Whether you’re buying a home, condo or cottage, Desjardins advisor Patrick Champagne has some exercises for you to make sure your dream doesn’t turn into a disappointment or hassle. “There’s some prep work to do before you start visiting homes and talking loans, rates and mortgage terms.”
What can you afford?
The first order of business is to figure out how much you can afford to spend on a home, which you can determine by using our calculator on desjardins.com. Be as financially realistic as possible.
This calculator considers your household’s gross income and overall financial commitments1, the amount you plan to use as a down payment and the approximate fixed costs of your future home (e.g., municipal and school taxes, condo fees).
Remember that the higher your down payment, the less you’ll have to borrow and the less interest you’ll have to pay. The minimum required down payment is generally 20% of the property’s cost.
However, if your down payment is between 5% and 20%, you’ll have to take out mortgage insurance from Canada Mortgage and Housing Corporation (CMHC) or Genworth Canada. The premium will be between 0.6 % to 4.5% of the mortgage loan depending on the percentage of your down payment. To pay your premium, you can either add them to your mortgage loan or pay them with a lump sum up front. Continue reading →
Once you’ve settled the question of open or closed term, you will inevitably have to decide between a fixed and variable rate. Which is best for your situation?
When the time comes to choose your mortgage term, there are a number of elements to take into account, including your financial means, your risk tolerance and the economic situation. To demystify it all and equip you to make the best possible decision, here’s some information that will help you make an informed choice about your mortgage type.
Fixed- versus variable-rate: which is lower?
As a general rule, variable-rate mortgages tend to be lower than fixed-rates. To understand the difference, you need to look at how these rates are calculated. Essentially, a financial institution’s variable interest rate corresponds to its preferential rate. This is established based on the Bank of Canada’s overnight rate. Add a certain percentage to this, and you have the variable rate.
As with fixed-rate mortgages, the monthly payment amount usually stays the same, but the ratio of interest to principal is subject to market fluctuations. There are also certain types of variable-rate mortgages where the monthly payment varies based on the fluctuation of market interest rates. With a fixed-rate mortgage on the other hand, you are guaranteed to always have the same amount dedicated to repaying your principal, regardless of what the market does. Continue reading →
On January 1, 2018, the revised Guideline B-20 came into effect, governed by the Office of the Superintendent of Financial Institutions (OSFI). The changes to Guideline B-20 reinforce OSFI’s expectation that federally regulated mortgage lenders (FRML) remain vigilant in their mortgage underwriting practices. The full outline of the revised Guideline can be found on their website.
If you’re ready to purchase your first home but you need a bit more money for the down payment, the Home Buyers’ Plan (HBP) allows you to withdraw money from your RRSP to finance the purchase of your first home.