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Becoming a home-buyer and applying for a mortgage can seem overwhelming, especially if it’s your first time. With the help of one of our expert and dedicated mortgage specialists, it can be easy. They’ll meet with you any time to guide you through the process and help you find the best mortgage for your specific needs.
To help you feel more confident and prepared for becoming a first-time homeowner, we’ve put together a list of eight of the most common pitfalls, which our mobile mortgage specialists can help you avoid.
1. Not knowing your credit rating
A credit rating is a record of your credit history and current financial situation, which typically translates into a credit rating score. Lenders can use your credit rating to verify your repayment history. A good credit rating can improve your ability to get loans and mortgages. If your credit rating needs improvement to help you qualify for a mortgage, you can improve your credit rating by always making at least the minimum payments on your credit cards, loans or utility bills on time. Checking your history is easy! Simply ask for a copy of your credit rating at either www.equifax.ca or www.tuc.ca.
2. Being unrealistic about how much you can afford to pay for your home
You may be under- or over-estimating how much you can afford to pay for your home. Our online mortgage calculators make it easy for you. Enter your income and expense information, and the calculator will tell you the maximum mortgage payment amount you can afford each month. Or you can click on the mortgage calculator to quickly figure out monthly payments for different mortgage amounts and rates. You may find out you can comfortably afford more than you originally thought. For a more personal touch, contact one of our mobile mortgage specialists. They can quickly help you determine how much you can afford and answer any questions you might have.
3. Not considering a mortgage pre-approval
Knowing the amount you will be approved for gives you the confidence to begin looking at homes within your price range. Real estate agents will serve you better because they know you’re a serious buyer. You can easily make an offer to purchase as soon as you find the right home.
4. Thinking you won’t qualify for a mortgage
Dreaming of owning your own home and not sure if you qualify for a mortgage? Even if your credit history is less than perfect, we can help you find a solution.
5. Not knowing all the down payment choices
You’ll be glad to know that there are different options available depending on how much of a down payment you can afford:
> Conventional mortgage
> Low down payment mortgage
Low down payment mortgages require mortgage default insurance. The premium can either be paid up front or added to the amount you borrow. Under the federal government’s Home Buyer’s Plan, first-time homebuyers are eligible to use up to $25,000 in RRSP savings per person ($50,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as you repay it within a 15-year period.
6. Focusing too much on the interest rate, rather than the overall solution
All too often, first-time home-buyers give more thought to interest rates than the mortgage solution itself. While rates are a valid consideration, the different types of mortgages, their payment structures, terms and flexibility will have a much greater bearing on the overall cost of home-ownership. Fixed rate mortgages offer the security of locking in your interest rate for the term of your mortgage, and your payment amount stays the same, providing ease of budgeting. The main advantage is that the interest rate stays the same during the term of the mortgage and that you know exactly how much of your payment is applied to principal and interest.
With a variable rate mortgage, your payments remain the same, regardless of fluctuating interest rates. When rates go down, more of your payment goes to pay the principal and less to interest, enabling you to pay off your mortgage sooner. When rates go up, the reverse happens: less of your payment goes toward the principal and more to interest, extending the amortization period. Many experts believe variable rate mortgages offer the greatest potential for long-term savings on interest costs. Combined fixed and variable rate mortgage you can enjoy the advantages of both variable and fixed rates by diversifying your mortgage. That means the variable portion allows you to take advantage of potential long-term savings, while the fixed rate portion protects you if rates rise. Your mobile mortgage specialist can help you decide which mortgage solution works for you, based not only on your budget but also on your future plans.
7. Not choosing your own mortgage payments schedule
Customize your amortization period depending on how much you can afford. Paying off your mortgage sooner saves you interest costs, while a longer amortization period (up to 35 years) reduces your regular payment amount and gives you more room to manage your cash flow. Because extended amortization means increased interest costs and paying down a mortgage more slowly, this option isn’t for everyone. A 25-year amortization period should be the starting point for your consideration as stretching the amortization to 35 years can increase your total interest costs by 50% over the life of the mortgage. If you decide a longer amortization is appropriate, consider a strategy to reduce amortization over the life of the mortgage.
8. Forgetting about closing costs
By this time, you’ve selected a house, picked your mortgage options and are getting ready to finalize everything and make an offer. This means getting down to certain details and their associated costs. It helps to know what these are up front so you can minimize any last minute complications. When calculating closing costs, it’s fairly safe to assume you’ll need an additional 1.5% of the purchase price to cover such things as:
> Professional home inspection: Always make an offer conditional upon a home inspection. As long as your offer is conditional upon the home inspection, you can have the purchase price reduced to offset the cost of needed repairs or cancel the agreement. You should also inspect the home before moving in to make sure its condition has not changed. A newly built home is usually covered by a builder warranty program.
