Step 9: Arrange a Mortgage

Congratulations, you’re nearing the finish line of your home-buying journey! The next crucial step is arranging a mortgage. While it might not be the most thrilling part of buying a home, securing the right mortgage is essential to making your homeownership dream a reality. Let’s dive into how to navigate this process smoothly and effectively.

Who Do You Talk To?

The mortgage market is vast, with countless banks, credit unions, and lenders all vying for your business. It’s important to shop around and explore all your options. Start by talking to your own bank, but don’t stop there. Reach out to other financial institutions, ask friends and family for recommendations, and consult your REALTOR® for insights on trusted lenders.

Call a Mortgage Broker

A mortgage broker can be your secret weapon in finding the best mortgage rates. These professionals specialize in scouting the market to find you the most competitive offers. The best part? They usually don’t get paid unless you close a mortgage through them, so they’re highly motivated to secure you the best deal.

Consider the Seller’s Mortgage

In some cases, you might be able to take over or “assume” the seller’s existing mortgage. This can be a fantastic option if the seller has locked in a lower interest rate than what’s currently available. Your REALTOR® can guide you through this process and help you determine if it’s a viable option for you.

Mortgage Terminology

Understanding the key terms related to mortgages can make the process less daunting. Here’s a quick overview:

• Mortgage Term: This is the length of time the bank agrees to lend you the money, typically ranging from six months to five years. At the end of the term, you’ll need to renegotiate a new term.

• Amortization: The total length of time it will take you to pay off your entire mortgage. This can be as long as 40 years, depending on your agreement. The longer your amortization, the lower your monthly payments, but the more interest you’ll pay over time.

• Interest Rates: The cost of borrowing money. The interest rate has a significant impact on how much you’ll pay monthly and over the life of the loan. This is why it’s crucial to shop around for the best rate.

How Big a Down Payment?

The size of your down payment directly influences the size of your mortgage. The larger your down payment, the smaller your mortgage will be, which means less interest paid over time. However, don’t forget to set aside funds for other costs associated with buying a home, such as closing costs, moving expenses, and potential renovations.

The RRSP Home Buyers’ Plan – A Little Sweet Relief

If you’re a first-time homebuyer with money in an RRSP, you can withdraw up to $35,000 tax-free under the Home Buyers’ Plan. If you and your spouse are both eligible, that’s $70,000 combined. This can significantly reduce the amount you need to borrow. Be sure to consult with your REALTOR® to see how you can best utilize this plan.

Locking in an Interest Rate—For How Long?

Deciding how long to lock in your interest rate is a critical decision. A long-term mortgage offers peace of mind with stable payments, but if interest rates drop, you could end up paying more than you need to. Conversely, if rates rise, locking in a lower rate now could save you money in the long run. Your REALTOR® can provide valuable advice tailored to your situation.

What You Need to Apply for a Mortgage

When you’re ready to apply, you’ll need to gather several key documents:

• Letter of Employment Confirmation: This confirms your job, salary, and tenure with your employer.

• List of Assets: Include everything from your car to stocks, bonds, and GICs, particularly those that will be used for your down payment.

• List of Liabilities: This includes car payments, student loans, credit card debt—anything you owe money on.

• Social Insurance Number and Chequing Account Number: These are needed for the application process.

• Information About the House You Want to Buy: The lender will want details about the property, as it will serve as collateral for the loan.

Don’t Forget These Extra Costs

When arranging a mortgage, there are several additional costs to be aware of:

• Application Fee: Some lenders charge a fee to process your mortgage application, though it’s often negotiable.

• Appraisal Fee: Lenders may require a professional appraisal of the property, and you might be responsible for this cost.

• Mortgage Broker’s Fee: Some brokers charge a fee upon closing—be sure to ask about this upfront.

• Land Survey Fee: If required, a survey can cost between $600 and $900. Your lawyer may be able to negotiate this.

• Home Inspection Fee: This is money well spent to avoid surprises later on.

• Home Insurance: Required by lenders, this can often be added to your monthly mortgage payments.

• Fire Insurance: This is mandatory and covers the property value or mortgage amount.

• Provincial Sales Tax on Mortgage Insurance: If your mortgage is insured, taxes on the insurance premium are due at closing.

• Title Insurance: This protects against potential fraud or title errors and costs a few hundred dollars.

• Legal Fees: Your lawyer will handle the legal aspects of the purchase, including title searches and preparing the deed.

• Maintenance and Utility Costs: Remember, you’ll now have regular monthly payments for property taxes, utilities, and repairs.

• Land Transfer Tax: Most provinces charge this tax, and it’s based on the purchase price of your home. First-time buyers may qualify for a rebate—ask your REALTOR® or lawyer for details.

• HST on New Homes: If you’re buying a new home, be prepared for HST on the purchase price. Make sure it’s clear who pays this tax—you or the builder.

• Closing Adjustments: These include any payments made by the previous owner for taxes or utilities, for which you’ll need to reimburse them.

Securing a mortgage might seem daunting, but with the right preparation and expert advice, you’ll navigate this step with confidence. At Team O’Krafka, we’re here to guide you through the entire home-buying process, ensuring you make informed decisions every step of the way. Ready to move forward? Let’s find the perfect mortgage and make your dream home a reality!