Can you afford it?

This is the first question you ask yourself when thinking about purchasing a new home and includes considering:

• Comparing your income (Gross Debt Service Ratio - GDS)
• Future mortgage payments
• Heating costs
• Property taxes
• Plus all other debt servicing costs (Total Debt Service – TDS) paid on a monthly basis. The TDS Ratio often includes the payments you make on credit card debt, automobile loans, existing lines of credit, student loans, etc.

Once pre-qualified, the interest rate at which you pre-qualify is frozen for 60 to 120 days from the time of your application. If rates drop below what you pre-qualified for, you’ll get the lower rate and if they rise, you're covered. Just because you pre-qualified for a mortgage at a certain financial institution, you’re by no means obligated to obtain your mortgage through that particular bank.

The pre-qualifying stage is also a good time to find out about the differences between conventional mortgages and high ratio insured mortgages. Ask about assistance for first time buyers through the federal government’s “RSP Homebuyer’s Plan” letting you use funds from your RSP to purchase a home and the option of using a gifted down payment to help you qualify.

Applying for your mortgage – a checklist

• A copy of the accepted “Offer to Purchase”
• A salary letter from your employer
• Self-employed individuals need financial statements for the past 3 years as well as personal income tax returns
• Confirmation that your down payment came from your own resources (i.e. bank statements or a gift letter)
• A copy of the Real Estate Listing if buying an existing home
• Condominium financial statements, if applicable

Note: If you are buying a home to be constructed, bring a picture of the property, a copy of the building plans and specifications, the land survey, plus your agreement with the builder.

With these documents in hand, your Armada Mortgage Services representative can move quickly to secure an unconditional mortgage approval once you’ve found the perfect home. As soon as your real estate agent draws up an Offer To Purchase between you and the vendor (this agreement sets the final price and all the conditions of sale), come back to your mortgage agent and your deal is almost complete.

House hunting should be fun!

There’s no shortage of information available to help you make an informed purchase decision. Banks, as well as CMHC, the Canadian Bankers’ Association, Provincial Real Estate Associations and the Home Builders’ Associations all have brochures (even videos) to make house-hunting stress free and fun. Take the guess work out of shopping for a home by taking advantage of all the professional resources available to guide you through the many choices available when purchasing your first home.

Prepayment Privileges

Financial institutions have pre-payments options available. These let you pay down your mortgage faster. Be aware that the longer the amortization period the more interest you will end up paying. Amortization is the length of time to pay off the mortgage. These periods range from five to 35 years.

Weekly or bi-weekly payments, instead of monthly, will shave as much as eight years and $38,000 off of a $100,000 mortgage.

Another option to consider is portability. If later, you decide to sell your home and buy another, you should be able to take your mortgage with you or transfer it to the buyer of your home without penalty. This can turn out to be a major advantage if your mortgage rate is below market rates.

Selecting the Right Mortgage

The basic choices to look at in selecting a mortgage include:

• Conventional or high ratio mortgages
• Term length
• Closed or open mortgages
• Fixed rate vs. variable rate

A conventional mortgage is a loan for no more than 75% of the appraised value or purchase price of the property, whichever is less. A high ratio mortgage is usually for more than 75% of the appraised value or purchase price. This type of mortgage is often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must by law, be insured through CMHC for which the borrower pays the insurance premium, application, legal and property appraisal fees.

The term you select is important. Short term mortgages can be appropriate if you believe interest rates will drop come renewal time, but in many of these circumstances, they are inferior to a variable rate mortgage. Long term mortgages are suitable if you feel the current rates are reasonable and you want the security of budgeting for the future. This can be especially important for first time homebuyers. The key is to feel comfortable with your mortgage payments.

A closed mortgage usually offers a lower interest rate than an open one of the same term, but the open mortgage lets you pay off as much as you want, any time, without penalty.

Contact us today to find out which mortgage is right for you.