Tuesday, February 7, 2012

Buying a New Home Blog Series – Part One – Low Interest Mortgage Approvals

Buying a new home is exciting but involves preparation if you want to get the best deal. Getting the best deal will mean getting a good price on your home, negotiating a low interest mortgage, getting competitive quotes on homeowners insurance and mortgage protection insurance and more. 

A low interest mortgage when buying a home will be important because a mortgage payment for most people represents their largest debt and monthly payment. 

Mortgage interest rates in Canada have been so low for so long that buying a new home is very affordable and in some cases you may be able to buy a new home that bears a mortgage payment comparable with a monthly payment for rent. 

When thinking about how much of a mortgage payment you can afford, it is important to remember that in addition to a mortgage payment you will also have a monthly payment to property taxes, hydro, gas and homeowners insurance. This can really add up and because utility costs in Ontario have increased dramatically over the past few years, it is important to get a low interest mortgage approval that gives you a low monthly mortgage payment so that if your utility costs rise, you can still afford to carry your home. 

There are many different types of low interest mortgage products out there. Your mortgage interest rate will often depend on the type of mortgage product that you choose and the amount of your down payment. 

Those who want to take advantage of the current historically low interest rates but may not have planned to buy a home may not have substantial savings accumulated to cover the cost of a down payment. There is no money down programs offered by many banks that enable families who don’t have a down payment to be able to buy a new home.  

Before buying a new home with a no money down mortgage, you must consider that this will not get you the lowest rate mortgage available. This is because in most cases, a no money down mortgage will involve a slightly higher interest rate because the bank will recover the equivalent of a 5% down payment through interest in the first 5 years of your mortgage. For example, right now National Bank’s 5 year fixed mortgage interest rate is 3.49% if you have a down payment of at least 5%, whereas, their mortgage rate with no money down bears a 5 year fixed mortgage rate of 5.29%. This represents about a $300 difference in monthly payment to the homeowner.  

Also, when buying a new home choosing a variable rate mortgage is often cheaper than choosing a fixed rate mortgage. Variable rate mortgages are less interest because they float with prime. The homeowners carry some risk because if interest rates rise, so will the variable rate on the mortgage. The safest bet is often to choose a low variable rate mortgage with an option to lock in. This allows you to receive the lowest interest rate with the safety net that if rates start to rise, you can lock into a higher fixed rate mortgage. 

Buying a new home is often the single biggest purchase that an individual will make. For this reason it makes sense to research, prepare and establish a relationship with a local mortgage broker who can educate you on what rates are available with all the banks so that you can make the best informed decision.

1 comment:

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