February 07 2022
If buying a new home is on your radar for 2022, then you’ve come to the right place. The new year is all about setting goals and for many, that means finding the perfect place to live! A home is both an exciting and emotional purchase that requires a lot of work behind the scenes. With the Canadian housing market expected to see a 9.2% increase in average residential sales prices nationwide in 2022, market pressures are at an all-time high. But don’t worry – we’ve put together a simple outline of everything you need to know so you’re prepared to get started:
Understanding a Minimum Down Payment
A down payment – in the simplest terms – represents the money you’re putting toward the total purchase price of the home. In Canada, the minimum down payment is 5% of the first $500,000 of a home purchase price. However, if you can, it’s a good idea to have a 20% down payment to avoid paying CMHC home insurance.
As home prices increase, coming up with a sizable down payment, especially for first-time buyers, has been a little bit more challenging than it used to be. The good news is that there are ways to get assistance with your down payment. One way is getting support from a parent or a family member in the form of a gift. Money in the form of a gifted down payment means that it is not considered a loan so you’re not obligated to repay the person. Another way is getting a family member or friend to act as a co-signer. They will essentially apply for the mortgage loan with you and legally agree to take liability on the mortgage and pay off debt if you can’t make your payments.
There are a number of key documents that you must have prepared and available to successfully move forward with your home purchase. Here’s everything you need:
Questions to consider when choosing a mortgage
When going through the mortgage-application process, you’ll be expected to know the answers to a number of questions. This can be daunting, so we’ve outlined some vital questions and what they mean exactly.
Do you want a fixed or variable interest rate?
A fixed rate is a mortgage loan where the rate and amount of the mortgage paid off stays the same throughout the term of the loan. A variable rate is a loan where the rate may change over the term of the mortgage based on market conditions. Watch our Mortgage Academy video to help you further understand the difference between these two options.
How many years will it take you to pay off your mortgage loan?
The length of time it will take you to pay off your mortgage is called the amortization period, which will help determine the amount you will pay for your monthly mortgage payments and the interest you pay over time. Typical amortization periods in Canada are 25 and 30 years.
What is the length of your mortgage term?
A mortgage term is the length of time you are locked into a particular lender, interest rate, mortgage features and their associated terms and conditions. In Canada, mortgage terms are typically five years or less.
Which type of mortgage features best suit your needs?
Aside from your interest rate, you also want to consider the key features of your mortgage as they will either cost you or save you thousands of dollars depending on what your contract includes. When applying for a mortgage, keep an eye out for details such as prepayment privileges, portability and low penalties. If you need a hand reading the small print, get in touch with a professional mortgage advisor like those on our team at Homewise. We’ll walk you through the process of understanding these features and how they can save you money in the long run.
The “pros” of getting pre-approved for a mortgage
A pre-approved mortgage is beneficial for a number of reasons. It helps home buyers understand what they can afford from the start, simplifies their home search and boosts their credibility as a buyer in the market. Getting pre-approved for a mortgage means that your lender agrees to hold the rate and mortgage product they’ve offered for up to 120 days. If conditions are met within this timeframe, a pre-approval can be easily converted to a mortgage approval.
Finding the best mortgage rate in Canada
The first place that most Canadians will visit for mortgage options is their current bank. Like with any major purchase you’re making, it’s always a good idea to shop around and compare different mortgage options and features. Although this takes some extra time, you’re more likely to make an informed decision that could wind up saving you thousands of dollars.
At Homewise, our goal is to help simplify the mortgage application process and make this year’s home purchase stress free. We have a dedicated team of mortgage advisors who can assist you with the application, answer all your burning questions and provide expert advice. Apply with us online in just five minutes today!
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