Casually mention that you're thinking about buying your first home and get ready for plenty of "expert" advise. Family and friends alike will tell you how they made a killing on this property or that deal. You'll hear conflicting views on mortgages, interest rates and the general health of the real estate market. One person will caution you to wait awhile for prices to change. Another will advise you to move now before it's too late.
You'll begin to notice full-page ads in your local newspaper's real estate section enticing you with "low down payments" and "quality life-styles". You'll see commercials for motrgages offered by banks and trust companies promoting "special finance packages" and "easy payment terms".
For most of us, the purchase of a home is the most important financial commitment we'll make in our lifetime. Yet our schools don't teach us how to go about it, and many of the books available on the subject are complex and confusing, assuming far more knowledge than most first-time buyers possess.
Welcome to the world of home buying. It's an exciting world, full of anticipation and opportunity - a chance to pursue your dream, establish roots and take your first steps towards long-term financial security.
If you're a bit overwhelmed by the thought of buying your first home, then you have come to the right place. We want to take the mystery out of buying a home. I can offer you a step by step approach on how to find and purchase the right home for you and your family - a home that also fits your financial goals.
I can help you understand the many terms used in real estate transactions. I can show you how we work for you - without a contract and at no cost to you. You'll also learn how to shop for a mortgage and talk intelligently with your banker; find a competent lawyer and home inspector who will check out your property.
You may be in the early stages of your dream. Now is the time to contact a real estate professional. Let's spend some time together. It will help you set your future direction. There is no cost or obligation. Email or telephone me today.
Bi-weekly and weekly payments
Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is that you can expect to pay off your mortgage about 4 years sooner. This is the result of making an extra 4 weeks of mortgage payments which will save you a lot of interest charges over the life of the mortgage. The second reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis you can simplify your budgeting by making the payment line-up with the way you are paid.
Making Extra payments
Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller amounts on the mortgage and as often as you wish. An extra months payment paid once a year on a mortgage can help you become mortgage free up to 4 years sooner.
Reducing the CMHC fees on your purchase
When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or one of the other mortgage insurers to protect the lender in case of default. The premium charged by these companies decreases as the down payment increases. When you finance your property at 95%, a premium of 3.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 25%, you can avoid any additional insurance fee. Depending on your situation there may be alternate ways to structure your financing and avoid the CMHC or GE insurance premium.
Advantages of Bigger Down Payments
As mentioned above, when you put a minimum 20% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. A larger down payment may also help you negotiate a better price or terms from a seller. It is important to note that it may not be wise, in a rising market, to wait to save a larger down payment or to stretch yourself by borrowing on credit cards or a line of credit at higher interest rates.
Short Term Rates vs. Long Term Rates
The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have significant savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This may not always be the case depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where you see interest rates heading can also be important in this decision. Make sure you talk to an expert before you make a final decision.