Choosing the Right Mortgage for You. When it comes to purchasing a house, then most people go forward and borrow the maximum part of their mortgage from the lender. Generally, mortgage loans can be divided into 2 major categories – a fixed rate mortgage and an adjustable rate mortgage. Now, it’s for you to carefully weigh the pros and cons of each of them before you take the decision regarding which is best for you.
The features involved
There are different features associated with the 2 kinds of mortgages. For instance, an adjustable rate mortgage might have an interest rate cap involved. This cap in the interest rate is effectual in limiting the amount till which the interest rate can change during the term of a loan. Adjustable rate mortgages also give you the opportunity to convert to a fixed rate mortgage. That can easily be done for a fee or a higher rate of interest initially.
Now again, both fixed rate as well as adjustable rate mortgages provide you with the opportunity to pay points right at the start of the loan itself. These points would help to decrease the rate of interest on a fixed rate loan. As for adjustable rate mortgages, then they can decrease the margin or perhaps decrease the initial rate on the mortgage itself.
The functions delivered
Basically when it comes to the function of a fixed rate mortgage, then you go on to lock in a set rate of interest for the rest of the life of the loan. Your monthly payment will be set based on both the interest rate as well as the mortgage amount. Generally there’s no scope for changing this rate unless and until you fall behind on your payments or refinance your mortgage. On the other hand, with an adjustable rate mortgage it’s something different. Here your mortgage will be tied to a particular interest rate index. You’ll be assigned a particular margin. Most importantly, when your introductory period comes to an end and periodically thereafter, a new interest rate will be calculated for your mortgage. This’ll be done by adding the current value of the interest rate index to the margin.
Advantages of fixed rate mortgages
You’re essentially immune to the rising interest rates when it comes to a fixed rate mortgage. Now, even if it so happens that the interest rates double, then also nothing happens to your interest rates and monthly payments as they remain fixed. This is one such guarantee that can actually make budgeting for the future so much easier. You’ve got to make a larger payment if your interest rates increase, in the case of an adjustable rate mortgage.
Advantages of an adjustable rate mortgage
When it comes to an adjustable rate mortgage, then there are always high chances that your mortgage loan interests will go down with a fall in the rate of interest. Moreover, you needn’t pay to refinance your loan. With a fixed rate mortgage you’d obviously have to pay a refinance each time you wish to take advantage of the lower rates.
Keep in mind the facts when deciding on the type of mortgages.
Mortgage Tips for Home Buyers. Are you sitting on the sidelines waiting for the best time to refinance or get a mortgage loan? With the FHA introducing the new guidelines, getting a mortgage loan for the first time home buyers will become bit too expensive. With a stellar credit rating, persistence and shopping skills, it might become possible to snag the best mortgage deal in the market. So, if you’re someone who is trying hard to strike a deal in the market, here are some tips that you might consider apart from checking different mortgage forums.
Stop delaying and go for a refinance: If you haven’t refinanced your mortgage loan as you’ve been waiting for a lower interest rate, you should do it immediately. As the present mortgage rates are at their record low levels, you should immediately leverage the low rates so as to help you save money. During the first few months of 2013, the mortgage rates are supposed to stay low and this might increase in the next few months.
Ensure that you have a stellar credit rating: The credit standard remains tight throughout 2013 and therefore before you approach a mortgage lender, you have to ensure checking your credit score and improving it to at least 720 so that the lenders feel that you’re able to manage the monthly mortgage payments with ease. With a poor credit score, you might be subject to high interest rates that can become un affordable on your part.
Lower your DTI ratio: The DTI ratio or the debt-to-income ratio is another ratio that is taken into account by the mortgage lenders before lending you a mortgage loan. You should take steps to pay off your debts so that your DTI ratio is reduced and your mortgage lender lends you a loan with ease. Unless you take the required steps to lower the DTI ratio, you won’t be able to get a mortgage loan at an affordable rate.
Shopping is the key: While you choose to take out a mortgage loan in 2013, you need to shop around among multiple lenders. As there are too many lenders that are trying to lend you their mortgage loans and services, you require choosing the one that offers the lowest mortgage rates, the lowest closing costs and affordable monthly payments throughout the term of the loan.
