There have been a lot of changes to the world of mortgages over the last few years.
That being said, I am finding some common misconceptions which need to be addressed so that you are able to make the best choices.
1. You need 20 per cent down to buy a home. This is simply not true. You can put as little as five per cent down. You will of course have to pay the mortgage default insurance premium if you do so.
You can purchase with five per cent down even if you have done so previously. The five per cent can come from a variety of sources:
• savings via RSP, TFSA, regular bank account
• gift from immediate family member
• borrowed from alternate source like a line of credit or credit card
• sale of asset
2. You have to re-qualify at the stress test rate upon renewal. This was in fact proposed during the last round of changes but it did not come to pass.
When your mortgage comes up for renewal, if you are in good standing, you should receive a letter from your mortgage provider with an offer for an additional term. It is in your best interest NOT to accept this and to look around at the market. It is free to switch your mortgage to a new lender and a lower interest rate will save you money.
3. Once you have a pre-approval you are all set. It is a great strategy to visit your mortgage provider BEFORE you list your current home or go shopping for the first time.
It can make your offer stronger if you get in a competitive situation. It doesn’t mean you are all set though. You will be continuing the mortgage securing process, with the lender asking for all manner of paperwork related to income and your overall financial health.
It’s not over until you get the all clear. Even then it is imperative you don’t make any big changes until you take possession or they can cancel your approval.
4. You can’t buy a home if you have awful credit. There are a wide variety of lenders who can help those with less than perfect credit. You must have a larger down payment and the interest rates are higher but there are mortgages made just for you.
5. It is impossible for self-employed folks to get a mortgage. Many self-employed choose to take less income from their companies than those traditionally employed.
This can be for tax planning purposes or to help their businesses get off the ground. Whatever the reason, there are lenders out there who can look past the traditional income verification and get you into the home of your dreams.
6. My bank knows me so why should I go anywhere else? Canadians will go to four stores before making a purchase as small as a TV yet have a strange loyalty to their banks when it comes to mortgages.
Banks are a business like any other. Your home is likely to be your largest investment so it is in your best interest to get the best mortgage possible and that may mean looking beyond your local branch.
7. You can’t refinance anymore. Yes you can! You can only go to 80 per cent of the property’s value but refinances are still alive and well.
8. I don’t have a mortgage, I have home equity line of credit (HELOC). I often meet with people who proudly say they do not have a mortgage yet when we get further into the process there is in fact a HELOC in place. A home equity line of credit is a mortgage like any other and has to be repaid as agreed.
Hopefully this has given you some clarity on the modern world of mortgages. As always, a well-qualified mortgage professional is your best bet for advice.
Pam Pikkert is a mortgage broker with Mortgage Alliance – Regional Mortgage Group in Red Deer.