Summary: Three steps to successful mortgage shopping
Step 1: Know what you need and want in a mortgage
Before you start shopping around for a home or a mortgage, understand the following:
- the minimum down payment required to buy a home
- the down payment amount that you will need to avoid having to pay for mortgage default insurance
- how the Home Buyers’ Plan (HBP) can help you make the down payment on your home
- the difference between:
- open and closed mortgages
- shorter and longer terms
- term and amortization period
- fixed, variable and hybrid interest rate mortgages
- standard or collateral charge mortgages
- how accelerated payment options can help you save money in interest and shorten the time it will take you to pay off your mortgage
- the prepayment privileges you might like to have on a mortgage and the prepayment charges you could be required to pay
- optional insurance available on mortgages, such as:
- mortgage life insurance
- mortgage disability or critical illness insurance
- title insurance.
Step 2: Shop around and get pre-approved
Before shopping around:
- Check your credit report. Make sure it does not contain any errors. Lenders will check your use of credit.
- Take stock of your financial situation. Determine how much you can afford for the down payment and regular mortgage payments.
Key tips while you are mortgage shopping:
- Shop around at a few different lenders and brokers to obtain pre-approvals for a mortgage before you start looking for a home. Keep in mind that the pre-approved amounts can overestimate what you can comfortably afford to pay.
- Bring all the information that you may need during the pre-approval interview with a lender.
- Know how much you can afford to borrow by calculating the maximum home costs based on your income and current debts. Use the GDS and TDS formulas.
- Don’t accept the first offer made to you—explore your options.
- Ask whether the mortgage on offer will be registered with a standard charge or collateral charge.
- Be sure that the pre-approval contains the terms that you want. For example, the prepayment privileges that you want to be able to use to pay off your mortgage faster.
- Remember that a small difference in interest rates can have a major impact on the amount of interest you will have to pay over the lifetime of your mortgage.
Step 3: Make the right decision for your needs
Before signing a mortgage agreement:
- Budget realistically for the extra costs that you must pay when you buy a home, including closing costs, moving costs and other costs related to owning and maintaining a home.
- Read the terms and conditions carefully. Ask questions about anything you don’t understand.
- Don’t forget that federally regulated financial institutions (such as banks) cannot use coercive tied selling to force you to get another product.
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