Financing your new Home
Buying a new home, whether it is your first home or your fifth, is always a nerve-wracking time. Afterall, statistically a home purchase is likely to be the largest investment a person will ever make in their lives.
Naturally then, you need to do your research. Should I build or buy a pre-existing home? House, townhouse, duplex or condo? Rural or urban? The list can go on and on. A big part of the checklist involves how you will finance your new home. It can be complex, but it does not have to be frightening or stressful – especially if you have done your research.
No Pressure – Remember three key words throughout the entire process – You’re the boss. You make the final decision. You have to be comfortable with terms, rates and choices no matter what others advise you.
Advisor – While it is important that you do your research and shop around it is also important to try to find one or more financial advisors whom you trust. This could be a banker, a credit union mortgage specialist or an independent financial consultant; but whomever it is, it is helpful to have a specialist on hand who can walk you through the ins and outs of this new financial commitment you are about to embark on.
CMHC – Four very important letters that all prospective home buyers should familiarize themselves with. They stand for Canada Mortgage & Housing Corporation. CMHC offers a first-time home buyer’s incentive. They also have loads of information and tools that you can use on their website at www.cmhc-schl.gc.ca. Get to know them.
Credit History – You should consider getting a copy of your credit report so you can see what financial institutions are looking at when they evaluate whether to finance your home. The report will show your credit score – a number which represents your financial health at a given time. You can get your credit report from either Equifax Canada or Transunion Canada.
Mortgages – There are many different types of mortgages to choose from in Canada and you should become familiar with them. For instance, if your down payment is 20 percent or more you could secure a Low Ratio mortgage and you would not need to pay mortgage protection insurance – a fee you would pay on mortgages with less than a 20 percent down payment.
An Open Mortgage is a type that allows you to repay the mortgage at any time without penalty unlike a Closed Mortgage, which locks you into your mortgage terms for a certain length of time. There are Variable Rate and Fixed Rate mortgages as well. A Variable Rate mortgage is one that sees the interest rate re-set at regular intervals based on the market. A Fixed Rate mortgage, as the name suggests, locks you in to a particular interest rate for a set period of time. This can be good in an uncertain market when rates could fluctuate wildly.
Typically, Canadian mortgages are amortized over a period of 25 years. This means that interest and principal payments are calculated from the perspective of paying off the mortgage in 25 years. No matter the term of your mortgage – 1, 5, or 10 years – they will typically be amortized over 25 years. However, there are longer or shorter mortgage amortization periods available.
The Co-signer – If you do not qualify for a mortgage do not lose hope, there are still options.
Sometimes a person requires a co-signer – someone who shares the financial risk of holding the mortgage. They do not have to provide any upfront capital, they simply have to agree to ensure the mortgage is paid and can be held financially liable if you default on your payments. Sometimes people will get a close relative or friend to co-sign for them in instances where a financially unstable (or invisible) past has led to a mortgage being denied.
The Builder – It is good to talk to your builder about financing because they have a wealth of experience and can offer advice. Hive Development Group and Francis Family Homes have years of experience in financing. We can point you to some great resources if you are looking to build a custom home or buy a condo - maybe at The Lexington on 9th in Morden!