If this is the year in which you resolved to buy your first house, you're about to enter a period in your life that is both exciting and nerve-wracking. With so many factors to consider before you sign the dotted line, the financial experts from Desjardins Group have some tips and suggestions to help get you started.
First, can you even afford a house?
Although interest rates are low now, it's important to remember that they may increase in the future. Typically, mortgages are amortized over 25 years and are offered in six-month, five- or even ten-year terms. Be honest with yourself about what you can afford because your life and financial priorities will change.
Second, secure your down payment
Experts advise that prospective home owners should down a down payment of up to 20 per cent of the house's value. One option is to borrow against your RRSP. Each person is eligible to withdraw $25,000 or $50,000 per couple. If you haven't enough in your account, it's possible to take a top-up RRSP loan to reach the right amount. Once you have bought your home, you'll have 15 years to repay the amount to your RRSP. Another option is to put down 10 per cent and to accept a higher mortgage loan insurance amount.
Third, fixed or variable rate?
A fixed interest rate offers stability and predictability, but you lose out on lower interest rates should they become available. The payments with variable interest rates also remain constant but there is the risk that interest rates may go up. This means more goes to your interest payment and less to your principal. If you can't choose between the two options, a split mortgage offers you the best of both worlds. Another idea for first time home buyers is to consider qualifying for a pre-authorized mortgage. This process evaluates your financial situation to determine the maximum financing amount for which you are eligible. That way when you start looking at houses you will know which ones fit your budget.
Fourth, have enough to close
Avoid closing “sticker shock” by knowing ahead of time what other fees and taxes you'll need to pay, such as:
Inspection fees: If you decide to purchase an existing home, this detailed report will focus attention on any hidden defects that will require repair in the short- and long-term.
Appraisal fees: Your financial institution will request that an appraiser evaluate and determine the true value of the property you wish to acquire.
Legal fees: You will be responsible for hiring a lawyer who will prepare, sign and register the various legal documents related to the purchase of the property.
Additional taxes and fees: Transfer tax, property tax, school taxes, electricity and natural gas bills are due at sale closing.
For more information about mortgages, speak to your financial advisor. Or for immediate answers and financial calculators, visit Desjardins Group online at www.desjardins.com.