> Lawyer or notary fees: Make sure you work with an experienced real estate lawyer/notary so that all legal aspects of your house purchase are properly completed. > Land transfer tax: Most provinces levy a one-time tax, which is based on a percentage of the purchase price.
> Property tax/utility bill adjustments: The purchase price of a resale home is always payable subject to the usual adjustments at closing. This means that any amount that the seller has already prepaid will be adjusted so you pay the excess amount back to the seller, and vice versa. The most common adjustments occur on property taxes and utility bills that have been paid ahead of time.
> Property insurance: Your home is probably the biggest investment you will ever make in your life. Property insurance is all about protecting the things you value: your home, your personal belongings and even your financial future. When choosing an insurance company, make sure they offer a range of choices allowing you to personalize your insurance to suit your needs.
> Moving costs: Budget for a professional mover, decorating costs and fees for setting up your cable, telephone and other utilities.
> Ongoing costs: Don’t forget to budget for the cost of maintaining a home, such as heating, electricity, water, repairs and taxes. A good suggestion is to budget at least 1% of the home’s value for yearly maintenance expenses.
Owning your own home is a milestone as well as an exciting experience! How often do you get to live in and enjoy your investments?
Your mortgage specialist is always available to guide you through the process.
Outlook for Housing Starts 2010-2013
The outlook for the housing market is more buoyant heading into 2010. Over the long-term it is expected that the global economic recovery will become a positive influence on Canada’s economy and housing market. As a result, residential construction will gradually increase as factors that drive housing become more stimulative and housing demand moves more in line with demographic fundamentals.
Following the downturn in 2009, Canadian GDP is forecast to grow in the range of 1.5 per cent to 3.2 per cent in 2010. The impact of historically-low interest rates and fiscal stimulus at all government levels is expected to lead to a strong rebound in 2011, when GDP growth will be in the 3.0 to 4.5 per cent range. Over the 2012 to 2013 period, growth in GDP is projected to average 2.5 to 3.5 per cent. Employment growth is expected to be constrained in 2009 and 2010, but will strengthen over the medium term to average between 1.2 and 2.0 per cent annually over the 2011 to 2013 period.
Population growth is a key driver of housing demand over the longer term and a major contributor to population growth is immigration. As the outlook becomes more positive over the 2010-2013 period, net migration is expected to increase. This will help boost population growth and household formation. Accordingly, this will support housing starts through 2013.
Housing starts are expected to strengthen as the economy improves. By 2011 starts are forecast to be just over 174,000 units while 2012 will see starts slightly higher than 176,000 units. Finally, by the year 2013, starts are forecast to be approximately 187,000 units.
In 2010 through 2013, global economies will recover. With low, but gradually rising mortgage rates and stronger job growth, housing starts will strengthen. Given the short-lived nature of the housing market slowdown, there will not be a significant build-up of pent-up demand. Because of this, housing starts will not return to the 200,000 plus unit pace of recent years. Rather, housing starts will remain in a range that is consistent with demographic fundamentals over the 2010 to 2013 period.
There will, of course, continue to be some uncertainty over the medium term, so it is appropriate to consider a range for our housing starts forecast in the medium term. On the downside, lingering effects from the financial market crisis and sluggish world economic growth could impede an economic recovery, which would cause housing starts to remain lower than forecast over the medium term.
On the other hand, the considerable monetary and fiscal stimulus introduced in 2009 could lead to stronger than forecast economic and employment growth. In this case, housing starts would be stronger than forecast. As a result, we expect housing starts to be in the 142,000 to 201,000 unit range in 2011, in the 143,600 to 203,300 unit range for 2012, and in the 152,400 to 215,000 unit range in 2013.
See Also:
Canadian Housing Statistics
Housing Statistics
This supplement to the annual Canadian Housing Statistics from the Canada Mortgage and Housing Corporation provides monthly updates on Canada’s housing markets at the national, provincial and local levels.
Twelve statistical tables that offer a range of current and historical data on housing starts, completions, dwellings under construction, market absorption, mortgage-lending activity and mortgage rates.
Click on the link below to view the publication for the month of December, 2009:
Monthly Housing Statistics
Canada’s household debt still manageable: CIBC World Markets Inc.
CIBC – usually one of the most accurate of the banks when it comes to economic predictions re-buttes the Bank of Canada’s analysis of Canada’s credit market.
“Make no mistake: Canada is not doomed to see a U.S.-style housing and mortgage blow-up,” says Chief Economist Avery Shenfeld in the bank’s latest Economic Insights report. “There are three lines of defense for those with high debt service ratios that the BoC analysis ignored.
“One, some mortgage holders will have substantial home equity, even allowing for a house price slide, and could downsize. Two, others have high debt payments because they are making accelerated pay-downs of principal, which they could stop. Three, history suggests that many will jump into fixed mortgages in time to avoid the full brunt of the variable rate shock.
“The result is that the number of Canadians truly at risk could be substantially less than the (Bank of Canada’s) estimate.”