w w w . o a kv ill eb ea ve r.c o m O A KV IL LE B EA V ER Fr id ay , Se pt em be r 3 , 2 01 0 2 4 403 403 Trinity Rd Shaver Rd Wi lso n S t Wilson S t Garner R d Tradewind D r 403 West to Brantford and London 403 East to Hamilton and QEW Toronto ANCASTER Exit to Wilson St. from Hwy. 403 www.landmarthomes.com REGISTER NOW COMING THIS FALL HELPFUL ADVICE What you should know about mortgages So you are thinking about buying a new home? You may be wondering how mortgages work, if you would qualify for a mortgage loan, and if there are any special issues you should be aware of. Here is a look at some facts and information about mortgages. Canada has one of the most solid mortgage systems in the world, which has evolved over many decades. Its a balanced system that helps peo- ple become homeowners, while not encouraging excessive risksthat is, it demands responsible behaviour from both lenders and borrowers. The vast majority of lenders follow prudent and careful lending practices. Borrowers are qualified for a mortgage according to how much debt they are able to manage. Traditionally, lenders estimate that 32% of the borrowers income can be safely allocated to hous- ing debt, i.e. repayment of a mortgage loan with interest, taxes, condominium fees and energy use. Other debt is also factored incar loans, personal lines of credit, student debt, credit card bal- ances and so on. In total, up to 40% of total income can go towards debt payment. (Note: some lenders may use slightly different percentages.) Lenders will also consider other per- sonal information, such as length and security of employment, credit history and proven ability to handle debt. For instance, did you take out loans before, and did you pay them back on time? Typically, you should have a mini- mum down payment of 5% of the value of the home you are buying. Mortgage insurance is mandatory in Canada for all high-ratio mortgage loanswhen the loan represents more than 80% of the total value of the prop- erty. This protects the lender in case the borrower becomes unable to pay the mortgage loan. For home buyers with a down payment of less than 20%, mortgage insurance allows them to benefit from the same mortgage rates and features as those with higher down payments. Most mortgages are amortized over 25 yearsthats the length of time required to pay the loan off com- pletely. For most people, this offers manageable monthly payments. A lon- ger amortization period lowers your monthly payments, but you will end up paying more in the long run; the longer you borrow the money, the more it will cost in interest. There may be times, such as the initial years of homeown- ership, where a longer amortization period can be considered. Conversely, a shorter amortization period will save you interest, but the monthly payments will be higher. This is due to the fact that the principal is being paid down over a shorter period of time. Consult with your mortgage specialist about the options that best match your needs and circumstances. The interest rate on your mortgage will fluctuate based on the different interest terms selected over the amor- tization of the mortgage. Fixed and variable rates are offered for specific terms that can range from 6 months to 18 years or more. Many people choose fixed rate mortgages with terms of 5 to 7 years, because they tend to offer the best balance between an attractive rate and the security of knowing exactly what your housing expenses will be for a considerable length of time. Once a term is up, you can renew the mortgage loan for another term at then current rates, which may be higher or lower. Mortgages can come with a great deal of flexibility. Discuss your options, such as pre-payment and increased payment frequency, with your lender so you can tailor your mortgage to best suit your situation and preferences. Lenders are realistic and know that borrowers sometimes encounter finan- cial difficulties due to illness, lay-offs or other circumstances. Ask your lend- er about programs they may have to deal with what if scenarios, such as deferred payment plans. Mortgage insurance providers also have hom- eowner assistance programs to help families keep their homes. Some new home builders offer mort- gages at preferential rates for their homes. In such cases, the builder is not the lender, but has made arrangements with their own financial institution to provide the mortgage loans to quali- fied purchasers. Talk with a mortgage specialist to see what lenders are offeringmort- gage rates are still at near historical lows. Get pre-qualified for a mortgage loan so you know exactly how much you can spend on your new home, if you decide to go ahead. Then visit the new home builders in your com- munity and see what is possible within your budget. Contact your local Home Builders Association for the names of professional new home builders in your area or use the search module to the right. If you are ready, this is an excellent time to buy a new home.