When purchasing your first property, much of the advice you receive focuses on location and the style of home that suits your needs.
Too little insight and experience is shared about the importance of finding a home loan that’s tailored to your needs.
With Canada’s interest rates falling since last June when it stood at 5%, it pays for young buyers to focus on how they can track down a mortgage deal that suits their situation and minimises repayments.
Many first homebuyers don’t realise they can save thousands of dollars over the life of a loan by selecting the right product.
With Canada’s home prices subdued and mortgage costs falling thanks to a 2.75% overnight base rate, it’s a good time for first homebuyers to search the market for opportunities.
Here are eight tips for finding your ideal mortgage:
Mortgage types: With fixed-rate mortgages, the interest rate remains consistent. This can be for the term of the loan, or for a limited time. A variable rate fluctuates with the lender’s prime rate, which is influenced by the Bank of Canada’s overnight rate. Payments usually remain consistent but more or less of your cash goes towards paying down the principal (depending on the rate’s direction).
Rate lock-ins: You can take advantage of a low rate by locking it in for an extended period, usually up to five years. It’s a sensible approach when rates are rising. As rates have been falling since June and more cuts are predicted, this is probably not your optimal strategy.
Make comparisons: You can use sites, such as Ratehub.ca, to make comparisons. Alternatively, you can engage a mortgage broker to guide you through the myriad of deals being offered by lenders.
Broker’s role: They have a portfolio of loan products that you can compare. They’ll offer advice on which is best for you. Their services are usually free but they get commissions from the lender you select. They also help you apply for a loan and advise you on any issues, such as a low credit score.
Different deals: In general, the cheapest deals are the most inflexible. You may consider flexibility and portability of your loan an important factor. You can incur penalties for breaking certain conditions during the lifetime of the loan.
Due diligence: Before making any decision, ensure you are informed about the current economic situation. Canada’s trade position, especially because of US tariffs, is volatile and this may affect interest rates.
Bottom line: Don’t just focus on the interest rate. Consider all the terms and conditions of each loan before making your decision.