While the fallout from subprime lending continues to take its toll in the U.S., Canada’s mortgage market is competitive and healthy. But with terms varying from lender to lender, and new 40-year amortizations, lower down payments and other options available, it’s more crucial than ever to choose the right product for you.
MORTGAGES - THE RIGHT TERMS
Canada’s competitive and healthy mortgage market is offering more options than ever before, making crucial that consumers do their homework and choose the product that best suits their personal needs.
“The most important thing for homebuyers is to talk to their bank before they start shopping for a home,” says Linda Seymour, a senior vice president at HSBC. “They need to know how much they can spend, and identify the easiest and best way to finance. Today, rates are still very low and consumers are often surprised by how much mortgage financing they can actually qualify for – but they need to establish a budget and focus on payments they can afford.”
Quite often, she says, homebuyers don’t take some of the other factors into consideration, such as setting aside money for property taxes, maintenance fees and transaction costs they’ll incur at the time of sale. That can be particularly problematic when buyers are stretching to get into the home of their dreams faster with some of the new mortgage products.
“There are so many options out there,” says Paula Roberts, and it is crucial that borrowers know what’s available before accepting the terms their bank offers. “The role of a mortgage broker is to make the borrower aware of every available product. Education and research will help identify the mortgage that matches their lifestyle and comfort level.”
Recent legislative changes mean that the down payment requirement for a ‘conventional’ mortgage – one that’s not insured by Genworth Financial, CMHC or another insurer – has declined from 25 per cent to 20 per cent. But that’s only one of many recent advances that make homebuying easier. A wider range of insurance options also makes financing possible for non-traditional buyers (such as new immigrants and the self employed) and buyers with little or no savings for a down payment.
Longer amortizations can help keep fixed payments affordable, but ultimately, the aim of every home owner is to pay off their mortgage as quickly as possible to save on interest costs.
“We encourage our clients to choose bi-weekly or weekly payments, because it allows faster repayment,” says Ms. Seymour. “It’s also important to look at the flexibility of different mortgages: how much can you actually pay down against principal on an annual basis without incurring a penalty? Do you have the ability to convert the mortgage from a fixed rate to a variable rate mortgage or even a line of credit? Do you have the ability to re-advance, so that if you pay down your principal and your equity increases in your home, you can borrow without having to pay the legal fees again?” These options can be particularly important, she says, for homebuyers who want to renovate their home. “The original mortgage can cover the purchase price, and as equity is created, the mortgage can be re-advanced to pay for renovations down the road.”
Ms. Roberts agrees that flexibility is crucial. “Life changes. Particularly for first homebuyers, people don’t know what to expect until it happens. Once they’re used to owning a home, and comfortable, they may find they can increase their payments.”
Most importantly, says Ms. Seymour, homebuyers should view their mortgage as one element of an integrated financial plan. “There needs to be a discussion around purchasing the home that includes longterm plans, forecasting and getting some advice on their financial planning overall.”
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