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Creatively structure your mortgage
The mortgage shopper has never had it so good -- nor so complicated. The overwhelming good news for the home shopper are interest rates themselves -- the posted rate for a closed five-year mortgage at Royal Bank in late January was 6.65 per cent. But a special offer available during the month made the same term available at 5.59 per cent.
At the same time, there are more and more vehicles for the mortgage shopper to use.
For example, in the past year amortizations have zoomed to 40-year terms while consumers can also apply for mortgages where only the interest is paid for a certain term.
And all this takes place against a background of tough competition between financial institutions who want your money -- and with mortgage brokers who will do the leg work for you and shop around for the best mortgage.
"In today's environment, it is far more competitive," observed Patricia Lovett Reid, vice-president at TD Waterhouse.
"There is far more out there and doing your homework before you go shopping for the house makes sense."
Even before you start thinking about mortgage terms and who will get your hard-earned bucks, you have some work to do -- it's critical that consumers get to know their own numbers first.
That's because you aren't going to get the best rate going if you are viewed as not having your finances in order. So, you want to sit down and add up all your assets and liabilities, including credit card debt, RRSPs, car loans and so on.
You also want to make sure your income taxes are up to date, because you may not get a mortgage if you don't.
You also want to be armed with proof of income, in the form of pay stubs or a letter from your employer -- and they must be recent.
Before you phone up the real estate agent, you will want to visit your financial institution -- or mortgage broker -- to find out just how much money you can spend on a house.
"There aren't many real estate agents that will work with people who are not pre-approved these days," said Reid. "Why bother?"
She noted that the general rule of thumb is to allocate about 32 per cent of your pre-tax income to housing costs.
Mortgage brokers have been growing in popularity in recent years as fewer Canadians feel loyalty to one institution to a point where they do all of their financial business at a single place.
A recent survey by the Canadian Institute of Mortgage Brokers and Lenders indicated that more than 31 per cent of Canadians sought the advice of a mortgage broker in 2006, up from 25 per cent in 2006.
"We're experts in understanding all these choices a consumer can have in getting a mortgage and then we will organize and arrange that mortgage for you," said Andrew Moor, president and CEO of Invis, Canada's largest mortgage brokerage firm.
"And we point out the product choices you have, we make sure you get a great interest rate. We'll do the leg work around understanding what paperwork is required. It's a complicated process and we try to make sure our customers are happy about how the process works."
When shopping for a mortgage, your biggest decision is whether you want a fixed rate or variable term.
And if you're a first-time buyer, you will likely opt for a fixed rate.
"First-time buyers are more fixed rate oriented because they are the most stretched around the mortgage payment and they can't afford to take the risk," said Moor.
January 22, 2007 in Arranging Mortgage Financing | Permalink
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Comments
It's definitely good to see that the number of extra mortgage types and the increased competition are helping home buyers.
I think it's worth mentioning that the more complex the loan the more likely the lender will make some sort of error with your mortgage.
Therefore you should check your mortgage statements for interest calculations errors. It's a way people can lose thousands without realizing it (especially first-time buyers).
Use a spreadsheet, or download one of the more popular mortgage tools out there. I use the one from http://www.homemoneymanager.com/ which I find really good, or just search for "Mortgage Audit Software" to find others.
A small error at the start of the loan could end up costing you thousands.
Posted by: Mortgage Checker | Jan 22, 2007 10:43:39 PM
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