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First Time Home Buyers

Fixed vs Variable, Locked vs Flexible – Which Is Better For You?

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The difference between the two types of mortgage rates has dwindled in recent years, largely due to the historically low interest levels. Fixed rates offer a conservative approach to mortgages, with each payment being the same as the last until your term is renewed. Variable rates are historically better, but have a certain amount of risk associated with them. If interest rates were to rise dramatically in a short span of time your payments would rise accordingly.

It’s an age old struggle of risk vs reward. Your income bracket and savings will likely factor into the equation as well.

When looking at a variable rate mortgage, try and decide whether or not you are comfortable with the risk. Assess your current income level as well as your future potential income. In the worst case scenario, could you weather a rapid rise in interest rates?

A good rule of thumb is to look at what your payments would be if the interest rates were two percent higher than they are currently. If you don’t think you can handle the increase, it might be a good idea to avoid this type of financing. If you are the type of person who can’t deal with any level of uncertainty, then perhaps it’s best to look at the alternative.

Most mortgage professionals are big proponents of variable rate mortgages, because statistically they outperform fixed rates. If you can, try and pay extra every week or month – whatever your frequency may be. Paying the minimum is never a good way to go about decreasing debt, and variable rate mortgages are no exception to this rule.

Fixed rates are a much more popular choice among consumers, as most people are naturally averse to risk. Five years terms are considered the standard in the Canadian mortgage market as they have been historically popular among real estate buyers. These days there isn’t a lot of difference between the two different types of rates, which is making fixed even more popular among consumers.

The other factor to look at with your mortgage purchase is how much flexibility you want with the term and the ability to put extra money down when it becomes available to you. Prepayment privileges are often available, and can vary from the ability to put a lump sum of 15 to 20 percent of the overall principle of the mortgage.

Another smart way to pay down your mortgage a little quicker is to round up your payments if possible. If your payment comes in at $1875 per month, why not round it up to $1900 if possible? Your budget won’t really notice the difference, but you will notice it when your mortgage is finished 6 months earlier in the long run.

When it comes to exploring your options, it’s always best to call and speak with a professional. Always feel free to call me anytime to discuss your financing, I can be reached on (778) 320-4346.

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Steps for First Time Home Buyers in Canada

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Purchasing a home is the biggest financial commitment for so many people. It can be expensive, time consuming and frustrating. To top it all off, horror stories flourish of duff surveys and rogue agents. However do not despair; owning a 1st home is a highly rewarding experience for the majority of the people. Knowing the right information can simplify the process. Below are the steps for owning a house as a 1st home buyer.

Save

Several people get fade up of renting and decide to commit themselves to purchasing their own house. Even though this demonstrates how ready you are to make the leap from renting to owning your first home emotionally, it doesn’t show your capacity to make the transition.

While you won’t be expected make cash payments for the whole amount of your 1st property, you are required to come-up with a down payment. These are in the range of 5% – 20% of the total purchase price. In case your downward payment amounts 20% or even more, you meet the requirements for a conventional mortgage. If you have got anything that is less than that, you’ll be required to pay a one-time payment known as “default insurance” for protecting the lender in case you default on the mortgage. Its cost may range from 1.00% – 3.10% of the loan’s total amount.

When saving, take into account the additional costs which are normally associated with purchasing a home. These may include fees for: surveying, taxes, inspections, insurance, lawyers and many more. These can accumulate to about 1.5%-2.5% of the home’s price.

Look for the money

There are several government grants and programs for Canadian first-time-home-buyers. An example of such is the RRSP Home Buyer’s Plan or the First Time Home Buyers’ Tax Credit of the federal government.

Trim down your debt

Besides making savings for the down payment, you will also need to cut down your debt as much as possible before you can approach a lending institution for the mortgage. Essentially, the less debt you’ve got, the more you will be able to borrow for your mortgage from the bank. You won’t be allowed to carry a debt which is greater than 40 percent of your gross income. Before getting an approval, the lender will wish to see how well you have paid your past bills and debts. Your credit report will be examined by the lender so as to review your credit history.

Getting the mortgage

There aren’t very many people that can afford buying a property without the need to borrow any funds from a lender. Therefore, many Canadians’ home-buying journeys begin with getting a mortgage. A loan which is used to buy a house is one which is referred to as a mortgage. Many lending institutions love giving out mortgages because they earn vast amounts of interest from them (mortgages). Also, since the purchased property is used as the security, the lender will take the property back in case you fail to pay back the loan.

Decide whether to use a mortgage broker, or to go direct to the lending institution

Two options are available to 1st time home buyers when it gets to applying for a mortgage. You may choose to contact a broker to assist you in finding a home loan, or you may individually come-up to a financial institution and speak to the lender’s representative.

Approaching the lending institution directly for a mortgage is a good option for those that have already researched about the home-loan options which are available, in addition to having a good relationship with them (lending institution). The disadvantage with this is that you will only be able to obtain a mortgage product that is from the lender’s specific suite of products.

The 2nd option is to take advantage of the mortgage broker. They have an advantage of having relationships with many different lenders and can assist you find a lender with the mortgage plan that suits you best. Besides that, he or she can also help you to get the required documents ready and guide you throughout the process of buying thus increasing the chances of success. The brokers’ services to you are free since they are paid a commission by the lending institutions. The representative of your lender or your mortgage broker will take you through the alternatives to help you select the mortgage type which suits you best.

Borrowing capacity

The mortgage broker or lender will take a look into your financial situation so as to establish your borrowing capacity. Borrowing capacity is the maximum amount of money that someone is capable of borrowing basing on their income, existing debts, whether they are making the purchase with someone else, and all the other liabilities they have.

Keep in mind that the figure which is presented to you is the maximum amount of the mortgage. It is a great idea that you draw up a budget basing on your income and expenses. This will help you determine how much you can practically pay on the mortgage per month. Don’t forget to take into account the costs which are associated with possessing a home such as strata fees, insurance, council fees, mortgage repayments and maintenance costs. You should incorporate infrequent expenses such as birthday gifts, car repairs, dental visits, travel and others.

Get a pre-approval

After your financial situation has been reviewed with the broker or lender, you can then obtain a letter from the bank which verifies that you have been pre-approved for the mortgage. This letter usually guarantees a rate of interest for 60 to 120 days. It also demonstrates to the seller that one is a serious buyer.

Find a home

This is surely the exciting part. Since you already know how much you are able and willing to spend, you’re ready for shopping. Narrow down your search by drawing up a list of what you are seeking for in a property. Some of the considerations include: the location, size, local amenities, parking, special features, type of home and others. You can use the internet, word of mouth, newspapers, magazines and any other possible means to uncover your dream home.

Take advantage of the professionals in the home-buying business

You may seek for services from professionals such as a realtor, lawyers, home inspector, land surveyor, contractor, and others.

Make an offer

After finding the property, your lawyer or realtor can assist you in preparing “an offer to purchase”. This is a legal document which is presented to the vendor and features:

  • Your legal name.
  • The vender’s name.
  • And the property’s address.

It also includes every item that is in and/or around the home such as wardrobes and appliances.

Complete your application for the mortgage

After the Offer to Purchase has been acknowledged, you head back to the broker or lender. Your financial information will be verified by the lender and then you can complete the process of your mortgage application. The lender may request for a land survey, property appraisal or both. You may also be requested to acquire title insurance.

Be a responsible homeowner

After finalizing the whole process and moving into the home, you may decide to pay your mortgage promptly, or else you may face foreclosure.

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