Pay down the exact amount: You also require paying down the exact amount towards the mortgage loan so as to avoid paying the mortgage insurance payments. You just have to save enough money so that you’re able to pay down at least 20% of the loan amount to the mortgage lender. When you fail to pay down the exact amount to the lender, you might have to pay the PMIs that will unnecessarily increase the monthly mortgage payments.
Therefore, when you’re wondering about the prospects of getting a mortgage loan in 2013, you should follow the above mentioned tips. Manage your finances at the same time and repay the loan on time so as to help yourself avoid a probable hit on your credit score.
When you have your mortgage in place you will need a professional home inspector. Choose an experienced and knowledgeable inspector to ensure your investment is protected from un-wanted surprises or expenses. When searching in the Barrie area call Roger Frost, The Barrie Home Inspector.
Get The Most Out Of Your Money. You have told yourself over and over again that you will finally get control of your personal finance, however, you have never really gotten around to it. Well, here is the perfect opportunity for you. This article will inform you about all the necessary information you need to get started in getting on track.
A young consumer with a modest personal financial situation, should resist the temptation to open accounts with many credit card companies. Two cards should be adequate for the consumer’s needs. One of these can be used regularly and ideally paid down regularly, to build up a positive credit history. A second card should serve strictly as an emergency resource.
Do not overlook your city bus system. Weekly passes are far cheaper than filling up your car. Check your local government website for routes. You might just be living on a major artery that can get you places. If you have a smart phone, you can even do some work while riding.
Cooking at home can give you a lot of extra money and help your personal finances. While it may take you some extra time to cook the meals, you will save a lot of money by not having to pay another company to make your food. The company has to pay employees, buy materials and fuel and still have to profit. By taking them out of the equation, you can see just how much you can save.
Pay all your bills on time to avoid late fees. These fees add up and start to take on a life of their own. If you are living paycheck to paycheck, one late fee can throw everything off. Avoid them like the plague by making paying bills on time a commitment.
Your personal finance is very important. Make sure that you end up with more money then you started with. It is very common for people to overspend, and before they realize what is happening they end up with a mountain of debt. So make sure you are bringing in more than you are taking out.
Before you sign any loan, always talk to someone that knows about loans and lending. You can check with a lawyer or someone else you trust so they can look over all of the paperwork. It is best to know what you are signing so you can avoid surprises.
Mortgage
Personal finance also includes setting goals for yourself and your money. This includes both short and long term goals like paying off your car and figuring out how much you should put away each month towards your retirement. It is helpful to have some goals that work together, for example, how much extra should you pay each month towards your mortgage so that your house is paid off when you retire.
If you are saving for your retirement it is recommended that you save 10-15% of your annual income when your are just starting out. Obviously, if you are older you will need to save more. You also need to save more if you will not retire with an mortgage free home. The sooner you get started the more you will have when you need it most.
To pay your mortgage off a little sooner, just round up the amount you pay every month. Most companies allow additional payments of any amount you choose, so there is no need to enroll in a program such as the bi-weekly payment system. Many of those programs charge for the privilege, but you can just pay the extra amount yourself along with your regular monthly payment.
If you are trading to make your mortgage, you are trading for the wrong reasons. The volatility of the exchange is too great to gamble your needed finances on. Always use safe money as opposed to your real world dollars that must support your day to day life. This is about building profits, not about playing the lottery.
File important financial documents where you can find them quickly when needed. This includes loan and mortgage documents, tax returns, insurance policies, and bank statements. It is stressful enough to suddenly need one of these documents without the added anxiety of not knowing where to find it. To be extra safe, keep copies of essential papers in another location, such as a safe deposit box.
If you have lost a prior home to foreclosure, this does not mean that you are out of home owning altogether. You should be able to get a government-backed mortgage through Fannie Mae, Freddie Mac and the FHA, in as little as three years after your previous home has foreclosed.
There is no need to be worried about the state of your personal finances. This article offers many easy fixes for any of your money problems so you can take care of things without needing the help of a professional. Once you get your financial records on track, it will be effortless to keep up.
If you are retired, you may also want to get the real definition of reverse mortgage.
