Whether you are a newcomer contemplating the purchase of your first home in Canada or an existing resident considering a fresh foray into Canada’s vibrant housing market, it is important to do so with a thorough understanding of the processes and procedures involved—both financial and legal—to ensure a smooth and relatively stress-free homebuying experience.
We had earlier delved into some of the key considerations one should keep in mind when embarking on a homebuying project. Getting pre-approved, approved, and finally taking out a home mortgage is a crucial step in this complex process. The importance of getting this right cannot be discounted.
What is a home mortgage?
Simply put, it is a loan you take from a bank, a lending institution or trust, or a private lender to finance the purchase of your home. A mortgage constitutes the principal loan amount and the interest that you will be paying on this amount. As with all kinds of loans, the repayment schedule can vary between 20 and 30 years, based on your ability to repay the same. Mortgage payments are usually scheduled on a bi-weekly or monthly basis.
Understandably, the principal amount will keep shrinking if you are able to make more frequent repayments over the length of your mortgage term. Many financial institutions welcome faster mortgage repayments without applying a pre-payment penalty.
Mortgages and the interest rate environment
The ongoing difficulties faced by Canada’s housing market have a direct correlation to the interest rates set by the country’s central bank – the Bank of Canada. In a bid to reign in borrowing costs, which have been climbing steadily for the last few years, the Bank of Canada has cut the key lending interest rates several times this year, including announcing its steepest cut in a while last month.
As a prospective home buyer, especially a first-time home buyer, these fiscal measures directly impact how much you will fork out in monthly mortgage payments during the foreseeable future and beyond. The depth of impact of these measures will also help you determine the kind of mortgage you should opt for—whether it is a variable-rate or fixed-rate mortgage.
The process
Once you have decided to take the leap, you should explore all the mortgage options available. Having a healthy credit history is key to getting a good mortgage deal. If you are a newcomer, this matters even more as you may not have an established credit history. Getting pre-approved for a mortgage is the first step in this process and allows you to ascertain what kind of home you can afford to buy. For this, you can approach various banks, trusts or credit unions. You should access private lenders only if the earlier options do not work out.
If everything goes well, including your search for a home, and you are ready to make an offer, the next step would be to have your final mortgage application approved by your lending institution. Various fiscal measures announced earlier this year, including the cuts in interest rates governing mortgages, aim to make it easier for homebuyers to purchase a home, as well as address housing affordability concerns.
In particular, the extension announced for the mortgage amortization period to 30 years, from an earlier limit of 25 years, regardless of whether you are an insured or uninsured borrower, should benefit new homebuyers considerably.
To conclude, buying a home is not an easy process, especially given the current economic climate. However, if you make the effort to do your research, work with qualified and experienced real estate and financial professionals, you can easily navigate the same. We have also shared a list of resources below that provide ample information about where to start and what to do.
We wish you all the best in your journey towards becoming a homeowner in Canada!
Additional Resources
First Home Savings Account (FHSA)
From the Canada Mortgage and Housing Corporation (CMHC)
Homebuying Step by Step Guide and Workbook
From the Real Estate Council of Ontario (RECO)
Do get in touch with the RE/MAX Royal Team Sachdeva Realty for more information about any of your real estate needs.
Have a great weekend!