Give Yourself Credit: A Beginner’s Guide to Arranging a Mortgage

Over the years, I’ve worked with clients whose ease with numbers would make your head spin - from accountants to engineers. But, in my experience, such “mathletes” are far outnumbered by those of us who face financial calculations with apprehension.

Thank heaven for mortgage specialists. Whether you opt to go through a broker or your financial institution, a good specialist will guide you through the intricacies of choosing a mortgage with patience and know-how.


Remember that mortgage pre-approval is the way to go. This means visiting your specialist before shopping for a home, and obtaining a realistic budget to work from. Pre-approval also speeds up the purchasing process once you’ve found your perfect home.

In comparison with the early 80s, when mortgage rates surpassed 20%, today’s rates – which tend to hover below 4% – seem astonishingly low. But substantial savings can still be found by choosing certain mortgage features over others. Here are some of the most basic options you’ll encounter:

Term Length: A term is a set length of time, typically ranging from one to ten years, in which a certain mortgage rate applies. At the term’s end, you’ll renew your mortgage for another term. The shorter the term, the lower the interest rate; however, by choosing a longer term, you’re insuring yourself against the possibility of skyrocketing mortgage rates in the future.

Fixed rates, variable rates and capped rates: A fixed interest rate remains the same throughout the term, while a variable rate rises and falls along with prime rate. While the second option means accepting some unpredictability, it may yield greater savings than a fixed rate. A capped rate is a type of variable rate that cannot exceed a set upper limit. If interest rates are low but you’re facing a longer closing date, you may choose to be locked into a capped rate, which will apply once your mortgage payments begin.

Frequency of payments: Most lenders offer weekly, bi-weekly, semi-monthly or monthly payments. While, at first glance, the difference between bi-weekly payments (every other week) and semi-monthly (twice a month) may seem unimportant, it works out to two more payments per year. Ultimately, those extra installments could take a couple of years off the life of your mortgage.
Of course, there are many more mortgage features that your specialist can introduce to you. Trust me: by the end of the process, you’ll feel like a specialist yourself.

To receive a FREE copy of a new special report titled "Homebuyers: How to Save Thousands of Dollars When You Buy" email sales@bennettpros.com

Marnie Bennett is a broker and the marketing director for Bennett Property Shop Realty, a full premium service real estate brokerage specializing in marketing and selling new and resale homes, condominiums and investment real estate. Marnie is the host of the weekly radio show the Real Estate Hour, a millionaire real estate investor and a wealth management coach. bennettpros.com

Steps to Take Before Buying a House in Ottawa

The Bennett Property Shop Realty understands that Ottawa home ownership is a big dream and a huge step for many people. Turning this dream into a fact or a reality requires a lot of dedication and effort and anyone who wants to realize it has to both financially and mentally commit to the project because buying a house requires one to spend a lot of time and energy both when hunting for that Ottawa home and afterwards when maintaining and managing it and paying off its mortgage.

Since the vast majority of home-buyers use the services of lenders, this article will assume that the reader will borrow some money to buy their home and explains what actions a buying borrower needs to do to better their borrowing success.

Strengthen Your Credit

The first step towards home ownership is to strengthen your credit. The better your credit, the better (i.e. the lower) the interest rate your will qualify for. Make sure to pay off your credit cards and settle up any credit delinquencies or disputes.   Even if you cannot pay off a card’s entire balance make sure that you pay the stated minimum payment by the due date indicated on your monthly statement.  Also, get a credit report so that you can evaluate it and understand what the lenders will be looking at and basing their lending decision on before you approach a lender for a loan.

Determine What You Can Afford

Figure out how much you can afford for a house and how much you will be able to borrow. Most people taking out loans for home ownership are expected to put down 10% to 20% of the appraised value of a home. For example, if you have $30,000, you can make a down-payment for a home that is worth $300,000 (with a 10% down-payment) or $150,000 (with a 20% down-payment).

