withdrawals are tax free, there are a number of conditions and requirements that apply.

1. You must be a first time home buyer, and a Canadian resident
To participate in the Home Buyers’ Plan (HBP) for your best mortgage rate, you must be a first time home buyer and a resident of Canada at the withdrawal time. You may only be considered as a first time home buyer if you, and / or your spouse haven’t owned and lived in a primary residence for at least four years before the date of the RRSP withdrawal.

2. You and your partner can both withdraw up to $25,000.
If you are purchasing the home with a spouse, you can both withdraw $25,000 each from your RRSP accounts under the Home Buyer’s Plan. This means you could potentially have up to a total of $50,000 towards your first home, reducing your mortgage rate amount and payments, along with overall interest requirements.

3. The deal must close within one year.
The home must be purchased or built within one year of the withdrawal to apply for the Home Buyer’s Plan.

4. You have up to fifteen years to repay the amount
You have up to fifteen years to repay the amount you withdrew starting the second year after you made the withdrawal. Each year, you must pay a minimum of 1/15 of the withdrawn amount. For example, if you withdrew $15,000, then each year you would have to pay back $1,000 to your RRSP. If you skip a payment, then the payment amount will be counted as income and you will need to pay taxes on it.

Restrictions of the Home Buyer’s Plan
Any RRSP contributions made less than 90 days before the withdrawal date cannot be used towards the Home Buyer’s Plan.

Understanding Mortgage Insurance and CMHC

Do I really need mortgage insurance?

Scrabble Mortgage

Mortgage Insurance

A down payment serve as a form of security– so the larger your down payment, the better. If you have a greater amount of equity built up in your home, unforeseen circumstances may be more easily managed, and you’ll be less likely to default on your mortgage.

Lenders commonly group low mortgage rate shoppers that have a deposit between 5– 20 percent of the home purchase price into the “slightly higher risk” category. In order for the lender to protect against this increased risk, mortgage default insurance is required.

Best mortgage rate shoppers used to be able to secure 100 percent financing in Canada until October 2008 when the government stopped insuring zero down payment mortgages in an attempt to prevent a U.S. style housing crisis.

What is Mortgage Default Insurance?

Default Insurance, also referred to as mortgage loan insurance, offers protection to the mortgage lender. The lender generally requests this form of insurance for mortgage loans with a down payment of less than 20 %.

As of July 9, 2012, any Canadian mortgage rate requiring default insurance is capped at an amortization period of 25 years. This means 30-year mortgages are only a possibility for those placing more than 20 percent down known as a conventional mortgage.

In the event that you default on your mortgage, the lender will go through the process of collecting the outstanding amount on the loan. If the outstanding loan is still not completely paid off after selling the home, then the insurer will likely provide the difference back to the lender.

Where do I get Mortgage Default Insurance?

This type of insurance is supplied by the government organization Canadian Mortgage and Housing Corporation (CMHC), along with private insurers.

What Will it Cost Me?

When the lender insures the loan, they transfer the insurance premium to the homeowner. The premium is a percentage of the mortgage value based on your Loan-to-Value ratio (LTV). This premium may be paid in a single lump sum or it can be included in your monthly mortgage payments. To calculate your Loan-to-Value ratio, take the mortgage amount and divide it by the property value.

Advantages of Having Default Insurance

It is a win-win situation for both the lender and potential homeowner as the insurance protects the lender and the borrower. The lender is able to provide the same great mortgage products and rates to borrowers that are at a slightly higher risk of default.

Disadvantages of Having Default Insurance

Default Insurance helps make it possible for a homeowner to buy a property with a lower down payment– this indicates they have little value in their home and they will end up paying even more interest on the home loan. If the homeowner would like protection they will need to purchase additional mortgage insurance.

Using a Home Equity Loan for Debt Consolidation

Have you considered this popular alternative?

blue home 2

Home Equity

The biggest debt you are going to deal with as a property owner is your mortgage. With the right approvals, you are able to borrow against the equity of your house with a home equity loan.

What is a Home Equity Loan?

This style of loan is somewhat different to a home equity line of credit (HELOC), which is a line of revolving credit with a flexible interest rate. A home equity loan is a one-time lump-sum loan. Lenders are normally worry-free when contributing to your existing low mortgage rate since they are protected by the fact that your loan is secured against your house.

A Tool for Debt Consolidation

The main benefit of a home equity loan is in its debt consolidation abilities.

How do I get a Home Equity Loan?

The best way of obtaining a home equity loan is through a Canadian mortgage rate professional.

Benefits of a Home Equity Loan

Money in your hands to settle outstanding high interest debts.
By paying off outstanding debts you are going to enhance your credit score.
The home equity loan may be spread over the lifespan of your best mortgage rate, typically as much as 25 years.
Tax deductions are readily available.

Downsides of Home Equity Loans

You will be jeopardizing your home if you do not have the means to pay the loan back.
Once you borrow against your house you lose equity or ownership in the home.
Speak to a mortgage broker today to find out if this financial product is the right choice for you.