Before embarking on your house hunting journey, you should first determine what you can afford. A common rule of thumb is that your total expenses and debt payments should not add up to more than 40% of your household income before taxes.
Next, you’ll have to decide on the type and size of mortgage that best suits your needs. The two basic options are a conventional mortgage, which requires at least a 20% down payment; and a high ratio mortgage, which is designed for people who do not have the 20% down payment. If you purchase a home with a lower down payment, you will pay mortgage default insurance, which transfers the risk of default from the lender to the mortgage insurer (see understanding mortgage insurance link for more details).
Other decisions about a mortgage involves the choice between a variable rate, which involves a fluctuating interest rate; and a fixed-rate mortgage, which, as the name implies, means you pay a fixed interest rate for a set term such as three, five or 10 years. If you choose a variable rate mortgage, it’s important to understand that your monthly payments may increase if interest rates rise. By selecting a mortgage with prepayment privileges, such as lump sum, accelerated bi-weekly or monthly payment options, you can reduce your amortization period and save thousands of dollars in interest in the long run.
To help you understand your choices, ensure you’re financially prepared. Many websites including homeownership.ca offer a wealth of financial information for home buyers. Speaking to a mortgage professional will help you work through your specific needs.
For more articles on homeownership, visit Zoocasa’s Before You Buy Section.
