Mortgage Shopping Made Easy
One of the first steps in finding a home is to get pre-approved for a mortgage so you’ll know what you can afford. However, it’s also important not to simply dive in and go with the first mortgage lender you find or the first deal the lender puts on the table. Here are some tips to help you in this potentially intimidating process:
Make Sure You Can Afford Your Mortgage
Before even starting the process of finding a mortgage lender, you should get a sense of what kind of mortgage you can afford so you’re not shopping blind. Your mortgage broker or lender will calculate your maximum loan based on your credit history, existing debts, and income. The first thing you need to do to prepare for mortgage shopping is to calculate your household expenses, and monthly debt payments, along with your monthly income. With that information, you can then calculate your likelihood of getting a mortgage.
The Canada Housing and Mortgage Corporation (CMHC) recommends that your monthly housing costs shouldn’t be more than 32% of your gross monthly income in order to be approved for a mortgage. Housing costs include mortgage payments, property taxes, and heating, along with renovations that a house might require, and maintenance costs. The CMHC also notes that your monthly debt load should not be more than 40% of your gross monthly income.
Use a Broker
It’s worth considering working with mortgage brokers. Brokers do a lot of hard work for you and they make lenders compete for your business, which can get you a better deal with lower interest rates. Before deciding on a broker, however, make sure they are not affiliated with a specific financial institute or bank, as this will obviously bias them towards a specific lender.
Shop Around
It’s a good idea to look at different lenders before simply going with your existing bank for convenience. Rates can vary a fair bit and some lenders may provide you with options more suited to your needs than others.
Negotiate
After shopping around, you might be able to get a comparable rate with one lender after mentioning the lower rates of their competition, or ideally, you may even be able to swing a better deal. Also make sure to keep up to date on current interest rates in Canada.
Minimize Your Amortization Period
You may be tempted to go for a longer amortization period to lower your monthly payments, but over the months and years that interest will add up and may put you in a worse position for retirement, for example. Think long-term, and plan to pay off your mortgage as quickly as you can afford to. Although a shorter amortization may require a slightly higher minimum payment, it can save you many thousands of dollars spread over the period of the loan.
Consider Costs Beyond the Mortgage
Besides the mortgage cost, you must also keep in mind closing costs like the Land Transfer Tax, home inspection fees, home renovations, new appliances or furniture, etc. If you max out your expendable income and/or savings on your mortgage, you won’t have any money left for the other costs associated with buying a home. Make sure you take this into account when deciding the mortgage you are willing to take on.
Conclusion
This is just a short list of some of the main tips for getting a mortgage in Canada, and more research, along with consulting a professional is highly recommended. For more information on financing your dream home, contact me and I can set you up with the help you need.
