Getting a Mortgage Mono – Tips for Homebuyers
A mortgage is a valuable tool when it comes to real estate. Homeowners can invest in real estate, do renovations and make other investments while knowing that they won’t have to pay off the entire cost of their purchase until later, or that they can get cash back at closing through excess funds. It’s important to know how mortgages work before you start looking for your dream home. Let’s take a look at some key points about getting a mortgage in Canada – Mono Edition.
First, you must determine how much money you qualify for by determining your credit score, annual income and current real estate holdings. To get an idea of what your credit score is use services like Equifax or Transunion. They are free online services that will send you updates every 3 months.
Canada has a reputation for being one of the most expensive countries to live in. With this fact, more people are looking for tips on how to save money. One thing that is not talked about as much but should be is the different mortgage options available.
Three types of Mortgages include Fixed Rate Mortgages, Variable Rate Mortgages and Open-ended Mortgages (also known as Line Of Credit Loans). These are all very common mortgages with certain benefits associated with each. Make sure you fully understand these before applying for any type of mortgage agreement.
Fixed Rate Mortgages – These mortgages have a fixed rate of interest for the term of the agreement. The interest rates are determined by what is happening in the financial markets, so they can fluctuate quite a bit. Normally this is not a good option if you must borrow money, but it usually makes sense when you already have some money saved up and need to purchase something. Fixed-Rate Mortgages also give you stability because your payments will never change unless you break or renegotiate your mortgage agreement at an agreed-upon date. This type of Mortgage does come with risks though because if interest rates go up, regularly scheduled installments may become too high for most people to afford comfortably each month. This means although your payment may not rise dramatically, you could still end up owing more to the bank in the long run.
Variable Rate Mortgages – This type of mortgage also has a variable rate of interest, but it will rise and fall with whatever is occurring in financial markets as Fixed Rate Mortgages do. The difference is that each month your payment will change based on these changes in interest rates. This can help people save money if their interest rate drops and they are able to refinance at a lower rate because they will pay off their mortgage faster than someone else who has a fixed rate agreement. However, you must be careful when considering this type of mortgage because there is no guarantee that your loan’s principal balance will not go up over time which means it could take years longer to pay off your Mortgage.
Open-ended Mortgages (Also Known As “Line of Credit Loans”) – This type of mortgage is designed for people who want to borrow more money or simply do not have the down payment required for a large loan. With this type of home loan, you are given an open line of credit, but you must inform the lender how much you want to draw at any one time. The interest rate with these types of agreements is generally higher than Fixed Rate Mortgages because the lender does not know exactly what you will need in terms of funds, so they charge accordingly. One benefit to this mortgage is that payments are never fixed, so if your financial situation changes or something else happens that would allow you to pay less, you can. If your financial situation changes and you need to borrow more money, you can as well. Sometimes people with this type of Mortgage will simply leave the line of credit open so that they have quick and easy access to extra cash if and when they need it because there is no penalty for borrowing more.
Once you know what type of mortgage is best for your personal situation, make sure you apply to a financial institution that has a good reputation. You could also consider getting help from an independent mortgage broker who may be able to find you a better loan elsewhere since banks often offer very similar products which might not be in your best interest financially. Once these types of loans are approved, make sure that the lender sends all necessary documents explaining everything in great detail. Also, make sure the agreement you sign has an automatic renewal provision so that when your term is up, they cannot switch your mortgage unless you let them know in advance. This will help protect you from higher interest rates and expensive pre-payment fees.
If everything goes well, after making all payments on time for around five years or so, you should be completely debt-free and able to build equity in your home. You can then use this equity to purchase another house or do renovations if necessary.
Use real estate agents to help you find the right house and ensure that your realtor of choice is an experienced investor. You want a realtor who can get a real sense of what housing prices are in the area and determine whether or not it’s a good time for you to buy there.
Once you’ve found your ideal home it’s time to negotiate with the seller. Get pre-approved for your mortgage before starting this process because oftentimes realtors will give buyers limited time or very specific requirements to expedite the buying process, so if you’re still waiting on approval then you could miss out on an opportunity for this particular home.
In this blog post, Getting a Mortgage in Canada – Mono Edition, we covered a few of the topics you need to know before getting your mortgage in Canada. We hope that it has been helpful and wish you all the best with your home purchase!