Let your mortgage broker guide you through the process of securing a mortgage
By Jennifer Goldberg
If you’re in the market for a new home, chances are you’re also shopping around for a mortgage. It’s an intimidating process; after all, it’s probably the biggest financial commitment you’ll ever make. A certified mortgage broker can help you navigate the journey by “giving you unbiased advice to better understand mortgage products and how they affect you,” says Tracy Irwin, a Toronto-based mortgage broker. Ask the following four questions to get the most out of your first meeting.
How much can I afford?
“Usually people pick their homes before they pick the financing but it should be the other way around,” Irwin says. She advises determining what you can afford before delving into your home search. Typically, your total housing costs — including mortgage principal and interest payments and heating and housing taxes, should not exceed 32 per cent of your gross monthly income. Your total debt load, including your home costs and other debts such as credit cards and car loans, shouldn’t exceed 40 per cent of your gross monthly income. A mortgage broker looks at your current sources of income and credit report to help you determine what type of home you can afford.
What should I take into account for the future?
According to research conducted by Genworth Canada, roughly 70 per cent of Canadians would be concerned about paying their mortgage if interest rates were to rise, or if their partner lost their job. “Everyone’s excited about buying a beautiful home but not really thinking about what that means long term,” Irwin says. What you can afford today might not be the most practical choice in years to come. Will you still be able to make payments if you factor the costs of parental leave and daycare into your monthly budget? What if your job situation changes or your interest rates rise? Your mortgage broker should take all these factors into account when negotiating your mortgage rate with lenders.
What type of mortgage should I consider?
Fixed and variable interest rate mortgages are the two most popular options. A fixed interest rate is set in stone when you sign for the mortgage; it won’t change for the entire term. A variable rate, however, will change according to market interest rates. While market fluctuations are hard to predict, “your broker can give you historical data and information around the economic cycle to help you make this decision,” says Irwin. “The advice we give changes based on what the economy is doing.” Your broker will also determine your tolerance for risk and advise you on the best option based on your financial fitness.
How much do I need for a down payment?
Many first-time homebuyers assume they need to make a large down payment in order to get the best mortgage rate, but that’s not the case. Mortgage insurance products, such as Genworth Canada’s Homebuyer 95, let first-timers put as little as five percent down and still get the same competitive mortgage rates as those who put down 20 per cent or more. Your mortgage broker can help you decide how much of a down payment you’ll need to get the home you want while still maintaining your budget over the long term.