Homebuying Step by Step: Your Guide to Buying a Home in Canada
STEP3 Financing your home
Get pre-approved It’s a good idea to get pre-approved for a mortgage before you start looking for a home. But first you need to understand exactly what being “pre-approved” means. It’s time to meet with your mortgage lender or broker to discuss your financing options and confirm that you are financially ready to buy a home. They will discuss mortgage terms and interest rates and will explain what you must do to ensure that you get approved for a mortgage once you find your home.
A pre-approved mortgage lets you know how much you can afford, what your interest rate will be and what your monthly mortgage payments will look like. Getting pre-approved can help you narrow your search down to a specific home type, size or neighbourhood.
Getting pre-approved is not a guarantee of final approval for a mortgage. Once you find the home you want to buy, the property still has to be evaluated to ensure the price and condition of the home are acceptable to your lender.
Mortgage basics You will have many options when it comes to choosing a mortgage. Your lender or broker will help you find the mortgage that best matches your needs. Become familiar with the following terms and options to help with your decisions. Amortization period: The length of time you agree to take to pay off your mortgage (usually 25 years). Payment schedule: How often you make your mortgage payments. It can be weekly, every two weeks or once a month. Types of interest rates:
• Fixed rate —The rate doesn’t change for the term of the mortgage. • Variable rate —The interest rate fluctuates with market rates.
• Protected (or capped) variable rate —The rate fluctuates but will not rise over a preset maximum rate. Mortgage term: The length of time that the options and interest rate you choose are in effect. It can be anywhere from 6 months to 10 years. When the term is up, you can renegotiate your mortgage and choose the same or different options. Open and closed mortgages: • Open mortgage —Lets you pay off your mortgage in full or in part at any time without any penalties. • Closed mortgage —Offers limited (or no) options to pay off your mortgage early in full or in part, but it usually has a lower interest rate.
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