A mortgage is a type of loan you can use to purchase a home. Establishing a mortgage is a key piece in the homebuying process, and Houseful is here to help you navigate it. As you begin to shape your game plan, understanding the basics and nuances of mortgages will equip you with the confidence you need to get started. We’ll explore home financing tips and help you establish the kind of mortgage you may qualify for. We’ll also talk about benefits, key terms, and give you insight into how mortgage payments work. Finding a mortgage plan that feels comfortable will allow you to enjoy your new home for years to come.
A mortgage loan allows you to purchase a home without paying the full cost at one time. Mortgages are paid back with interest, and mortgage plans vary in the type and degree of interest you’re required to pay back.
The monthly payment you make to your lender will include two parts:
Homeowners are required to make regular payments toward their mortgage. If mortgage payments aren’t made, the lender can take possession of your property; so it’s essential to choose your mortgage plan thoughtfully and to ask the right questions along the way.
Before we offer some home financing tips to make the most out of your money, let’s outline two basic mortgage types:
If you’re self-employed or have a low credit rating, you might need to offer a bigger down payment. Establish your credit score using a credit bureau like TransUnion or Equifax. A poor credit score might mean you have to pay a higher interest rate, so doing a credit check well in advance will give you time to plan ahead and weigh your options.
Before you apply for a mortgage, it’s important to get a pre-approval or pre-qualification. This will help you when you start looking for homes because you’ll be clear on what’s in your price range, and where your limits are.
A pre-approval will generally guarantee a rate for 90 days; so you’ll know how much your mortgage will be when you’re looking at the price of a potential home.
A pre-qualification doesn’t require a hard credit check, so it’s a good way to get a sense for what you can afford before you’re ready to lock in a rate. Keep in mind that pre-qualification won’t guarantee a rate. You may also want to consider whether you’ll need a guarantor to offer additional security for the lender.
A down payment is the sum of money you put toward the purchase of your new home. Your lender then covers the rest of the payment. The minimum down payment, or amount of money you’ll need to pay upfront, varies based on the price of your home. For example, a home that’s $500,000 or less only requires a down payment of 5% of the purchase price, while a home over $1 million requires a down payment that’s 20% of the purchase price.
If your down payment covers less than 20% of the price of your home, you’ll need to purchase mortgage loan insurance. This protects the lender in the event that the loan can’t be paid. This is another reason that it’s advantageous for you to put down a bigger down payment if you can.
Your mortgage needs are as unique as you are, so trust your instincts and choose a mortgage professional who allows you to feel comfortable asking questions. Here are some basic mortgage tips to reference in your initial conversations and planning talks.
A bigger down payment means you’ll pay a lower interest rate, because you’re borrowing less money. The trick is to find the right mortgage for you, so that your down payment suits your budget. Pay a bigger down payment upfront, and you’ll reduce the amount of time you need to pay your mortgage – leaving you with more money for other essentials and extras.
Once you own your home, pay attention to changing factors and payment options to maximize your money and save wherever you can.
If you can comfortably pay a higher mortgage payment with a shorter loan time, you’ll pay less interest over time. Ask your mortgage professional to demonstrate how different loan periods would affect your total payment amounts. Think about how long you’ll be living in this home, and go back to your budget when you’re considering how long it will take to pay off your loan.
When you’re discussing your down payment and mortgage options as a first-time homeowner, step back to look at the big picture so that your numbers are based on the reality of your financial situation:
Don’t forget about closing costs! It might feel like a dream to imagine the day you’ve paid off your mortgage, but you’ll want to plan ahead for potential closing costs. Mortgage closing can involve costs you may not anticipate, like home inspections, appraisals, or notary and administrative fees.
If you’re a first-time homebuyer in Canada, consider these benefits and programs for first-time homeowners:
Let Houseful help you navigate the homebuying process to find a home that’s a great fit for you. Feel confident in your options with a tailored search experience based on the features and details you care about most. Our comprehensive experience lets you search for a home that matches your vision.
This article offers general information only and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or its affiliates.
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