A mortgage may be one of the largest purchases you make in your lifetime so let’s make that decision with planning, knowledge and experience. Here are nine very important aspects to purchasing a home or property that you will want to familiarize yourself on before starting the purchasing process.

1. Credit Scores

Lenders evaluate your risk level by looking at your credit score. Canadian credit scores range between 300–900 and in order to access the best rates and terms you must have a great credit.

Here we’ll talk about what determines your credit score:

35% is based on your payment history, how you’ve handled debt and if you’ve made your payments on time.

30% is made up of how much debt you have acquired, credit utilization, and how reliant you are on your credit.

15% will be based on your credit account history and how long you’ve had your credit accounts active for.

10% is based on new credit and the number of recently opened accounts and hard/soft inquiries you’ve had.

10% is based on the types of credit you have, how many cards, loans, or different lines of credit you have open.

Lenders are the most concerned about whether you are a good and reliable investment. Most of the time they want to see at least two accounts with limits over $2000 and at least two years of history that they can review.

If you have little to no credit, then there is nothing to vouch for that guarantees the lender that you will pay back the loan on time. Sometimes it’s worse to have no credit than bad credit because there’s absolutely nothing to give a lender an idea of what you’re like financially. Right now is always going to be the best time to start building your credit so that you will eventually have a history a lender can look at. If you need more information, we encourage you to check out our articles on how to make your credit work for you which has everything you need to know about building credit.

2. Pre-Approval

Often people assume they know what they can’t afford or qualify for and often they are wrong. Enter your search for your future home with confidence by knowing exactly what you can afford and have a locked in interest rate for up to 120 days. Many pre-approvals can also guarantee financial perks that will save you money.

Remember that quick apps and pre-qualifying calculators are just estimates that refer to a likely approval but never do they make guarantees. Save your time and effort for a concrete guarantee that assures your details in stone so there are no major surprises along this already emotional experience.

3. Down Payments

When purchasing a property 5% of the property value is the minimum required down payment in Canada. Anyone whose down payment is under 20% of the overall property value will be required to purchase CMHC which is mortgage default insurance. Homebuyers who can afford a 20% or more down payment are able to gain flexibility by avoiding the high insurance premiums involved with the extra default insurance. Regardless of your situation we can always find a solution and strategy to get you where you want to be so take advantage of our free consultation and let’s go over the many options available to you.

4. Closing Costs

It’s safe to say that you will need around 2 to 4% of your overall purchase price to cover the cost of the fees that you will need to pay when purchasing your home. Here are some of the fees that you can expect to pay when purchasing a home or property; property transfer tax, appraisal fees, legal fees, property tax, adjustments (strata and taxes), home inspection fees, title insurance/survey fee, home insurance, utility hook ups, and moving expenses.

Please speak to us about any questions you may have so we can help you prepare and manage all the financial obligations that are included in your closing costs so you can start off on the right foot when its time to celebrate the purchase of your new home.

5. Interest Rates

Here we will talk here about the two different types of mortgage products to choose from when purchasing a home. First we have a fixed mortgage rate which will lock you in to a fixed rate for either a term or the length of the mortgage.

Then there is a Variable mortgage which is always tied to a lender’s prime rate which means it can change many times throughout your term. About 30% of Canadians choose a variable rate mortgage. If you’d like to know which option would work best for you, we’ve done all our homework and we will be able to save you all the guesswork. If you are the type of person who likes to do their own research, we can have many resources available for you so that you can make your own pros and cons list.

6.  Mortgage Types

Open Mortgages

If you have an open mortgage, you have the ability to pay off your mortgage without a large penalty fee. Refinancing is much more flexible and can save you thousands in interest, but this option isn’t always the best option. While you may have more flexibility you will also have higher rates.

Closed Mortgages

Close mortgages often have lower interest rates but less flexibility and there will be a limit for how much you can pay down. Most Canadians choose a closed mortgage.

7. Mortgage Terms

Your mortgage term is the amount of time that you are locked into your mortgage rate. This can be anywhere from 6 months to 5 years or more and when your term is up you can revaluate your financial situation, renew your mortgage product and terms, change lenders but overall try to get the best current terms to achieve all your financial goals.

8. Mortgage Payments

When setting up your mortgage payment you have multiple options to choose from which are monthly, by monthly, biweekly, accelerated biweekly or every week. It’s always a good idea to examine your lifestyle and your budget before choosing a payment option. Choosing a repayment option with some flexibility can give you the opportunity to lower your mortgage balance faster.

9. Mortgage Pay Back Time Period (Amortization)

The interest on your mortgage is always determined by the length of your amortization period.  The longer amortization you have will mean the smaller payments you will make over a longer period of time. You may pay less monthly, but your total paid interest will be significantly higher than if you chose a shorter amortization length.

It’s always good to have some flexibility so that if you receive a bonus, inheritance or even some monetary winnings of some kind that you are able to make an additional payment to shorten your payment plan. Speak with your mortgage expert to find the perfect mortgage for your unique situation.