So you want to buy a home? Congratulations! It’s an exciting time and we’re here to help guide you along the way. This is how it all works:
You need 3 things:
1) A realtor (if you don’t have one, we can refer someone to you that we know and trust)
2) A Pre-qualification letter and
3) Deposit money available.
There is a major benefit in using a realtor as it doesn’t cost you anything to use a realtor when you’re buying a home. They have many tools that they use to make sure that you find the right home at the right price.
Getting a Pre-Qualification letter means that we’ve looked at your financial situation and have given you the green light to purchase a home in your price range (as long as the property itself is in good shape).
You’ll need to have a deposit ready as well (typically 5% of the purchase price of the home). That deposit is due within 24 hours after you remove the conditions (subjects) of your offer.
Once you find your home, your realtor will send us all of the paperwork. We will give you some recommendations on which lender to go to and why. Then we’ll send the file in for approval which can take 2-3 business days.
Once you’re approved, we’ll go over some paperwork. We’ll communicate with your realtor to make sure everything goes through smoothly. Then you’ll select a lawyer or notary to use.
As you get closer to your completion date, you’ll see the lawyer/notary and sign some paperwork and give them the balance of your down payment.
Then you sit back and wait until completion.
How expensive will your next mortgage be?
Mortgage rates are important and most clients want to talk about rates. What many clients don’t realize is that while comparing mortgages rates is important, Pre Payment options and those nasty Penalty Calculations are essential to avoiding buyer’s remorse.
Choosing the lender for your fixed rate mortgage needs your attention!
Canada’s 6 biggest banks have the highest calculated penalties if you need to break the mortgage (around 4% of the mortgage balance)
We have many lenders with better pre payment features, same or better rates and a penalty that is around 2% of the mortgage balance!
Although it’s hard to imagine the need to break a mortgage on a house you’re just buying or living in happily, it can happen.
History tells us that close to 63% of home owners make a change to their five-year fixed rate mortgage before maturity.
Many do it to refinance for debt consolidation or to renovate, help their children, buy a vacation property or many other reasons. Sometimes the need is to move to a bigger house or to get a new lower rate!
We don’t want your penalty to get in the way of your next decision.
Mortgage penalties are straightforward if you have a variable-rate mortgage – expect to pay the equivalent of three months’ interest in most cases.
With a fixed-rate mortgage, the penalty is set at the higher of three months’ interest or a calculation called the interest rate differential, or IRD. IRD is basically the difference in the rate between what you originally got and what the rate is today (based on the number of years remaining in your mortgage term) multiplied by the number of months remaining in your term. It’s confusing we know.
Think of it from the bank’s point of view. They’re losing out on interest that they thought they were going to get so if you want to get out early and the rates are lower than what you originally signed up for, then the bank is losing out on that extra interest and will charge you for it.
The must-ask question when we are negotiating a fixed- rate mortgage for you: Do you use discounted or posted rates to calculate these penalties?
This is important because using posted rates can result in a much higher penalty. As an example, let’s use the mortgage prepayment calculators all lenders now provide
on their websites. They show penalties for paying all or a portion of your remaining mortgage balance (to find them, search the net for your lender’s name and “mortgage prepayment calculator”).
Let’s use an example of someone who, 2 years ago, set up a $650,000 five-year mortgage and has a balance owning of $500,000. Assuming an original mortgage rate of 3.29 per cent with a discount of 1.75 percentage points, the mortgage prepayment calculators at several big banks showed penalties ranging from $28,000 to $32,600 or so.
A check with some alternative lenders found penalties ranging from $11,600 to $15,800. These are estimated comparisons because lenders ask for different information on their web sites, however the big banks apply penalties with a sledgehammer. These penalties create huge revenues for the banks, the huge mortgage penalties also help trap clients who might otherwise move their business to another lender. Imagine you want to refinance your mortgage or buy a bigger home and your bank often won’t offer the most competitive rate, you say you’ll change banks, only to find out how prohibitively expensive it is to break your mortgage.
So we know you’re asking yourself “How did I not know about these penalty calculations before”? It’s because the banks don’t like to talk about it and they hope that you stay with them because you’re familiar and comfortable with them, even though they can wind up costing you thousands and thousands of extra dollars, should you have to break your mortgage for whatever reason. It’s our job to go over all of this with you and to help guide you to the right decision.
Purchase Plus Improvement Program.
Maybe this is the perfect home, it just needs a little work to make it special!
Ask the team at Jam Mortgages about the Purchase Plus Improvement program.
This special program will help you get those needed renovations done right away and build those expenses into your mortgage!
So when you’re out shopping, you may find the perfect home on the perfect street with a great layout.
The home needs some updating, as that old kitchen & worn out flooring needs an upgrade or the bathroom needs a fresh look! In other words, it needs your personal touch to make it your home.
Look past the total condition of the house right now and consider its future potential! Others may not see the potential and it may mean you can get a great a deal and build your equity sooner.
Contact us and we’ll help you determine if this is the right mortgage solution for you!