Approval 101 – The Lowdown On Mortgages

It’s a happy time in your life! You’ve decided to look at the option of buying a property for yourself and/or your family. Putting down roots in a specific location can be a great time filled with adventure and anticipation. No longer will you be paying rent to your landlord, and now you can modify your home to your expectations and desires. It can be an overwhelming experience for some, it’s natural to have a fear of the unknown. When you are signing up to a mortgage it’s a massive financial commitment, so not having cold feet would be a little unusual. But it’s also something to embrace, building equity is the only tried and tested way for most people to build wealth in their lives. Look at it as a savings account, not a bill. Understanding the process one of the ways that a REALTOR® can offer you value. If you have any questions about what it takes to get approved, I’d be more than happy to help. Please always feel free to call me on (604) 773-2948.

    

The vast majority of mortgages require a down payment. As a rule of thumb, the more you can put down the better. Some mortgage vendors will offer zero down options, but these usually will come will higher fees or a higher interest rate. The most common scenario is for the buyer to put down at least five percent of the purchase price agreed upon. The more money you can put down, the more you will save over the long term with a reduction in amortization or financing charges. If you can put 20% down, it’s highly beneficial to do so. The Government of Canada requires anyone with under a 20% down payment to insure their mortgage through the CMHC. The current rate for this insurance coverage is 2.5% of the purchase price and is added to your overall mortgage cost. So for a property listed at $500,000 the CMHC insurance fee would be $12,500, not an insignificant amount of money by any stretch.

Most people will spend much more time shopping for a car than they will a mortgage. Considering the amount of money involved it’s always best to explore your options. As an example, if you buy a home for $500,000 with $100,000 down (20%) amortized over 25 years at 4% interest your mortgage will cost you $231,222.30 in interest. If you were able to get the same property but with a different mortgage at 3.75% your mortgage will cost you $215,066.01 in interest charges. That’s a savings of $16,156.29! This is a very basic example, the point being it’s important to shop around and attempt to get the best rate possible. As a real estate agent, that’s one of my primary goals when guiding you through the buying process.

Make sure you have a comprehensive understanding of the type of mortgage you are signing on for, and always make sure to go over the fine print. Buying a new home is one of the largest purchases the average person will ever make in their life. Draw on my expertise, I’m always willing to answer any questions you have about the process. We can go over the various types of mortgages available, the best term for your budget, and what interest rate you should expect to receive at any given time. Does the thought of a stable, long term payment schedule with no variation up or down appeal to you? If this is more comfortable for you then you will likely want to look at a fixed rate mortgage. If your budget is a little more flexible and you can handle variations in your payment amounts, it might be in your best interest to look at a variable rate. The term of amortization also affects how much you pay in the long run. I’ll help you analyze the situation and give my best available advice on what I think is best for you.

    

Going back to down payments, I’ll again reiterate that the larger the down payment you can make the less you’ll end up paying in the long run. You might have to experience some short term budgeting pain, but overall you will save money and you can use that money to get your home paid off quicker. When the long term goal of living mortgage free is met, then you can do whatever you want with the extra money you have available plus an asset in your home. As with most things in life, timing can be a critical element of the buying process. It’s in your best interest to compare all of the mortgage options available to you at any given time. Visit different banks and mortgage brokers and see what are the best terms available for your budget and overall real estate goals. Most mortgage lenders will offer the quoted rate for a specified period of time, allowing you the option of shopping around knowing that your rate is secure.

Unlike cars or other personal items, homes don’t really depreciate in value unless there is an extreme financial crisis. The value of a property is in both the land and the physical structure. Keeping on top of your homes maintenance requirements or renovating to add value to the property can overcome any physical depreciation. Fixing up an old bathroom, upgrading your kitchen appliances, or adding a new structure to a home like a patio or a deck can add value to property and make you money over the long term. There aren’t many things in life that offer the sort of long term value that owning a home or condo offers.