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What to consider when choosing a mortgage

From getting a mortgage pre-approval to getting your keys, there are many aspects to consider when getting a mortgage. To help you out, here are the most important things to consider before you sign on the dotted line.

    Mortgage types

  • Conventional or high-ratio
  • Fixed rate or variable rate
  • Open term or closed term

    Length of time

  • Mortgage term
  • Amortization period

    Payment options

  • Monthly, semi-monthly, biweekly or weekly payment schedule
  • Accelerated payment options

    Costs, penalties and fees

  • Closing costs
  • Prepayment penalties
  • Discharge and registration fees

Steps to getting a mortgage

Choosing a mortgage is a process, but it doesn’t have to be a difficult or confusing one. See our step-by-step guide to the mortgage process:

1. Determine your budget – Look at your financial situation and determine how much you can realistically afford. Consider your gross annual income, all outstanding debts, down-payment savings, debt-to-income ratio, and more.

2. Contact a mortgage broker – Mortgage brokers can direct you towards the best lenders based on your needs and often have exclusive access to certain mortgage products.

3. Compile your documents – Gather the necessary documents to prove your eligibility, including identification, proof of employment, proof of financial stability, and debts or financial obligations.

4. Complete the application – If you are using a broker, they will complete your application on your behalf, with your approval. Or if you are dealing directly with a lender, you will complete your application with them.

5. Get your approval – Receive a mortgage pre-approval letter from a lender, indicating how much you could borrow and the interest rates you will be offered.

6. Qualify for a mortgage – After you find the home of your dreams, you’ll need to prove to the lender that you can afford it. Lenders will calculate your gross debt service (GDS) and total debt service ratios.

7. Confirm your down payment – Your down payment has to come from your own savings and you need to verify of the source of funds.

8. Finalize your paperwork – Negotiate the terms and conditions of your mortgage contract in consultation with your lawyer. Read the contract carefully and sign it to complete your mortgage.

Mortgage frequently asked questions

How much do I need for a down payment?

It depends. The common amount is 20% of the property's value. You can go as little as 5%, but it is not recommended since you would have to get mortgage insurance. The larger the down payment, the less money you will have to borrow, lowering the monthly mortgage payments.

How does my credit score affect my mortgage?

Yes. Credit scores are important factor because they determine the interest rate on your mortgage. Your credit score shows money lenders you are trustworthy based on your past behaviour. A person with a high credit score will be offered a lower interest rate, and vice versa.

Should I get a fixed or variable rate?

Depending on your personal preferences, both options have their own benefits and drawbacks. Fixed interest rates are more stable, but are slightly higher than most adjustable rates. Meanwhile, adjustable rate mortgages are risky in that if interest rates increase, more of your payment will go towards the interest instead of the loan amount.

What other fees are there to consider?

Getting a mortgage with a new property will include closing costs, such as land transfer taxes, legal fees, home inspection fees, appraisal fees, etc. It’s also important to note that there are penalties and fees associated with breaking your mortgage contract early

Are there benefits for first time home buyers?

The Government of Canada offers a few homeownership tax credits and benefits for first time buyers, such as the First-Time Home Buyer Incentive, the Home Buyers’ Amount, the Home Buyers’ Plan, and the GST/HST New Housing Rebate.

How long does it take?

In a normal market, getting a mortgage takes about a month. During busy months, it can take longer. As well, if the lender finds any financial issues, the process can become slower and more complicated.

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