If you want to buy your first home but don't know where to start, start with a call to Ravi.
While we've explained some of the basics below, there are many, many, factors to take into consideration, and it's best to review your personal goals and situation with a mortgage professional. Before you start searching for your first home, get advice on:
- a feasible price range
- the most beneficial down payment
- what your interest rate and payments could be
- the government programs you can take advantage of to save money
- the best value communities and neighbourhoods
- the pros and cons of strata developments
- and much more.
For more information, read on, check our FAQ page, or just give us a call.
The Cost of Home Ownership
When you are considering buying a home, you need to think about the total cost of home ownership. In addition to paying the mortgage, you will need to pay for utilities, such as electricity, natural gas, and water, annual property taxes, insurance, and maintenance. You should also consider setting up a savings fund for replacing items such as the furnace, hot water tank, and roof.
On the up side, owning your home is an investment. Each mortgage payment builds equity that also increases as the market value of your home increases.
A mortgage is a type of loan used to finance the purchase of real estate, including property, a house or apartment. While a typical loan is structured with the intent of being paid off at the end of the term, like a car loan, a mortgage is loaned for a specific time period (the term) with the understanding that payments during that term will only cover a small portion of the total amount owing. This allows the lender to reconsider the risk involved if the borrower’s financial situation has changed, and it allows the interest rate to be raised or lowered depending on changes in the overall economic climate.
There are quite a number of different types of mortgages, even within the home owner category.
Fixed vs. Variable Rates
A fixed rate means that you will pay the same interest rate for the duration of the term (often three to five years). A variable rate, means that the interest rate charged will go up or down on a monthly or even daily basis, depending on the economic situation. While there is no guaranteed way to know whether interest rates will rise or fall, borrows who expect rates to fall will opt for a variable rate. Those who think rates could increase, or who simply want to know exactly what they will pay during the term, choose the fixed rate option.
Open, Closed and Convertible
An open mortgage can be paid off in its entirety at any time without penalty, but usually has a higher interest rate. It’s a great option though for those who want to buy before they sell their existing home or those who earn their income in large lump sums. A closed mortgage means that you agree to pay the same regular payments for the entire term of the agreement, and will pay a penalty otherwise. Closed mortgage interest rates are usually lower than open mortgage rates because you are basically guaranteeing the lender that their investment will be secured for the duration of the term. A convertible mortgage is one that can be changed to the other without penalty; i.e. a closed to an open or an open to a closed.
Conventional vs. High Ratio
To qualify for a conventional mortgage, you’ll need to make a down payment of at least 20% of the sale price. If your down payment is less than that, the mortgage is considered high ratio – meaning you are borrowing more than 80% of the home’s market value. In this case, your mortgage will need to be insured against the higher risk to the lender, adding an extra fee to your monthly payments.
There are two insurance products that are both commonly referred to as mortgage insurance. The first type provides insurance for the lender in the event that the borrower defaults. The second type provides insurance for the borrower to pay the debt in the event of their death or critical illness, ensuring a home for their family.