Important steps before you start looking for that perfect home!
A home is the largest purchase most people will make in their lives.
That should reinforce the importance of planning ahead, doing your research, relying on the advice of experts and not rushing through the process.
Withnearly 700,000homes purchased in Canada each year, theres no shortage of anecdotes about the issues and surprises that can arise.
While a mortgage broker can help you avoid many of the pitfalls commonly encountered during the home buying process, its still important to be informed even before you start looking for that perfect home. Here are just a few examples:
1. Checking your credit report before applying for a mortgage
Put simply, not knowing your credit score prior to applying for a mortgage is akin to not brushing your teeth before visiting the dentist.
Your credit score can have a huge impact on the best rate youll be able to secure. For example, some lenders will offer a borrower with a 640 credit score rates that are a full 0.25% worse than someone with a score of 750. For conventional mortgages (those with down payments of less than 20%), the ideal target score is around 720.
You dont want to discover your credit score is sub-par in the middle of a mortgage application. Knowing this information beforehand gives you time to improve your score, or address any errors that may appear on your report. You can easily check your score throughEquifaxorTransUnion.
Anyone with a credit score less than 680 (the minimum credit score to get the best rates) should be prepared to pony up for a higher interest rate and will likely qualify for a smaller mortgage.
2. Its not all about the rate
Lets be honest, who doesnt want the cheapest mortgage rate possible? And indeed it is important to find the best deal that meets your needs. After all, a few percentage points can make a not-insignificant difference to your interest costs over your mortgage term.
But dont be too quick to jump at the cheapest rate without making sure it has all of the features you need/want, and that it doesnt stick you with higher-than-normal penalties should you need to break your mortgage early. Some people are OK with a large penalty if it saves them money upfront on the rate. Just remember that penalties on certain no-frills mortgages can end up costingmanythousands of dollars, nullifying any rate savings.
3. Understanding the importance of the down payment
Many first-time buyers see a down payment as a big, almost-insurmountable obstacle to home ownership, particularly in regions where prices have skyrocketed into the stratosphere.
But when you get into the nitty-gritty of it all, there are many more considerations beyond simply coming up with the money.
Things to consider:
How big of a down payment will you/can you make? Of course you must meet the federally mandated minimum down payment: 5% for all mortgages up to $500,000, and 10% on any portion above $500,000 up to $1 million (CMHC-insured mortgage loans are only available on properties valued under $1 million). It goes without saying that as you increase the size of the down payment, you reduce the amount of interest over the lifetime of the mortgage. But you also reduce the size of theCMHC mortgage insurance premium, which runs from 0.60% on loan-to-values up to 65%, all the way up to 4% for loan-to-values of 95% (i.e. 5% down). CMHC says the average down payment in 2016 was 8%, while the average CMHC-insured loan was $245,000. Based on those figures, the average premium was $9,016. Remember, this premium is normally rolled into the mortgage, and gets paid off (with interest) over the life of the mortgage.
The source of your down payment funds. According to Mortgage Professionals Canada, about 10% of first-time buyers use the federal governmentsHome Buyers Planto withdraw up to $25,000 tax free from their Registered Retirement Savings Plan (RRSP). This can be a great tool for supplementing a down payment, so long as youre aware of the rules and the payback requirements.
Transferring the funds. No matter where your down payment funds are coming from (savings, investments, RRSP, proceeds from a prior sale), be sure to leave yourself plenty of time for the funds to clear and for a certified or cashiers cheque to be produced before the closing. Its easy to underestimate the time it may take for wire transfers to finalize, so be sure to confirm with your bank or financial institution in the event of a tight deadline.
4. Setting (and sticking to) a budget
Youre probably thinking, but budgets can be boring and tedious.
This is not entirely incorrect, but on the other hand a budget paints a clear picture of your financial situation and lays the framework for ensuring you can afford all of the hidden (and not so hidden) costs associated with buying a homenot to mention all of the costs that follow after the closing.
