NEWS UPDATE: Federal Government Raises Insured Mortgage Cap to $1.5M, Expands 30-year Amortizations
5 Things You Should Know About Mortgages
People have always been buying houses so many people think it is easy to get a mortgage. In reality, it isn’t as simples as walking into a bank and asking for a loan so you can go buy a house. The mortgage process has several steps and could take some time. Here are 5 things that can clarify the process:
1. It starts with income
It is quite evident that you need to be making money to get a mortgage. The higher the income, the more you can afford. First time home buyers are sometimes surprised when they get rejected when their income is considered. The bank does not take into account the money that you will be making in the years to come. You need enough now to buy a house.
2. Amortization periods have been reduced
On top of having a steady flow of income, you will also need to be making more money then a few months ago. The Canadian government reduced amortization periods from 30 years to 25 years, meaning you cannot stretch out the monthly payment any more. You need to put more money down to get your dream home.
3. You can get longer terms
In general, mortgage terms are five years and afterwards you may need to refinance at a different interest rate. However, it is possible to get longer terms for example 7 or even 10 year rates. This means you will pay more per month ( the longer the term, the higher the interest) but you get to hold on to the terms longer. This is appealing with our current low interest rate environment. If rates rise in the next 10 years, you will benefit by paying a lot less than if you agreed to a new rate in 5 years.
4. Your credit history is important
Mortgage lenders will scrutinize your credit history. I you don’t have one or you have not been using a credit card for long, your chances of getting a loan decrease significantly. Likewise, if you have bad credit you may also get declined or you may have to pay higher interest. It is wise to check your credit score before you buying a house and if it is low, work at raising it first.
5. Weekly payments are better than monthly
The dollar value that you pay your lender every month is essentially the same whether you pay weekly or monthly. However, weekly payments can reduce your amortization period by months, maybe even years. This is because there are two extra payments if you pay weekly. The greatest benefit is that you pay off interest faster. There’s less time for interest to accumulate (a week as opposed to 30 days) In the end, the less interest you pay, the faster you pay off your mortgage!
Everyone looks to pay off their mortgages as soon as they can. If you are informed about the process, you can discover tips on clearing your balance quicker.
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