Your Mortgage…Your Future

1.  You should get pre-approved for a mortgage before you go looking for a home.

Pre-approval is easy, and can give you complete peace-of-mind when shopping for your home. One of my mortgage specialists can provide you with written pre-approval at no cost or obligation, and this can be done easily over the phone. A written pre-approval is more than just a verbal approval from your lending institution — it’s as good as money in the bank! Pre-approval requires a completed credit application and a certificate, which guarantees you a mortgage to the specified level when you find the home you’re looking for.

2. What monthly payment do you feel comfortable with?

When you discuss mortgage pre-approval with your lending institution, find out what level you qualify for and think about what monthly payment you can commit to comfortably. Your current situation may give you a pre-approval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working back and forth with your lending institution, you can determine a reasonable monthly payment and the price range in which you should be looking. By knowing which value of home your payments can support at today’s rates, you’ll avoid the hassle of looking at homes that are not in your price range.

3. What are your long-term goals?

There are a number of questions you should be asking yourself before committing to a certain type of mortgage: how long do you think you will own this home? In what direction are interest rates going and how quickly? Is your income expected to change (rise or fall) in the near term, impacting how much money you can afford to pay on your mortgage? The answers to these and other questions will help you to determine the most appropriate mortgage for you.

4. Understand your pre-payment and frequency options.

More frequent payments (weekly or bi-weekly, for example) can literally shave years off your mortgage. Structuring your payments to come out more frequently can significantly lessen the amount of interest you will be charged over the long term.

For the same reason, authorized pre-payment of a certain percentage of your mortgage, or an inrease in the amount you pay monthly can shorten your payment terms considerably.

These two payment options can cut years off your mortgage and save you thousands of dollars in interest. But not every mortgage has these pre-payment privileges built in, so make sure you ask the proper questions.

5. Is your mortgage portable and/or assumable?

Where it is available, a portable mortgage is one that you can carry with you when you buy your next home — so to avoid paying any discharge penalties. With a portable mortgage, you will not have to go through the entire mortgage process again, unless you are moving up to a much more expensive home.

An assumable mortgage is on that the buyer of your home can take over when you move on to your next home. This can be a powerful negotiating tool, making it much easier and more desirable for a buyer to buy your home. An assumable mortgage also saves you paying discharge penalties.

6. Are you dealing with a mortgage expert?

Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. Mortgage experts can make the process faster, thereby avoiding costly delays. Typically there is no cost or obligation to inquire about their services.

7. Reducing the CMHC fees on your purchase.

When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing Corporation (CMHC) or GE Mortgage insurance. The premium charged by these companies decreases as the down payment increases. When you finance your property at 95%, a premium of 2.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price, the premium can be reduced to 2.5%. If you can put down 20%, you can avoid any additional insurance fees. Depending on your situation, there are ways that you can structure  financing to avoid the CMHC or GE insurance premiums.

8. Adventages of Bigger Down Payments

As mentioned above, when you put a 20%down payment on your purchase, you can avoid the CMHC premium. But even more importantly, the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment; you may end up borrowing on credit cards or on a line of credit at a higher rate.

9. Short Term Rates vs. Long Term Rates

The many options for mortgages can be confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms and 10-year terms. Taking a variable or floating rate mortgage can incur savings, because typically, the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen though, due to fluctuations in the market place and the economy — but history has shown that short-term rates tend to be lower than long-term rates. The upside of variable rate mortgages is their strong potential for interest rate savings. The downside is that you accept the interest rate risk without a guarantee. If you are considering a variable rate mortgage, you need to look at your own risk tolerance: will you have cash flow available to deal with the potential of an increased payment? Consider current rate projections, as where we see interest rates heading can be an important  factor in this decision. Make sure you talk to an expert when shopping for a mortgage.