Jeremy Ridley – RBC Mortgage Advice for Home Buyers
Top 10 First-Time Homebuyer Questions:
A home can be one of the most personally and financially rewarding investments you’ll ever make. But if you’ve never bought a home before, the process may seem a little overwhelming.
To help you, We’ve put together this special report. It provides answers to 10 of the most frequently asked questions that our home-buying clients ask.
1. What’s the best way to save for my down payment?
If you’re saving to buy your first home, one of the most effective ways to put money aside is with an automatic savings plan. With these plans, an amount you specify is automatically transferred from your bank account to your savings account on a regular basis. You can contribute as little as $25 and make deposits weekly, bi-weekly, semi monthly, monthly, quarterly- whatever works best with you cash flow.
One of the best places to put your savings is in a tax-free savings account (TFSA). All earnings and withdrawals from your investment are tax-free. You can contribute up to $5,000 a year into a TFSA
You might also consider directing your savings to your Registered Retirement Savings Plan (RRSP). Under the RRSP Home Buyers’ Plan, first-time home buyers can withdraw up to $25,000 from their RRSP, tax-free, to use as a down payment on a home. The Plan allows you 15 years to repay the amount withdrawn, starting the second year after the year of withdraw. For more information on this plan, please visit cra.gc.ca and search “Home Buyers’ Plan” in the A to Z index.
2. How much home can I afford?
Getting pre-approved for a mortgage is a good place to start, or you can use one of the many online calculators to help you figure out how much home you can buy. The “How much home can I afford” calculator at www.rbcroyalbank.com/products/mortgages/mortgage_calculators.html or calculators available from Canada Mortgage and Housing Corporation at cmhc.ca can help you start to understand an affordable range for you to start shopping.
Two important ratios lenders use to determine how much home you can afford are your Gross Debt Service (GDS) ratio and Total Debt Service (TDS) Ratio:
-GDS is your proposed monthly mortgage payment, property taxes, and heating costs divided by your gross monthly income. Ideally it should not exceed 32%
-TDS is your entire monthly debt load (Homeownership costs plus credit car payments, loan payments, and other debts) divided by gross monthly income. Ideally, its should not exceed 40%
3. What is a pre-approved mortgage? Does it guarantee I’ll get the financing I need?
A pre-approval simply means that you’ve reviewed your earnings, assets, and liabilities with a lender who has determined the amount of money that you should be able to borrow for the purpose of purchasing a home. In order to proceed with a formal mortgage approval, the lender will want to assess the value of the property you are looking to purchase and confirm your income, down payment and so on if you haven’t already provided that information.
Having a pre-approved mortgage is a great advantage when you’re looking for a home. Knowing the price range that you can comfortably afford will help you narrow down your search and ensure you won’t be let down by finding that the home of your dreams is not within your reach. It will also signify to realtors and vendors that you are a serious purchaser and give you more credibility when negotiating your purchase.
In addition, the interest rate that’s quoted on your pre-approval is usually locked in for 90 days, so you’re protected if interest rates rise while you’re looking for your perfect first home.
4. Why should I use a real estate agent?
A real estate agent will help you find the right home and will offer you advice on what price to offer and any conditions you might want to consider including in your Offer to Purchase. If possible, get referrals from friends, family and co-workers. It’s important to choose an agent who is familiar with the area where you are searching for a home. You may be spending a lot of time with your agent checking out homes, so be sure to choose someone you feel comfortable working with.
In some provinces, real estate agents may require that you sign a Buyer Representation agreement. This is a binding agreement for a given period of time that ensures that the agent you are working with can represent you in your purchase and be compensated for doing so before you sign a Buyer Representation agreement, review the terms of the agreement to confirm you are comfortable with it.
5. How can a mortgage specialist help me?
Working with an RBC Royal Bank mortgage specialist has a number of advantages, especially if you are a first-time home buyer. RBC Royal Bank mortgage specialists have access to the entire RBC network of resources to draw upon on your behalf. They’ll not only help with your pre-approval but also look at your whole financial picture and provide personalized advice based on your needs. That includes reviewing your mortgage options with you and making sure you get the mortgage that’s right for you.
This allows you to go shopping with confidence. Once your mortgage specialist says you are pre-approved, you are-no last minute surprises to worry about!
