Buying a home is a major financial commitment and for many people, the culmination of a lifelong dream. If you are looking to buy your home, refinance or invest in property, it is important that you have the best mortgage.
A mortgage expert can tell you exactly how much you can borrow, which is the best mortgage for you and how much you can save if you have an existing mortgage.
Before house shopping, it’s a good idea to find out how much you potentially qualify to borrow. That means you’re not wasting time looking at homes outside your price range.
For getting a mortgage preapproval, The lender will look into your credit history, income stability and your current finances.
To get a preapproval letter from a lender, you’ll need to provide:
- Identification including Social Security number.
- proof of employment consisting of either a month of pay stubs or T4 going back two years (or tax returns if you’re self-employed)
- proof you can pay for the down payment and closing costs such as bank statements.
- information about your other assets, such as a car, cottage or boat.
- information about your debts or financial obligations.
Lenders will also pull your credit report.
A mortgage preapproval is usually good for up to 90 days.
The minimum down payment in Canada is 5%. For down payments of less than 20%, home buyers are required to purchase mortgage default insurance, commonly referred to as CMHC insurance.
If you want to protect yourself from high penalties
- Read your mortgage contract very carefully: Before signing the document. Make sure you find out exactly what penalty you will be expected to pay in case you decide to break your contract early. Ask your mortgage agent to clarify.
- Ensure that the contract allows you to break your mortgage: One of the most crucial things you should know that the lender will allow you to break the contract early or not.
- Make sure you understand pre-payment clauses and take advantage of it: Pre-payment clauses allow you to pre-pay up to 20 per cent of the balance of your mortgage annually without incurring a penalty.
- Learn how to calculate the penalties yourself: Educate yourself about how the various penalties are calculated. As a rule of thumb, variable rate mortgages will use the three-month interest method, It basically calculate the interest due on the next three mortgage repayments and pay the three months total ” while fixed term mortgages will use the Interest Rate Differential (IRD). It is calculated by multiplying your mortgage balance by the difference between your original mortgage interest rate and the current interest rate that the lender can expect to charge upon reselling the mortgage.
How mortgage penalties are calculated
There are two main methods to calculate mortgage penalties.
- The three months interest method: It basically calculate the interest due on the next three mortgage repayments and pay the three months total. This method has typically been applied on variable rate mortgages.
- Interest Rate Differential (IRD): It is calculated by multiplying your mortgage balance by the difference between your original mortgage interest rate and the current interest rate that the lender can expect to charge upon reselling the mortgage. This method also used for fixed rate.