Few people have the cash to buy a home outright. And yet, many Canadians feel that owning a home is a top priority for them. That’s why it’s important to find the right mortgage and the right lender .
If you’ve never been through the process of getting a mortgage , it can feel overwhelming. But we can make it clearer with these 6 essential steps.
Step 1: Find the right lender
Chances are you’ve had some experience with a financial institution that offers mortgages, such as a bank, credit union or broker. You should reflect on how these companies have helped you in the past before expanding your relationship to include a mortgage. After all, there’s more to a lender than the interest rates they’re offering.
To feel truly comfortable about your decision, meet with someone from a few different lenders to see what mortgage products and services they offer. You should also ask about mortgage payment options; for example, can you increase your payments at any time? And what would the penalties be if you were forced to break your mortgage? Keep in mind that you’ll have this mortgage for some time – perhaps 20 years or longer – so it’s important to be clear about what you’re signing up for.
Step 2: Find the right interest rate
Finding a low interest rate is one of the most important steps in getting a mortgage. Typically, banks, brokers and credit unions offer similar rates. On the surface, the differences between these rates might not seem all that important; in many cases, they can be within a percentage point of each other. But over the course of a mortgage term, such as 5 years, that difference can really add up.
For example, for a $500,000 mortgage paid over 20 years, with a fixed interest rate of 3%, the monthly payment would be $2,768.34. Keep everything else the same but drop the interest rate to 2.5% and the monthly payment goes down to $2,646.37. In the end, that’s roughly $122 more in your pocket every month (or more than $1,400 per year). Clearly, a lower interest rate can pay off.
That said, remember that a lender may only hold your rate for a set period, such as 90 days. So, while you may have secured a great interest rate in April, if you haven’t bought a home by July you may be looking at a different rate.
Step 3: Get pre-approved
Getting pre-approved for a mortgage is a key step towards purchasing a home. It can also make a big difference if you’re competing against other prospective buyers. By showing a seller that you’ve already been financially approved – in other words, that you can afford to buy the home – you may have an advantage over competitors who haven’t gone through this process. But remember, a pre-approval is still subject to certain conditions, such as the property qualifying for financing.1
Getting pre-approved allows you to move faster towards completing a sale when you find a home that you love. It’s also at this stage that you’ll need to think about your down payment, or the amount of money you can put towards the purchase at the time of sale.
Step 4: Find your home
This is the fun part – finding the home that’s right for you. Here, the most important thing to figure out is how much you can afford. Remember to factor in your down payment and the many other costs that go with buying a home, from legal and land transfer fees to moving and home inspection expenses. You should also keep in mind that you won’t have a landlord to perform routine maintenance, so the cost of fixing anything that breaks down will be yours.
Ultimately, the final purchase price of your home should be comfortably below the number provided by your lender during the pre-approval process.
Step 5: Work out the details
Once you’ve reached an agreement with the seller, it’s time to work out the final details of your mortgage. This means you’ll need to meet with your lender to determine the following:
- Down payment – how much money you can put down at the time of sale
- Mortgage type – will you be acquiring a fixed- or variable-rate mortgage? Will it be closed, open or convertible?
- Amortization period – how long you will take to pay for your home
- Mortgage term – how long you’ll be making payments at your interest rate
- Payment schedule – will you make payments every week, biweekly or monthly? If you’d like to pay your mortgage off sooner, you may want to consider weekly or biweekly payments.
- Penalties – what will the penalties be if you must break your mortgage?
Step 6: Keep in touch
Completing your mortgage and moving into your new home are just the first steps. In the future, you may have questions about your mortgage, particularly when it comes time to renew . That’s why it’s important to find a mortgage provider that has a dedicated support team you can reach on a regular basis – at the very least, once each year – to address your concerns and help you make changes to fit your life.