6. Is my credit good enough for me to be approved for a mortgage?
One thing your lender will look at before approving you for a mortgage is your credit score- your record for paying your bills and repaying loans on time.
InCanada, there are two main credit-rating agencies, Equifax and TransUnion. These companies keep records of missed payments and overdrawn credit accounts. If you’ve ever had a credit card or applied for an account with a major utility, chances are your payment history is on record with one or both of these companies.
If you have a good track record-that is, you’ve always paid your bills on time and made at least the minimum payment due on your credit cards-you will have a good credit rating. If your track record isn’t perfect, that doesn’t mean that you won’t get approved for financing. If your late payments are in the past or date back to you student years but have since been paid on time, then you may not have difficulty in arranging financing. Your lender can help you assess your situation and provide advice as to how to improve your credit rating to get you ready to purchase your first home.
You can get a free copy of your credit file by mail just by asking. For details, visit Equifax.ca or Transunion.ca
7. What is Mortgage insurance?
If your down payment is less than 20% of the purchase price of your new home, you will require a mortgage that’s insured against default. This insurance protects the lender in case you default on your mortgage payments and is required by law.
There are two main mortgage insurers inCanada(the Canada Mortgage and Housing Corporation and GenworthCanada). The cost will vary from 0.5% to about 3% of the total amount borrowed. The amount is usually added to your mortgage and the cost added in to you regular payment.
8. What are ‘closing costs’, and how much money should I set aside for them?
Closing costs are those additional expenses that come due when you complete the purchase of your new home. They typically include:
- i. Lawyer’s or Notary’s fees. When you buy a home, you need to hire a lawyer to complete a title search (to make sure there are no outstanding liens against the property and that the vendor actually owns the property), ensure all the documentation has been accurately completed, register your mortgage and register you as the new owner of the property.
- ii. Land Transfer tax. Most Provinces (and some municipalities) charge a fee for documenting a change in ownership for real estate.
- iii. Disbursements. These are costs that the seller has paid in advance, such as property taxes and utilities. You reimburse the seller for any prepayments that come into effect after you take possession of the home.
The amount of these costs will vary depending on where you live and what kind of home you’re buying. As a guideline, you can estimate that closing costs will be about 2.5% of the purchase price of your home, though this may vary greatly, especially if HST applies to your purchase.
In addition to closing costs, remember that you may also need to budget for appliances (if not included with the home), utility hook up, redecorating and paying a professional mover.
9. What are the best mortgage options for me?
When choosing your mortgage, you’ll need to decide whether you want a variable or fixed rate. The options that are right for you will depend on your situation and your personal preferences. Here’s a look at how they stack up:
- i. Variable-rate mortgage. With a variable-rate mortgage, the interest rate you are charged fluctuates based on your bank’s prime lending rate. In times of declining interest rates or stable low interest rates, a variable rate is usually the most inexpensive. With a variable rate mortgage, the payment you make is fixed; however, if interest rates rise, more of your payment goes towards paying interest. If interest rates decrease, more of your payment goes towards paying off your principal.
- ii. Fixed-rate mortgage. With a fixed-rate mortgage, your interest rate is locked in for the term of your mortgage contract, protecting you if interest rates go up over the term you have chosen.
10. How long will it take you pay off my mortgage?
The length of time needed to pay off your mortgage completely is called the amortization. Many first-time buyers opt for a 25-year amortization but amortizations up to 30 years are available.
Choosing a longer amortization will lower the amount of your regular payments, but it means you’ll be paying more interest over the life of your mortgage. Shortening your amortization, on the other hand, increases your regular payment but saves you interest overall and means you’ll be mortgage-free sooner.
An easy way to shorten your amortization and pay less interest overall is to choose an accelerated weekly or bi-weekly payment schedule rather than monthly. Essentially, your regular monthly payment is divided into four (or two). Because some months of the year have five weeks rather than four, over the course of the year you make the equivalent of an extra month’s payment.
More Questions?
If you have a question that hasn’t been answered here:
-Please visit your local branch and speak to an RBC Royal Bank mortgage Specialist
-You can contact Jeremy Ridley at (705) 739-4684 for free mortgage advice
– Or visit www.jeremyridley.ca
