Six Things You Should Know Before Getting Your First Mortgage

When working with prospective homeowners to help them secure the first mortgage of their dreams, I do the hard work to ensure optimal results. Getting the lowest possible interest rates, with a term sensible for your time and budgetary needs, is critical. However, if you’re looking into a first mortgage, there are several things you can do in advance to streamline this process and save both time and money.

Let’s explore them in more detail together.

Key Takeaways

• Ensure you can afford the minimum down payment before you get your first mortgage.
• One of the keys to getting a first mortgage is budgeting appropriately. This includes short and long-term expenses.
• Canada offers various incentives for homebuyers — try to take advantage of these to save you money!

1. Are You Down with Your Minimum Down?

The down payment, a lump sum paid to the seller once the deal on the home is closed, can significantly reduce your overall mortgage costs. I usually say it’s better to pay as much off this way as possible, but not everyone is in this ideal financial situation. Therefore, take a look at the minimum down or what you must pay to get the property. Do you have enough saved for it? If not, perhaps you need to wait a few more months to ensure you are financially stable. 

The minimum down payment required for a home purchase in Ontario depends on the purchase price of the property. For example:

• Homes priced up to $500,000: 5% minimum down payment
• Homes priced between $500,000 and $999,999: 5% on the first $500,000 and 10% on the remaining amount.
• Homes priced $1,000,000 or more: 20% minimum down payment.

When it comes to buying your first house, don’t rush this sort of thing. If you can comfortably pay off the minimum down right now and make regular monthly mortgage payments without worry, then great. That’s the position you want to be in, and again, I’d recommend increasing your down payment beyond the minimum if you can afford it. Making a larger down payment than the minimum:

• Makes your offer more enticing to sellers
• Lowers your monthly mortgage payments
• Reduces the amount of interest you’ll pay over the life of the mortgage

2. Understand the Different Types of Mortgages

There are different types of mortgages available to homebuyers, and it’s important to understand them so you can choose the one that’s best for you. Some of the most common types include:

• Fixed-rate: A type of mortgage where the interest remains the same throughout the term of the loan. This means that your monthly mortgage payments will also remain the same, which can provide you with stability and predictability. Fixed-rate mortgages are a good option if you prefer the security of knowing exactly what your mortgage payments will be and if you want to protect yourself against potential interest rate hikes in the future.
• Variable-rate: A type of mortgage where the interest rate can fluctuate over the loan’s term based on the state of the Canadian economy.

When deciding between a fixed-rate and variable-rate mortgage, it’s essential to consider your financial goals, risk tolerance, and future plans. That’s why I’m here to help you understand the pros and cons of your options and help you choose the one that’s right for you.

3. Get Pre-Approved for a Mortgage You Want

Getting pre-approved by a recognized financial institution is essential — it demonstrates trust in the borrower based on their credit score, employment status, annual earnings, and more. High-risk borrowing isn’t fun for anyone involved, so pre-approval acts as a sort of vetting process to ensure the arrangement is solid and sensible. 

Let’s say that you’re interested in a home that costs over $500,000, but your combined household income totals only around $70,000. While finding an ideal home for less can be a challenge, it’s unlikely that most banks would pre-approve you for that much after comparing it against your income. Even if your credit score and other parameters are in good standing, you need to be able to pay off every mortgage installment realistically. I can, of course, assist you with getting pre-approved for the amount you want, but be sure to work out whether the overall cost of the home is feasible in relation to your earnings.

4. Calculate – and Recalculate – the Total Long-Term Cost

Property fees, utility bills, and maintenance expenses – paying for your first home isn’t only about the mortgage. Property ownership of any kind involves long-term costs, so let me help you check and recheck your overall costs of such an investment. That way, we can make sound decisions together on what price range and home type are best suited to your needs and budget. For example, owning a condo may come with sticker shock if you haven’t accounted for group fees, utilities or otherwise! Here are some other costs to be aware of as you begin your journey as a new homebuyer:

• Homeowners insurance: This insurance policy protects you against damage to your home and personal belongings. The cost of your policy usually depends on the value of your home and the coverage you choose.
• Renovation costs: In the long run, you may want to upgrade certain parts of your home, so it’s important to factor this into your budget so you can save over time.

5. Don’t Forget About Short-Term Costs

Closing costs are a collection of fees that you’ll need to pay when you finalize the purchase of your home. They can vary depending on the situation but commonly include:

• Legal fees
• Land transfer tax
• Title insurance
• Appraisal fees
• Home inspection fees

6. There are Perks for First-Time Home Buyers

The government wants more people to buy than rent, which is why kickbacks for first-time home buyers exist. In Ontario, for instance, benefits include the following: 

• The First-Time Home Buyers’ Tax Credit of up to $1,500.
• The Home Buyers’ Plan (HBP) allows you to borrow against your RRSPs at a tax-free rate for the down payment.
• GST/HST New Housing Rebate, which allows eligible homeowners to claim the GST or HST portion of a new build or purchase.
• Others, such as eco-friendly and renovation credits for new builds. For example, the Canada Greener Homes Grant provides money to eligible homeowners for environmentally-friendly retrofits.

First Mortgage? I’m Here to Help!

If you’d like a hand with figuring out which mortgage is safe, comfortable and hassle-free for your needs and budget, I’m happy to assist. With plenty of lender connections, including with major financial institutions, over 15 years of industry experience and having funded well over 2,200 mortgages, I’m here to eliminate guesswork and deliver peace of mind. Let’s get in touch with one another and help you secure a mortgage that works for you.