The ABC's of Mortgages for First Time Home Buyers
For first time home buyers, the world of mortgages can be a confusing place. Do not fear! I’m here to guide you through every aspect of the process from getting your pre-approval to the final signature and first payment. I LOVE what I do and I want to make the process as stress-free as possible for you. Let’s review a few things that you will want to know to get started.
Q: What is the required downpayment?
It is advisable to have a 20% downpayment against the total purchase price of the property to ease the lending process, however, in today’s market that is not always an option. The downpayment for a property depends on the purchase price of the property. If the property is $500,000 or less the minimum downpayment is 5%. If the purchase price is $500,000 - $999,999 the downpayment is 5% of the first $500,00 and 10% of the value over $500,000 with CMHC approval. The downpayment will also be based on your qualifications so having a pre-approval before you start shopping for homes is always advisable. A pre-approval is your guideline for what you can afford. Let’s chat about your options before you get started to avoid disappointment.
Q: What is the RRSP Home Buyer’s Plan?
GREAT NEWS! First time home buyers can borrow up to $25K from their RRSP to put towards a downpayment on a home. This $25K will be paid back tax-free to the RRSP over a 15 year period. You start to pay back the amount owing 2 years after withdrawn so if you borrow in 2019 you will begin paying back the RRSP loan in 2021. There are additional government loan programs available for first time home buyers that we can discuss based on your personal circumstances.
Q: What is a good mortgage rate?
Mortgages are offered at a variety of rates, lengths and terms allowing for various payment structures. Mortgage terms vary from a 1 - 10+ years, and beyond in some cases. This variance allows the homeowner to stretch their payments and interest rate commitment to fit their long term needs and goals. It’s important to note that in Canada, mortgage rates are often amortized over long periods of time (20/25/30 year periods), but the rate is typically re-negotiated with the lender in 1, 3 or 5 year terms. This means that a loan offered today at 3.5% semi-annually, not in advance, may escalate at the end of the term. For example, if rates increased by 1.5% over a 5 year term on a 3.5% term loan, the term renewal might end up being 5%.
Q: How are payments structured?
Payments can be structured monthly or semi-monthly which equates to the same amount of funds being paid over the course of a year, however, the semi-monthly plan will allow for the payments to coincide with most payday schedules. There is also a bi-weekly structure, which essentially works out to two extra payments a year reducing your overall mortgage balance by those two payments. To accelerate the payment of your mortgage, you can add to the amount you are paying down through the agreed upon payment structure. Additional options include contributing the maximum allowable contribution each year which is determined based on the lending amount and terms. Some lenders offer a matching program where you can match one payment a month.
Phew - we made it! This is a lot of information, but don’t worry, I have you covered! As your Mortgage Broker, I will ensure you understand all of your options to make the right decision for your situation. I look forward to helping you and celebrating you as a new homeowner!