Buying a house isn’t just about putting a roof over your head – for most Canadians it’s also a way to store savings and build equity over time. Home ownership in Canada now tops 70%, a figure that’s risen steadily over the last decade. While a house can be our most valuable asset, it can also be the source of our biggest liability: mortgage debt. The simple fact is that most Canadians have to borrow funds totaling several times their annual income to pay for their home purchase – it’s a huge decision and not one to be made lightly.
Getting pre-approved is your first step
Once a financial institution pre-approves you, you’ll know exactly how much you can afford to spend on a house. Your pre-approval will also help you narrow down your house hunt to homes that fall within your price range. And according to experts, you should keep monthly mortgage payments below 32 per cent of your gross monthly income. If you need more help determining how much you can comfortably afford, try our mortgage calculator.
Shopping for a mortgage is like shopping for a house
While you may have already engaged a real estate agent, combed through MLS listings, and visited a few open houses, getting the right mortgage is as important as getting the right house. In fact, it’s a good idea to start shopping for a mortgage before you start shopping for a house. After all, getting the right mortgage can save you tens of thousands of dollars over the length of your loan.
Selecting the right mortgage
When you’re shopping for a mortgage, you’re not just looking for the lowest interest rates. You have to consider a couple other elements too:
- The amortization period: how long you’ll need to pay off the entire mortgage.
- Variable or fixed: how the interest rate is set.
- Closed or open: whether you need to stay in the mortgage term until it expires or if you can freely move to another product or pay off the loan sooner.
- Payment: how frequently you make payments and what your prepayment options are.