Tips for home-buyers

Here are some tips for home-buyers in Ontario.

Make Bi-weekly or weekly payments:

Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.

Consider Making Extra payments:

Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.

Reduce the CMHC fees on your purchase:

When you require a mortgage for more than 75% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company’s decreases as the down payment increases. When you finance your property at 95%, a premium of 2.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 25%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.

Make a Bigger Down Payment:

As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.

Short Term Rates vs. Long Term Rates:

The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.

Adele Paletta is Real Estate Agent servicing buyers and sellers in Ontario, Canada. Adele’s real estate expertise lies in the Greater Western Toronto area including: Mississauga, Oakville and Burlington. She can be reached at 905-828-6550 or adele.paletta@sympatico.ca. View her Divorce Magazine Profile and website.

5 comments

  1. Is it really a good time to take a out a mortgage right now? How do we know thehouse prices haven’t finished dropping? Everyone I know is going into foreclosure!

  2. Katharina I am a real estate agent in Canada and the foreclosure problem is not here like it is in the states. If you are working with a knowledgeable mortgage agent they can tell you if it is a good time to get a mortgage based on your situation and walk you through what works for you. The housing market here in Canada are really not dropping in price, if anything they are just staying the same in pricing.

  3. Appreciate your finding the time go over this, I feel strongly about it and love learning more on this topic. If at all, because you gain expertise, can you mind updating your blog with more information? It is extremely helpful to me.

  4. smoker man says:

    I very much agree with the comment above me, the web is without a doubtgrowing into the most important medium of communication across the world and its due to sites like this that ideas are spreading so quickly.

  5. You are right we are getting more information from just talking to each other. The industry changes as we go. As I get information i will post what I know. The best information before doing any mortgage is talking to a mortgage agent that deals with this day in day out.

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