FIRST TIME HOME BUYERS: Some really important questions to help you understand and ask your lender trying to put yourselves in the best, most realistic perspective of what expectations and payments you will need to commit too when asking the bank for money!
The #1 thing you should be asking the lender is: What can we afford and live comfortable with?
You do not want to max yourselves out especially if your first time home buyers !
This would include all taxes, closing costs, down payments, property transfer tax, CMHC fees, are you eligible for first time home buyer credits from the government , are there any , RRSP allowances for qualifying: Simply ask them:
What exactly is the monthly mortgage payment going to be?
If you take a bi-weekly payment option as opposed to a monthly payment the dollar cost will be slightly higher but very little compared to the amount you will save in the decrease towards your principal amount so I would recommend that. You will need to budget and make two payments a month instead of one monthly payment but again better for you in the end.
Ask if the property taxes can be made with the mortgage payment: this lightens the burden of paying that one time tax bill in July.
Amortization period is the total length of the Mortgage, sometimes it seems good to take a longer period up until a few years ago you could take up to i.e. 40 years but in the long run you end up paying for the house twice as your interest will be the majority of the payment in the beginning. **I would suggest 20-25 years MAX. With the new rules you can no longer have it more than 25 years.
Below is what has changed :
Changing regulations in Canada’s mortgage market
Since 2008, the federal government has made several changes to the rules for mortgages insured through the Canada Mortgage and Housing Corporation (CMHC) and other private sector mortgage insurance providers. These rules affect home buyers with less than a 20 per cent down payment, which include many first-time home buyers in Canada.
The changes include the following:
- The maximum amortization period has been reduced to 25 years from 40 years.
- Home buyers must have a down payment of at least five per cent of the home purchase price and starting February 15, 2016, home buyers must add a further 10 per cent to their down payment for the portion of the house price between $500,000 and $999,999. For non-owner occupied properties, a minimum down payment of at least 20 per cent is mandatory.
- Canadians can now borrow to a maximum of 80 per cent of the value of their homes when refinancing, a drop from 95 per cent.
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Limiting the maximum gross debt service (GDS) ratio to 39 per cent and the maximum total debt service (TDS) ratio to 44 per cent.
These two important ratios are used when calculating a person’s ability to pay down debt. GDS is the share of a borrower’s gross household income needed to pay for home-related expenses, such as mortgage payments, property taxes and heating expenses. TDS is the share of a borrower’s gross income needed to pay for all debts, including those relating to home ownership. - Government-backed mortgage insurance is available only for homes with a purchase price of less than $1 million. Borrowers buying homes at or above this amount will need a down payment of at least 20 per cent if their financing is from a federally-regulated financial institution.
Interest Rate is the amount of percent they will charge you each month compounded yearly for you to borrow the money.
TD has their posted rate for a 5 year term: 3.85% (May 4, 2016) So you should try to get better than that!
Term is the length of time you are locked in with the interest rate so if they give you 3% ask for what term? If you plan to stay in the house awhile I would recommend a 5 year term but discuss what is best for you!
Rate is the interest rate: If you are dealing direct with a bank they may not give you the best rate available i.e. if you use a mortgage broker I feel they will shop all the banks and secure the "best" rate for YOU. They do not get paid if they do not get the loan so there is incentive. A conventional bank may cover the cost of the legal and the appraisal but believe me I feel you are paying for it in the end with a higher interest rate this is NO good for you.
If you do win the lottery or come into some large amount of money you will want to pay more each year towards the principal so ask: How much can you pay each year towards the principal? Most banks will be around 15-20% of the total amount so a very large chunk which will help you reduce the principal amount of the loan and then shorten the amortization period. DO THIS! (If possible)
Finally make sure you ask them what is the Pay Out Penalty: If you transfer jobs , lose your job or just decide to move there is a penalty if you want out before your term is up. **Refer above to term for explanation. The payout should ideally be no more than 3 months interest & principal on the loan, this is where reading the fine print is REALLY super important. I heard lately some people had a $25,000 pay out, NO good !
Hope this helps ! Find out the answers and then call 250-818-0666 or e-mail karen@victoria4sale.ca me and I can help you further once your approved. If you are not satisfied with going it alone to find the person to work with I can get you in touch with a mortgage broker I deal with regularly who is coincidentally from Victoria although he lives in Salmon Arm!
Thanks and Have a great day ! If you have any further questions pleaes let me know how I can help you. Hope to see you on the Island !
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