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Mortgage Information
The large selection of houses on the market, coupled with low interest rates and several government programs designed to make home ownership easier, have created a buyer's market. How much can you afford? Once you've selected the house you want, or the area you want to live in, you'll need to review your current expenses to see how much you can afford. To do this you must calculate your total debt-service ratio. Your debt ratio gives lenders an idea of how much you can afford to pay each month. It includes mortgage payments, taxes and utility bills, plus any outstanding loans, unpaid credit card balances or car loans. As a general rule of thumb, lenders will not lend you money if the ratio is more than 32 percent of your total income. What kind of mortgage is appropriate? When it comes to finding a mortgage, you're probably in good shape because the Canadian mortgage industry is presently one of the most competitive industries in the country. Use this fact to your advantage by being selective about who's going to carry your mortgage. Although you may feel a sense of loyalty to your bank, don't let that feeling cloud your financial judgement. Banks are not in business to make you happy. They are in business to make money, and, for the most part, their loyalty extends only as far as your financial worth. So shop around and make sure you're getting the lowest possible rate. You may want to begin the process by contacting an independent mortgage broker. Aside from helping you determine what you can afford, a broker will also offer the widest range of mortgage options. Independent brokers have ties to many financial institutions, allowing them to shop the market to get the best rates possible. If one institution turns you down, your broker will try another. When it comes to mortgages, you have a number of choices. You can opt for a conventional or high-ratio mortgage, closed or open, fixed rate or variable rate, or even specialty mortgages that attempt to provide the best of all worlds. A conventional mortgage can be obtained from any bank and covers up to 75 per cent of the assessed value of the property. High-ratio mortgages, on the other hand, cover more than 75 per cent of the value and, because of the higher risk, must be insured through the Canada Mortgage and Housing Corporation (CMHC). The added cost of insuring a high-ratio mortgage is added to your monthly mortgage payments. Closed mortgages offer lower interest rates than open mortgages but generally have the disadvantage of not allowing you to contribute extra money over and above your regular monthly payments. Open mortgages allow you to pay off the loan as quickly as you want with no penalties. The term of the mortgage loan is not set in stone but is a matter of preference. Short-term mortgages are good if you think interest rates are likely to fall in a few years. Right now, however, a long-term mortgage may be a better bet as it's unlikely that rates will fall much further. Long-term mortgages are also better for budgeting purposes, because they allow you to plan for years in advance. Remember, though, that the longer the term you select, the greater the amount of interest you will pay. What do you need when applying? When applying for your mortgage you will need the following items:
A mortgage is probably the biggest investment you will ever make. You owe it to yourself to spend the time to get it right. Remember, this is not just an investment, it's your home. |
If you've been waiting for housing prices
to hit bottom before purchasing your first - or next - home,
there is no time like now. According to the experts, the cost
of buying a home today is as affordable as it has been anytime
since the 1970s.