You also want to calculate your projected housing expenses. Determine the average annual costs for insurance, natural gas or oil, electricity and real-estate taxes in your area. Add that to the price of the home you want to buy and also add how much you are estimated to pay in closing costs (lawyer fees and land transfer taxes etc.). You can either use an on-line mortgage calculator or make a spreadsheet to calculate the total. If you find that the total is above 28% of your gross annual income, then it is probably not a good time to get a mortgage.

Get Pre-approved

Now you are prepared to seek the actual amount of money that you will need to borrow for your new home. When you do apply to various lenders, submit all of these applications within the span of a two-week period so that your inquiries do not alter your credit report as repeated credit report requests (other than ones that you request for yourself; and obviously each possible lender  will request) have a negative effect upon your credit rating. So that you have a realistic idea of what money you will have and therefore what price range you can afford, make sure to do this before you get in touch with a real estate agent. If you do qualify for a loan, make sure to look at first-time buyers' programs - which usually have lower down-payment requirements. These are sometimes offered by various lenders and/or by various levels of governments.

Start House Shopping

To get a sense of all your options, make sure to check out as many Ottawa homes for sale and open houses and housing styles as possible.  Do not make any rash decisions. In order to help with this process, sign a buyer representation agreement with a well-known local real estate agent, they can then sign you up for the Multiple Listing Service (MLS), which is an “Alerting” service that helps you search for properties in your desired areas by letting you know when a property becomes available in an area in which you are considering buying.

Also, find a real-estate agent who is knowledgeable about your target area to represent you and work with you in your search process. Make sure to provide him or her with every “must have” or “Must not have” detail of the home you are seeking: such as the number of bedrooms, bathrooms, the size of the yard, whether you want a garage, the overall layout (bungalow, duplex, town-home, split-level), traffic and population densities, etc.

Scout out the area in which you would like to live by visiting it at different time of the day and week.  Check out its proximity to shopping, schools, public transportation, and other amenities that you want. Also take note of the amount and the speed of vehicular traffic, available parking, noise levels, and business and general activities in the area and whether the neighbourhood is being up-graded by new residents or its overall maintenance is drifting sideways or downwards. Once you have assessed all these factors, then you will be far better informed as to how much and what sort of house or in what neighbourhood you can afford and wish to make an offer to buy.

Visit www.bennettpros.com for all your real estate needs.

Mortgage FAQs

Once you find your dream home in Ottawa you will need to look at your different mortgage solutions

Mortgage solutions are provided by many bankers and mortgage brokers in Ottawa and other cities in Canada. Though there are many things you have to consider about mortgage payments, there are a few questions that are frequently asked by Canadians who are looking for a good mortgage plan and payment solution.

Why hire a mortgage broker when the Bank is there?

When you deal with a bank for the mortgage solution, you are bound by the list of products they have. It is possible that the list does not have the best solution for you. Also, banks have to think about their profit margin and will offer you the highest rate that is acceptable to you. A mortgage consultant on the other hand will have a list of lenders and mortgage products. You could potentially benefit from lower interest rates. However, if you are buying a new home or condo that is not built and you require a pre-approval letter, you must go through a bank, because a mortgage broker cannot guarantee the rate for long enough.

What fee charges are involved?

Typically there is no fee. The lenders who receive your mortgage application hand a certain amount of commission to mortgage consultants. If your application is not accepted because of job instability or bad credit, you are subjected to brokerage fee.

Do I have to wait for my mortgage to mature?

It is not a good idea to wait for that long. You should inform your mortgage consultant around 4 months before the time of maturity of your mortgage. During this time, the consultant can easily shop for other mortgage rates and your mortgage will be easily transferred if there is a possibility.

I recently heard of Mortgage Loan Insurance. What is it?

Mortgage loan insurance is required by law and is provided by three major companies in Canada: AIG Insurance, Genworth Financial Canada and Canada Mortgage and Housing Corporation (CMHC). Do not confuse this with mortgage life insurance. Here the lenders are ensured against default on mortgages with an 80% ratio of loan to value. Borrowers pay insurance premium between 0.5% and 3.7% which is directly added to the mortgage account.

