Some of the factors I considered when making my decision on buying a home include :. As the primary breadwinner in my family, I had to consider my job situation. Was it permanent and long term? What were the chances that I would be looking for a new job in 5 years or less? However, your answer to these questions can make or break your final decision. I wanted to know how much extra homeownership would cost me compared to what I was spending on renting.
Can I afford the additional expenses? Are the benefits of homeownership worth the extra expense? Does it make financial sense? This involved doing the math to assess how much we could afford to spend on a home What if the mortgage rates rise by 1 or more percentage points? Can we still afford the house? Buying a home is more than just running financial calculators.
The rent vs. At the end of the day, you have to do what is right for you, and for your family! Before we go into the nitty-gritty details of how to go about your home purchase transaction, let us quickly familiarize ourselves with a few of the mortgage terms you will keep coming across as you read on. A mortgage refers to the loan that the lender bank provides to you for the purchase of a home real estate. Because large sums of money are usually involved in these transactions, a mortgage also serves as a lien on the property.
This means that the property or home you have taken a mortgage on is also considered collateral or security in exchange for the loan. Therefore, if you are unable to pay back the lender or meet the terms of your mortgage contract, the lender has the right to take possession of the property.
- Figure out how much home you can afford.
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Mortgagee is a term that refers to the lender bank who provides the loan to finance your house purchase, while mortgagor refers to you, the borrower. It is easy to confuse a mortgage broker with a lender. They are different! Their service to you includes shopping around for the best rates, giving advice and assisting with putting together and completing required documentation. Mortgage brokers are generally paid commissions by the lender for their service. For non-prime mortgages, brokers may also charge a fee. Major lenders also provide mortgage services directly clients via their own in-house mortgage advisors.
There are pros and cons of using a mortgage broker vs. This is a financial institution that lends money for a mortgage. They may be a bank, credit union, trust company, mortgage finance company, etc. An open mortgage is one that can be paid off either in part or in full at any time before the end of the term stipulated in the mortgage contract without incurring penalties. This type of mortgage may be appropriate for you if you plan to pay off your mortgage in full within a very short period of time or plan to change the terms of the mortgage.
Open mortgages are not as common as closed mortgages because not many people are able to pay off hundreds of thousands of dollars really quickly. Because of the increase in options available to the borrower, open mortgages usually have a materially higher interest rate than for a closed mortgage. A closed mortgage is the more common type of mortgage and offers limited prepayment options compared to the open type.
Prepayments reduce the overall interest you pay on your mortgage loan and also shorten the length of the amortization period. This type of mortgage is also referred to as a traditional or low-ratio mortgage. The mortgage default insurance is an additional cost to you. You can choose to either pay it upfront or do what most people do, add it to your mortgage loan!
To determine how much mortgage default insurance you will require, check out this CMHC calculator. The down payment is the difference between the purchase price of the house and the amount of the mortgage loan. Is insurance designed to protect lenders if borrowers default on their mortgage loan. The two main types of mortgage rates are fixed or variable rates.
When you obtain a fixed rate mortgage , it means that interest rate on your mortgage loan is fixed for a period of time, usually between 1 and 5 years. Your monthly mortgage payments that include interest and principal stay the same for the term of the mortgage. For a variable rate mortgage , the interest rate on your loan fluctuates with the prime rate set by the lending institution.
The prime rate which usually tracks the overnight rate set by the Bank of Canada may change from time to time. However, the proportion of mortgage payment applied towards principal and interest will vary as the interest rate varies.
For example, if the interest rate rises and your variable mortgage rate goes up, more of your monthly payment will go towards paying interest. Historical studies have shown that variable rate mortgages save homeowners money in the long run. In that case, your payment rises and falls with the prime rate.
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A downside to a variable rate mortgage is that there is a higher short term risk that interest rates may rise. After you take out a mortgage loan to finance your house purchase, you are required to make regular scheduled payments that will include both principal and interest owed. You can choose to make payments on a weekly, bi-weekly, semi-monthly or monthly basis. You can also decide to accelerate your payments so as to pay off your loan much quicker and therefore pay less interest overall, for example, through accelerated bi-weekly payments.
Check out this article for tips on how to pay off your mortgage faster! Your lender will ask you to submit a void cheque so they can setup automatic withdrawals from your bank account. To avoid any issues with funds being insufficient when the withdrawals take place and NSF fees! While amortization refers to the total number of years it takes to pay off your entire mortgage, a mortgage term is the length of time usually in years during which you the borrower are bound by the conditions e. The most common mortgage term in Canada is a 5 year fixed term. At the end of your mortgage term, you must renew your mortgage for another term with similar or different conditions.
You continue doing this until the mortgage is fully paid up. Therefore, a mortgage term is a subset of the amortization period. The most common amortization schedule in Canada is 25 years. Longer amortization periods up to 30 years are available in some cases. Longer amortizations are helpful if you need more flexibility in your cash flow. You can renew with the same lender or switch transfer to a new one. This refers to a mortgage that can be transferred from one property to another without incurring penalties.
Steps to Buy a House: A Guide for First-Time Home Buyers | cycasneateamti.gq®
For example, when you are selling your current house and purchasing a new one. It may be important to have this option included in your mortgage contract if you think you may need to change houses or relocate during the term of your current mortgage. Alternatively, you can just choose a shorter term. The feature comes in handy if your current interest rate is lower than the prevailing rates at the time you are purchasing a new home. Also, keep in mind that porting requires that you totally requalify for the new mortgage.
How To Buy A Home In Canada: A Simplified Guide For The First-Time Home Buyer
Buying a home should not be one of those things you just wake up one morning and decide you want to do. Remember that a mortgage is easily the largest debt you will ever take on in your life! Carefully planning ahead for several months or even years can make a world of difference and make your house shopping experience a successful and memorable one. Start your planning by conducting a thorough personal financial assessment.
1. The Features You’ve Always Wanted:
Ensure that you are financially sound before you approach the lender bank for a mortgage loan. The purpose of this financial assessment is to determine if you are ready and able to buy a house and how much house you can afford. In addition to answering the financial questions above and putting your finances in order, you should also be asking questions that pertain to the house itself.
The questions you will need answers to depend on your personal circumstances, lifestyle and family requirements. Your answers will also impact the financial outcome of your decisions. However, before you get to that stage, this is the point where you have that honest conversation with yourself after doing the math about how much you can afford to borrow.
How much are you able to put down towards your mortgage payments on a monthly basis without feeling pinched? Ratios the bank will crunch in determining how much to lend you include :. Following from the GDS ratio, lenders also look at what your entire monthly debt load looks like. In addition to housing costs, they add other fixed monthly debt obligations like credit card and lines of credit payments, alimony, child support, car payments, student loans, etc.
There are several calculators and tools online that you can utilize to simulate what your homeownership costs will be. Compute how much you will potentially be spending on a monthly basis and try to part with that amount for a couple of months to see if you can cope. In addition to calculating these two ratios, lenders also look at other factors including:.
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