For more and more Torontonians, the words “Family Home” no longer...
With house prices being what they are today, most people can only afford to buy a home with the help of a mortgage. Because of this, home buyers often start searching for suitable mortgage brokers or lenders right around the time they decide to buy a new home.
But before making a decision, be sure to ask the following questions to the lenders you’re considering, so that you’re fully aware about what you’re getting into and can get the best solution for your needs.
Mortgage loans can come in many variations: fixed-rate loans, variable-rate loans, conventional mortgages, high-ratio mortgages, open or closed mortgage etc.
The one you select will depend on factors such as your borrowing history, financial status, long-term plans, and of course what the lenders can offer you (some lenders may specialize in certain types).
Be sure to ask your lender what options they offer, and have them explain the drawbacks and benefits of each option.
Interest rates vary greatly, and are heavily dependent on factors such as the Bank of Canada’s prime rate and the yield on government bonds.
(Side note: interests rates are looking quite good right now.)
However, lenders still have quite a bit of leeway on the rates they can offer, and it never hurts to shop around. Conventional mortgage lenders generally offer the lowest rates, but private lenders can sometimes make up for that through other perks or services.
It’s also important to note that your credit score will significantly affect the interest rate that you’ll get. A history of solid credit repayment will get you savings in the long run!
Don’t hesitate to directly ask the lender what interest rate you will qualify for.
Mortgages – like most loans – have specific maturity dates, which is the date by which the entire loan amount (principal + interest) must be repaid.
However, many people opt to pay back the loan earlier, in the hopes of saving a bit on the interest payments. This can make sense if you suddenly have access to more money – through a promotion, inheritance, or work bonus, for example.
However, prepayments are a loss to the lender, and so they usually impose penalties and fees on prepayments.
Even if you don’t anticipate prepayment, ask your lender about any prepayment penalties and terms, so that you don’t get a nasty surprise in case it ever happens.
Ideally, you’ll want to sign with a mortgage lender who can close your mortgage within 30 days, though this figure could vary depending on market conditions.
Having said that, there are some types of home loans that can take longer to process, due to parameters such as your financial health, the type of home you’re buying etc.
Mortgage lenders require a plethora of documents to be able to process your application.
This includes things such as proof of income, letter(s) of employment, statements of assets and liabilities, personal ID, and any valid documentation to show a good credit history.
Ask your lender about the full suite of documents that may be required, including potential substitutes in case you are missing a few.
Given how high home prices are, it can be difficult to afford a large down payment if that’s required.
The good news: there could be some government or other assistance programs that you could take advantage of.
One good example is the Home Buyers Plan (HBP), which lets you borrow against your RRSP savings. This program has been enhanced in Budget 2019, giving buyers an even higher limit to use from their RRSP.
If you’re a new immigrant, or a first time home buyer, there may be assistance available for you as well.
Ask your lenders if they can help you find and take advantage of any programs that can reduce your down payment burden.
Considering how mortgage rates are pretty low right now, you may consider locking in your rates as early as possible.
Your lender would basically be committing to providing you a specific interest rate, as long as the house closes within a specific cutoff date. That way, even if the interest rates go up in the interim, you won’t be forced to pay a higher interest rate on your mortgage.
Some lenders offer this facility free of charge, but others do charge a fee. Ask your lender what their policy is, and if they do charge, what the fee would be exactly.
Finding a suitable mortgage lender can be just as daunting as shopping for your home itself. However, armed with the right questions, you can definitely make the process easier for yourself.
If you happen to be in the market for a new house right now, whether for investment or for your own use, consider Pre-Construction Condos. With many new projects coming online in the coming months, Pre-construction Condos are definitely worth a look!
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