What is a high-ratio mortgage and how is it different from conventional mortgage?

Conventional mortgage is the typical mortgage where the down payment is equal to 20% or more of the property’s purchase price and there is no mortgage insurance required for it.

High-ratio mortgages are where the down payment is less than 20% of the purchase price. You are required to attain mortgage loan insurance from one of the three companies that provide insurance. The borrower is allowed to purchase the house with a small amount of down payment and the lender is also protected with the loan insurance.

What form of down payment is acceptable?

If you have cash, then it is good. If, however, you do not have cash, you can use:

•             Accumulated savings

•             Sales proceeds that you gain from an existing house

•             Your Registered Retirement Savings Plans (RRSP). Up to $20,000 can be used for down payment and if it is repaid within 15 years it will not be subjected to income tax.

•             Investments that are not registered

•             Borrowings from an unsecured Line of Credit.

For more information contact your local real estate agent inOttawa today.

Visit www.bennettpros.com for all your real estate needs.

People Who Will Help You with Your Real Estate Investment

For most the purchase of the home is the biggest investment we make in our lives. It is therefore pertinent to have the best team of professionals to guide you through the process. It is essential that you hire the best Ottawa real estate agent, mortgage broker, lawyer, inspector, builder and insurance broker. It is possible that you might add or remove a few of these professionals depending on the type of home you are purchasing.

Real Estate Agent

By far the most important person in the whole process. The real estate agent’s job is to provide you with all the necessary information that you require related to the area you have chosen. They will also write down an Offer of Purchase for you and negotiate and bargain on your behalf for the best possible price for the selected home. They will also arrange the home inspection and help save your time. You can ask them different questions about the charges and all other things that need to be considered when buying a home.

Mortgage Broker

 Even if you are planning to go through mortgage pre-approval, you have to talk to a mortgage broker. A good lender will help through the entire purchase process and even after that. It is the lender’s job to make sure that you are able to make timely payments and if you have any issue meeting the deadline you should go and talk to them. Mortgage is provided by many different companies including banks, credit unions, trust companies, pension funds and finance and insurance companies. Look around and see which lender would best suit your needs.

Home Inspector

It is important that you get a home inspection done by a qualified professional for any property that you are thinking of buying. The home inspector will let you know if there are any faults in the construction or installation of different items around the house. He will also let you know where repairs are required and he might also be able to identify if there were any problems with the home in the past.

Lawyer

You might not be aware but lawyers play a very important role in the home buying process. The lawyer will make sure that your interests are protects and that the house you are planning to buy does not have any statutory or building charges or liens. The lawyer will review all disclosure contracts before you sign the papers. It is important that the lawyer you hire is familiar with real estate law and is licensed to carry out the paper work.

Insurance Broker

Your home and your mortgage will require insurance. Your lender will insist that you get property insurance at all costs. This is because your property is their security against the loan that they provide you. A mortgage life insurance will help you and your family through tough times. Be sure that you compare rates before you hire an insurance broker.

To able to buy your dream home and retain the right to own it, it is important that you have all the professional help when you buy real estate in Ottawa. At Bennett Property Shop, we will help you compile the best team of professionals.

Why Home Ownership is Better

Canada experienced an increasing demand in rentals and single family homes after World War II ended. The increased demand led to involvement from the Canadian government and led to the development of the Canadian Mortgage and Housing Corporation (CMHC). When you buy real estate inOttawa and other parts of Canada, you are allowed a mortgage loan of up to 80% of the property’s value. Investors who are increasing their real estate portfolio by adding rental properties are also guaranteed return.

The Canadian Bank Act prohibits most federally regulated lending institutions from providing mortgages without mortgage loan insurance for amounts that exceed 80% of the value of the home or purchases with less than 20% down payment.

Through your lender, if you are a first time homebuyer CMHC Mortgage Loan Insurance enables you to finance up to 95% of the purchase price of a home. The government program is mainly designed to help people with home ownership and has nothing to do with real estate investment.

