10 things you need to know before applying for a mortgage

The average amount is 3% to 6% of the price of the home. Given that range, it’s a wise idea to start with 2%-2.5% of the total cost of the house, in savings, to account for closing costs. Thus our $300,000 firsttime home buyer should sock away about $6,000-$7,500 to cover the back end of their buying experience

  1. SIZE MATTERS
    The bigger the deposit a buyer puts down, the better the mortgage interest rate will be. All lenders demand a deposit of at least five per cent. But if you can put down 20 per cent you will likely pay several hundred dollars less per month.
  1. DON’T GIVE UP
    Despite mortgage rates being historically low, lenders are obliged to “stress test” applications to ensure buyers could afford to repay in the event of an interest rate spike. But brokers urge would-be buyers not to give up their home ownership dreams as there’s lots of competition in the mortgage market, literally hundreds of deals, mainly trackers —linked to the CMHC base rate — or fixed-term loans, typically two-, three- and five-year deals.
  1. KNOW THE BEST RATES
    One of the best rates available is Dash Mortgage 2.58 per cent variable closed for five years. Sigma Mortgage 3.33 per cent deal, fixed closed. Hatch Online Mortgages is offering a 5-year variable closed of 2.60 per cent.
  1. SHOP AROUND
    Depending on your circumstances, the only rates available may be higher than four per cent. Shop around first by checking comparison websites such as lowestrates.ca
  2. FIX IT
    The virtue of a fixed rate is that you know exactly what you will be paying, and can budget accordingly. But remember that once the fixed-rate term is over, the interest rate reverts to the lender’s standard variable rate, which may be as high as five per cent. Borrowers then usually take out a competitive new deal, perhaps with another lender.
  3. EXTEND TO SAVE
    Some lenders say young would-be buyers can beat affordability restrictions by opting for a mortgage with a term length of 30 years and fixing the interest rate for five years or more, for which less strenuous stress tests apply.
  4. ADD UP THE EXTRAS
    Don’t focus solely on the interest rate. Lenders typically charge an arrangement fee, possibly around $1,000 or more, though this can be added to the mortgage
  5. CHECK YOUR CREDIT REPORT
    Make yourself attractive to lenders by showing them you can manage your regular finances. Also cut back on unnecessary outgoings. Tougher mortgage affordability rules mean it’s not just what you earn that matters, but how much of it you spend. And check your credit report to make sure it’s accurate and up to date.
  6. USE A HELP TO BUY
    You are more likely to get a mortgage if you have a good savings record, even if that is a modest amount each month.
  7. AIM TO OVERPAY
    To stretch affordability, lenders are extending the mortgage term up to 40 years, which lowers the monthly repayment.

But in the long run you end up paying back much more, and are saddled with a mortgage for almost a lifetime. So once you are up and running with your new mortgage, use any disposable income you can spare to overpay on the loan each month.

This will cut the outstanding amount and give you more equity —and buying power — when you move.

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