KAMLOOPS REAL ESTATE
HOME BUYER'S GUIDE: MORTGAGE OVERVIEW
Most people who plan to purchase a home require some financial assistance. Most often this financial arrangement is handled through a bank or other financial institution through a "mortgage". A mortgage is a legally-binding agreement that states a certain party (mortgagor) lends money to another party (mortgagee). The mortgagee agrees to pay back the money at a certain rate, plus interest, over a certain agreed-upon time period.
There are two parts to this financial agreement: principal and interest. Principal is the actual amount borrowed whereas interest is the lender's fee you're charged for borrowing the principal. You will have to agree on the amortization period (the length of time it will take to completely pay off the mortgage) and the term or length of time each mortgage agreement guarantees the interest rate.
When you're considering a mortgage, you have many options to look at: types of mortgages (closed, open, high ratio, vendor take back, convertible), payment schedules (weekly, bi-weekly, monthly), and amortization periods. Before you sign any documents, shop around at several institutions to compare rates and features. You could save or lose thousands of dollars when the terms, interest rates, and payment schedules are not working in your favor! Remember, these items are negotiable!
When interest rates are lower your monthly payments are lower, so you might qualify for a larger mortgage. However, the larger the mortgage the more you'll pay in interest over the length of the mortgage. Your home will cost you more. If you can afford a bit more from the beginning, without sacrificing your lifestyle, this will greatly contribute to reducing your financial obligation.
To qualify for a conventional mortgage, you need a down payment of 25% of the purchase price. The mortgage cannot exceed 75% of the appraised value. If you have less than the 25%, you may qualify for a high ratio mortgage. If you do qualify, you can purchase a home with a minimum 5% down payment through CMHC (Canada Mortgage and Housing Corporation). Insurance, for an additional 0.5% to 2.75% of the mortgage amount, is mandatory with a high-ratio mortgage. Note that the house price may also be capped.
Get Pre-Approved Prior to Home Shopping
House hunting takes a great deal of time and energy - even with pre-approval! Before you start shopping for your dream home, go to the bank and talk to the lending officer and review your mortgage options. Fill out the necessary paperwork and you'll know within a matter of days whether you're approved for a mortgage and in what amount. This helps ensure you you're protected against interest rate increases, understand what you can spend on a home before you begin looking, and be prepared to make an immediate offer on a home you like. Remember: a seller is more likely to consider an offer free and clear of encumbrances! With pre-approval, you're showing you're serious and ready to buy. With this simple and often free service, you'll eliminate problems down the road.
When you're shopping for a pre-approved mortgage, here are some areas to consider:
- Competitive Interest Rates: Check out all options and interest rates. Sometimes flexible features may cost more!
- 90-day Rate Guarantee: You'll be protected against rising interest rates while allowing you to take advantage of falling rates
- Flexible Payment Options: With these areas, you can tailor the mortgage to your lifestyle. Remember to discuss payment frequency and lump-sum payment options. Can you skip a payment in special circumstances or double-up on your payments?
- Closing Costs: Be sure you have a clear understanding of the fees involved.