Its important to plan for both the short and long term. Short-term costs include everything from:
Land transfer taxes
Home inspection/appraisal fees
Down payment (this is kind of a big one)
Mortgage insurance (remember, the provincial tax on your insurance premium cant be rolled into the mortgage like the premium itself, so expect this hefty expense at closing time)
Then there are the ongoing costs of home ownership. Previous owners will know what to expect, but first-time buyers may be caught off guard with sudden expenses after moving in, such as:
Appliances and furniture
Condo fees/Property taxes/Property insurance
Renovations/repairs (furnace replacement, new shingles, etc.)
And everything else, down to tools, and yes, even a dehumidifier. These expenses can add up
As for long-term planningand this applies especially to todays buyersjust because you scored a great rate for your purchase, be prepared for the possibility that rates will rise and that you may need to renew into a higher rate in the future.
For every 25 bps or rate increases, adjustable-rate holders can expect to pay approximately $25 more in interest each month based on a $200,000 mortgage.
As mentioned above, I can help you wade through these issues, plus much more. If you need help please call me on 647 774 5227
Decline in single-family component moderated by gain in multi-family dwellings
Canadian municipalities issued $8.1 billion worth of building permits in June, up 2.5% from May and the second highest value on record. Higher construction intentions for multi-family dwellings and commercial buildings were mainly responsible for the national increase. All building components reported gains in June, except for single-family dwellings.
The value of residential building permits fell 0.9% in June to $5.0 billion, the fourth decrease in five months. The decline was mainly the result of lower construction intentions in four provinces, notably Ontario.
In June, the value of permits for single-family dwellings decreased 12.5% to $2.4 billion. Seven provinces registered declines, with Ontario being the main contributor to the decrease.
Conversely, construction intentions for multi-family dwellings rose 12.5% in June to $2.7 billion, marking a third consecutive monthly increase. Seven provinces registered gains, led by Ontario and British Columbia.
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Is a home equity line of credit right for you?
(NC) Buying a new home is an exciting but often stressful experience. The variety of financing options now offered by lenders is overwhelming.
One of the most popular options is a home equity line of credit. With interest rates typically lower than other forms of credit, this line of credit can help you reach your financial goals. However, there are several factors to consider when deciding if this product is right for you.
Banks market home equity lines of credit under different names, which might make it challenging to recognize when you are being offered one. They are commonly combined with a regular term mortgage in the form of a readvanceable mortgage.
When combined this way, the credit limit on your home equity line of credit will often increase automatically as you pay down the principal on your mortgage. A readvanceable mortgage may also tie together other credit and banking products such as personal loans, credit cards and car loans under a single credit limit.
Benefits of bundling these products together include convenience and lower interest rates. But the downsides include fees and restrictions if you want to switch to another lender, and variable interest rates that could increase on short notice. Your financial institution also has the right to demand that you pay the full amount owing at any time.
When deciding if this lending product is right for you, remember that your home is likely your biggest investment. You should beware of overborrowing against its equity, especially if youre counting on it to fund your retirement.
Most lenders allow you to make interest-only payments on your home equity line of credit, making it easier to delay repaying the principal balance, explains Lucie Tedesco, commissioner of the Financial Consumer Agency of Canada. Continually borrowing against your homes equity without repaying the principal can jeopardize your long-term financial security. For instance, in the event of a housing market correction you might owe more than what your home is worth.
Ask yourself if a low interest rate and easy access to credit may encourage you to spend more than you can afford to pay back. You could find yourself in a debt spiral, using additional home equity just to stay current on your mortgage. This could make you more vulnerable to unforeseeable events, like job loss, illness or an interest rate hike.
Consider creating your own plan to pay down the principal amount borrowed over a fixed period. Aim to pay more than the minimum payment or interest every month. With a home equity line of credit, there is usually no penalty to pay back as much as you can at any time.
Find more information online at canada.ca/money.