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Finance 101 – Tips On Borrowing For Your First Home

You’re ready to buy your first home, a huge commitment but also a fantastic idea – why pay someone else’s mortgage when you can pay your own? Real estate is one of the most stable investments you can make, even in a fluctuating economy.

Before you get excited about house hunting, you need to figure out your finances: how much can you spend, what will your monthly obligations be, should you allocate extra funds for renovations and upgrades?

From savings plans to flexible mortgages, buyers have a host of options, and institutions are more than willing to adapt their plans to fit your personal needs. So what’s the first step?

Figure Out Your Down Payment

The down payment is the amount of money you put forward to your lending institution in order to get a loan. In Canada, buyers can get a mortgage loan with as little as 5 per cent down, but when you provide a down payment of less than 20 per cent, the mortgage will have to be insured against default, although the insurance premium can be lumped into your mortgage payments.

It’s important to bare in mind that the federal government is currently considering increasing the down payment from 5 per cent and imposing restrictions on higher-sale priced homes in an effort to curb the current “red hot” housing market.

Saving for a home can be tough, but there are many avenues available. Borrow from your family, inheritance, even knuckling down and locking a percentage of each pay cheque into a Tax Free Saving’s account are all great plans. If you’ve been contributing to a Registered Retirement Savings Plan (RRSP), as a first-time home buyer you can take advantage of the Home Buyers Plan that allows you to draw up to $25,000 from your RRSP, tax free, to use as a down payment, or to cover other purchase related costs. Your partner can do the same for a combined total of $80,000. This money has to be paid back to your RRSP within 15 years, though you get a two year reprieve before you need to begin repayment. For more information about the Home Buyers Plan, visit the Canada Revenue Agency online or contact your local agency office.

Get Pre-Approval For Your Loan

Getting pre-approved for your mortgage loan means your bank or lender has investigated your credit history and determined in advance of house hunting that you are a suitable candidate for a mortgage. We encourage getting pre-approved, since it will give you an idea of what you will be able to afford, your interest rate, and how much you’ll be able to put towards payments on a monthly basis.

Choose The Right Payment Plan For You

You have a few options to choose from when it comes to paying your mortgage back :

Fixed-rate mortgages offer the security of a locked-in interest rate for the duration of your term, typically over a period of one to five years.

Variable-rate mortgages may offer a lower interest rate than a fixed-rate mortgage, but the interest rate is linked to the prime rate and fluctuates in kind. This could mean decreases or increases in the rate you pay over the term you select.

Blended-rate mortgages offer a combination of both fixed- and variable-rate financing, combining the benefits and risks of each type of mortgage.

Figuring out financing is the easy part, now comes the hard work – finding the house you can call your forever home. Don’t leave it up to chance, contact Cheryl Devenney, your Durham Region real estate expert, today!