Home ownership has its advantages. The two basic and most important advantages are that a home has the potential to be your most monetarily valued asset and the second is the emotional satisfaction that one gets after owning a house. Though many first time buyers may perceive the different rules of CMHC to be very strict for Ottawa, there are a few reasons why it is better to buy a home instead of renting one.

The mortgage payments may seem like a hassle but they should be considered as a savings plan. Instead of paying off someone else’s mortgage, (when you pay rent you are indirectly helping the landlord gain profits and make mortgage payments) as a home owner you make the monthly payments for yourself. Keeping up with your monthly payments you gain a two-fold advantage: the value of your home rises over the years and eventually the amount owed becomes smaller because most of the principal loan is paid. You can also get a second mortgage that can be used against built up equity as low interest loans.

As a homeowner you are more relaxed. You do not have to worry about the landlord increasing the rent or selling the house. You can maintain and repair the house and even renovate it the way you want. In a rental property you have to first talk to the landlord and wait for his/her approval.

However, if you have a job that keeps you on the move then it is better to rent a property instead of buying a house. You might not be able to look after the home or keep up with the maintenance and repair if you are not around often.

If you have questions about mortgage rules set by the CMHC and how they apply to you, contact your Ottawa real estate agent and ask them to help you figure out the answers while they help you figure out if owning a home is a good idea or not.

Visit www.bennettpros.com for all your real estate needs.

Seize the Day

Seize the day:
Buying sooner pays off as mortgage rates begin their slow but inevitable climb

I can remember when mortgage rates sat at 21%. That was back in 1981. (Of course, I was only an infant at the time. ) Compared with those difficult days, recent news of a mere 0.60% increase in the big banks’ posted rate seems almost cute.

But, while the overall outlook is good for 2013 and 2014, too much complacency can cost you hard-earned dollars.

You don’t have to be a veteran market-watcher to know that Canada has been enjoying historically low mortgage rates: discounted rates have been hovering around 3%. (That’s for a five-year fixed rate mortgage.) Thousands of first-time homebuyers have jumped at the chance to lock into rates like these.

But, from the Governor of the Bank of Canada to the heads of the big banks, financial experts agree that interest rates cannot remain so extraordinarily low. BMO Capital Markets Senior Economist Sal Guatieri has suggested that a “normalized” mortgage would be closer to 4.99%.

Now, over the past few weeks, it seems the big banks have begun the slow but inevitable mortgage rate hike. How might it affect you? Let’s do some simple math:

Let’s say you’re looking at purchasing a $250,000 condominium. As of press time, the posted rate of several of the big banks is 3.69%. Lock in now, and  (assuming 25-year amortization ), you’ll pay $1,273 monthly.

If you wait till rates normalize at 4.99%? You’re looking at $1,452 monthly – that’s  a difference of $179 a month. Over a five year term, you’re losing $10,740. I don’t have to tell you what you could do with that money.

But perhaps more significantly, an higher rate will decrease the amount you’re approved for – by tens of thousands of dollars. Play around with an online mortgage approval calculator: you’ll be amazed. With an income of $64,000 and a down payment of $20,000, today’s mortgage rate will get you approved for $252,000. At 4.99%, that approval suddenly drops to $228,000. That may mean the difference between buying the home you love and settling for one you can afford. 

I’m all for buying the home you love.

 Visit www.bennettpros.com for all your real estate needs.

Mortgage Basics

If you have already had a look at our blog, you surely have seen a couple of posts that explain a few of the most basic mortgage related questions that buyers have. When you look for Ottawa real estate properties, the first and foremost thing you need to do is understand the basics that are involved with buying a mortgage and how the monthly payments are calculated. After this, you get yourself pre-approved for a mortgage. There are few benefits of a pre-approved mortgage that can help you in buying your dream home.

We define mortgage as a loan that is specific for real estate. The loan is provided with one basic condition that if for any reason the borrower is not able to keep up with the timely payments the lender has the right to sell the property so that they can get their money back.

