There is a big difference between getting a brand new mortgage for the first time and getting a mortgage to replace one you already have. Some of those differences include:
- If you already have a mortgage, you have a mortgage payment history.
- With a current mortgage, you already have equity built up in a property.
- You might just transfer an old mortgage to a new property.
- A current mortgage holder has less of a learning curve than a first-time buyer..
If you are in the market for your very first mortgage, you have none of these advantages. Here are some tips to get the mortgage you need at the best possible rate.
1. Save. Save. Save.
The single hardest part of any first-time mortgage is saving up the initial down payment. That is because the money that you should be saving for a mortgage is being siphoned off by a landlord. The sooner you save for the down payment and can be ready to buy, the better.
There are many ways to save, but one of the easiest is to have an automatic transfer from your regular bank account into a high-interest account that you don’t touch. This is called paying yourself first, and it forces you to exercise the financial discipline required to save enough for a down payment.
You will probably find that it is worth foregoing some restaurant meals and entertainment in the short term in order to break the rent cycle, become a home owner and have more money for yourself later.
2. Be reasonable.
Try not to spend more in mortgage payments than you are now spending on rent. You don’t want to stretch yourself too thin and there will be new costs that you might not be prepared for, such as repairs and maintenance, upgrades and utilities.
We have a handy mortgage calculator that you can use to determine how much house you can afford – and how much house you can comfortably afford.
As soon as you become an owner, you start building equity. Five or ten years down the road, you can move into a better home if you wish, without having to stretch yourself too thin.
3. Be particular about mortgage specifications.
Take the time to understand the pros and cons of long and short terms, of flexible mortgages and of fixed mortgages, or shorter and longer amortization periods.
As a general rule, the longer the term and the more rigid the terms, the lower a rate you can get. So if you don’t expect your financial situation to improve markedly and you don’t plan to move in the next few years, that might be your best approach.
However, if you expect a fair amount of upward mobility or might want to move within a few years, it might be worth paying a higher rate in order to reduce your debt faster or avoid penalties.
4. Get a broker.
A mortgage broker is helpful for anybody, but even more so for a first-timer. Buying a home is a complex affair and your learning curve will be steep. Mortgages are also complex; a mortgage broker costs you nothing extra, actually saving most people a ton of money, and we let you focus on what is really important to you – the home you are buying.
To hire a broker now, just complete the simple online application at www.alberta-mortgages.com.
The most often neglected aspect of a mortgage is insurance. What happens if you become disabled and can’t earn any income. That would be the worst possible time to lose your home. Check to see if you are already covered for loss of a home. If not, there are special mortgage insurances that will pay down the debt in the event of death or disability. Your broker can advise you on what is available, and the pros and cons of each option. Make sure that you are covered, one way or another.
If you master these five tips, you are well on your way to becoming a proud Canadian homeowner, like two-thirds of the families in this country. Please call us if you have any questions. We love to help!