10 Mistakes Canadians Make With Their Mortgage
The entire concept of mortgages in Canada, including the rules and regulations surrounding fixed and variable options, is becoming increasingly confusing. This financially complex process is known to be challenging, leading to more costly errors.
Choosing a mortgage in Canada is a major financial decision that requires shopping around using the services of a professional mortgage broker. This means a qualified and experienced individual will represent you as a borrower looking to obtain the best possible deals from accredited lenders. Avoid the hassle, frustration, and time-wasting by hiring an experienced broker who can pull your credit and submit applications to top lenders.
Personal finance and mortgages writer Lisa Rennie says “Mortgages are incredibly important types of loans that make it possible for Canadians to make the biggest purchase of their lives.”
Unfortunately, Canadians often make the following mistakes that can completely derail real estate deals and leave buyers with no mortgage and no home.
#1 Making No Down Payment
Errors associated with Mortgages are the kind of mishap that might be easily avoided with the correct information, awareness, and procedures. Knowledge about how down payments work is vital to your future.
Down payments determine shoppers’ seriousness and financial capability. You can think of a down payment as a deposit for your home purchase, with a minimum of 5% of your purchase price. Making a down payment of up to 20% can save tens of thousands of dollars in default insurance, which reduces the additional $100 increase of monthly cost to your mortgage. It is not a wise move to go for zero down payment because, in reality, a down payment serves many advantages when purchasing a home:
- It increases the amount of equity you’d get for your home, thus reducing your monthly mortgage payment.
- It shares the risk, allowing shoppers to more easily meet their monthly payment targets.
- It makes for lower monthly mortgage payments, as well as increasing the payoff balance.
- It increases creditworthiness
#2 Lying on Loan Applications
Most Canadian borrowers during the real estate boom in 2007/2008 tended to lie and inflate their income to qualify for a larger mortgage so they could buy a larger house that they couldn’t actually afford. The trouble connected with “liar loans” commence once the buyer moves into the house. Lying can result in bankruptcy, foreclosure, and unnecessary payments when living in the house. At the tail end, buyers who inflate their income wind up being unable to make payments consistently, as they don’t have the necessary funds to meet their goals.
#3 Opting for an Adjustable Mortgage Rate
At first glance, adjustable mortgage rates might seem like a great options for borrowers because they start with a low and affordable interest rate. It can equally permit you to finance a huge mortgage payment and buy a large house. It seems like the best-case scenario; however, hitches await the process as it creates a false sense of stability. In a period within 2-5 years, your mortgage rate will be reset, and your once affordable home suddenly becomes a towering financial burden.
Homeowners with adjustable mortgage rate receive far less equity for their home than they may have thought. Even if they try to refinance for a lower rate using the equity of the home, they’ll still end up paying two-to-three times more per month than if they had avoided the adjustable mortgage rate trap in the first place.
#4 Opting for a Reverse Mortgage
Senior citizens who have equity and looking forward to building a passive income source are the most liable to get a reverse mortgage. A reverse mortgage is paid out monthly or annually in smaller amounts depending on the agreement, and once the payment is due, you might lose ownership of your home. There are also some additional up-front costs, insurance, appraisal fees, and lawyer fees that might quickly run down your equity.
#5 Longer Amortization Periods
Today, 35-to-40 year mortgages are increasingly common. Though these allow you to finance a larger house at a lower monthly mortgage payment, the disadvantages are enormous. An amortization period of 40 years comes with little equity and a higher interest rate. This kind of mortgage decision is only ideal for younger buyers who plan on staying in their new homes for the next 20-plus years as equity grows very slowly. But this option also makes it very difficult for a millennial homeowner to re-locate.
#6 Getting a Bad Mortgage Rate
The road to homeownership in Canada and every part of the world is riddled with many traps, and avoiding them is one of the principal steps toward financial freedom. Once you have set out to hunt for your new home, it’s imperative that you compare the rates between lenders. Seizing on the juiciest rate closes the gap between needs and wants. Do you want to get the best rates? Or, do you need the best deal to save the most money?
#7 Not Getting Pre-Approved for a Mortgage
Borrowers often underestimate how much they can afford to pay for a home. Using a reliable Canadian mortgage calculator can give you a good sense of the amount each buyer can afford. Taking the time to get a sense of exactly what it takes to get approved brings confidence to secure that perfect home within your price range. Being pre-approved, you have a 120-day guarantee of the current mortgage rate, even if it should go up.
#8 Failing to Shop Around to Find the Right Lender.
There are lots of mortgage lenders out there, but not all of them will suit every homebuyer. Having a professional mortgage broker is the best way to shop around. They will submit your credit score application to the best lenders on your behalf. This can reduce the stress and frustration of shopping for yourself. It is essential to know the products of different mortgage lenders and compare their mortgage options to be on the safe side.
#9 Rushing into a Mortgage
The real estate market in Canada is on fire. It is a hot market as properties vanish from the MLS day by day, and the pressure to get a home quickly can lead to costly mistakes. No matter how sizzling the market is, rushing for a mortgage is a sure way to wind up with the wrong home for the wrong cost. You might want to study your credit score to be confident it will secure a good rate.
If you’re a first-time home buyer who just wants to get in and out of the market as quickly as possible, you may need someone to lay out a long-term game plan for you.
#10 Ignoring Credit Score
Looking to get the best mortgage interest rate and a much quicker mortgage approval process, you might want to make sure your credit score is as high as possible. It is often difficult to get approved for a mortgage, so, when one is successfully secured, it brings a much higher interest rate coming from a lower credit score. Taking some time to boost your credit score before applying for a mortgage is much preferable as you’ll get a low interest rate and fast approval.
A real estate professional, Justin Havre says “it is vital to get the assistance and guidance of a lender or home-buying advisor that is trustworthy and reputable to help navigate this process to ensure no mistakes are made.”