The monthly payments are based on the amortization rate and the time period for which the mortgage loan is issued. These payments are inversely proportional to the amortization time period; the larger the amortization period, the smaller the monthly payment. The time period is usually between 10 to 25 years.

Your mortgage calculations will depend on the amount of the mortgage you qualify for. The pre-approval process can give you a fair idea of the amount that you can avail and the amount you have to pay for down payment. The pre-approval process begins after you provide all the necessary financial documentation to your lending institution. The lender will then check for your credit score with the credit bureaus. It is against this information that the lender will provide you a complete mortgage plan that will include the amortization period, interest rate and the monthly payments that you will have to make.

While many people do not believe in getting pre-approved for a mortgage, we cannot stress its importance enough. Pre-approval will save you many complications that can come once you set your eyes on a particular home. Also, many realtors will not work with you if you are not pre-approved.

The most important reason why you need to be pre-approved for mortgage is that it will give you a clear picture of the type of real estate you can afford. Another reason is that a seller would be more interested in your offer if you have the means to quickly provide the cash.

Therefore before you get yourself pre-approved make sure that you have not provided any false information to the lender. Another reason you might not get pre-approved is if the mortgage inspector values the property to be worth less than the asking price. Thus, when you decide to look for a real estate property in Ottawa make sure that you are pre-approved so that you have a better chance at ownership.

Visit www.bennettpros.com for all your real estate needs.

 

Mortgage FAQs

Once you find your dream home in Ottawa you will need to look at your different mortgage solutions.

Mortgage solutions are provided by many bankers and mortgage brokers in Ottawa and other cities in Canada. Though there are many things you have to consider about mortgage payments, there are a few questions that are frequently asked by Canadians who are looking for a good mortgage plan and payment solution.

Why hire a mortgage broker when the Bank is there?

When you deal with a bank for the mortgage solution, you are bound by the list of products they have. It is possible that the list does not have the best solution for you. Also, banks have to think about their profit margin and will offer you the highest rate that is acceptable to you. A mortgage consultant on the other hand will have a list of lenders and mortgage products. You could potentially benefit from lower interest rates. However, if you are buying a new home or condo that is not built and you require a pre-approval letter, you must go through a bank, because a mortgage broker cannot guarantee the rate for long enough.

What fee charges are involved?

Typically there is no fee. The lenders who receive your mortgage application hand a certain amount of commission to mortgage consultants. If your application is not accepted because of job instability or bad credit, you are subjected to brokerage fee.

Do I have to wait for my mortgage to mature?

It is not a good idea to wait for that long. You should inform your mortgage consultant around 4 months before the time of maturity of your mortgage. During this time, the consultant can easily shop for other mortgage rates and your mortgage will be easily transferred if there is a possibility.

I recently heard of Mortgage Loan Insurance. What is it?

Mortgage loan insurance is required by law and is provided by three major companies in Canada: AIG Insurance, Genworth Financial Canada and Canada Mortgage and Housing Corporation (CMHC). Do not confuse this with mortgage life insurance. Here the lenders are ensured against default on mortgages with an 80% ratio of loan to value. Borrowers pay insurance premium between 0.5% and 3.7% which is directly added to the mortgage account.

What is a high-ratio mortgage and how is it different from conventional mortgage?

Conventional mortgage is the typical mortgage where the down payment is equal to 20% or more of the property’s purchase price and there is no mortgage insurance required for it.

High-ratio mortgages are where the down payment is less than 20% of the purchase price. You are required to attain mortgage loan insurance from one of the three companies that provide insurance. The borrower is allowed to purchase the house with a small amount of down payment and the lender is also protected with the loan insurance.

What form of down payment is acceptable?

If you have cash, then it is good. If, however, you do not have cash, you can use:

•             Accumulated savings

•             Sales proceeds that you gain from an existing house

•             Your Registered Retirement Savings Plans (RRSP). Up to $20,000 can be used for down payment and if it is repaid within 15 years it will not be subjected to income tax.

•             Investments that are not registered

•             Borrowings from an unsecured Line of Credit.

Visit www.bennettpros.com for all your real estate needs.