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You must know thy mortgage

After weeding through the seemingly billions of properties available in the GTA and finally deciding on a place of residence

After weeding through the seemingly billions of properties available in the GTA and finally deciding on a place of residence, buyers are often flustered when they’re faced with deciding upon the best mortgage plan.

While this step should actually occur beforehand — as I personally exercise with each of my friends and clients — suffice it to say that it must be done. Here are a few insights.

In most instances, first time benefits aside, you should be looking at five per cent down or 20 per cent down, the rationale being that there are better places to put your money, as the insurance premiums between five per cent and 19 per cent are not so significant that they cannot be more than recuperated through modest investment. Does that mean anyone who puts down 14 per cent is wrong? Certainly not. It only means that, ideally, you have better places to put that extra money, and if you don’t you may wish to make that your next goal in your investment portfolio after the purchase of your home/condo. Some circumstances logically necessitate as large a down payment as possible, even if that down payment falls below the 20 per cent threshold (set by CMHC, determining whether you’re liable to pay mortgage insurance). For instance, under the RRSP contribution plan, pulling as much out of your RRSP’s, up to $20,000 per person, makes most sense as the money is tax free.

Then there’s the question of fixed versus variable interest rates. This, in my book, is a personal preference dependant on one’s personality, granted that the ability to lock into a fixed is guaranteed at any time, and at the existing standard rate. If you’re actively involved in the economics of our marketplace you should know when interest rates are going up and you can choose to lock in if you see fit. On the other hand, as is my recommendation to most buyers, the fixed rate represents security and comfort, at the expense of saving some money on interest.

Finally there is the payment structure — weekly, monthly, bi-weekly, accelerated, etc. My recommendation is to align your payments with your pay cheque and utilize automatic withdrawals. It makes most sense from all respects; convenience, practicality, and comprehension. There is much to discuss when it comes to the differences between types of payments, their advantages and disadvantages, that stretch beyond the confines of this space.

Perhaps most important is your pre-approval and, more specifically, when you actually get it done. Consider this your licence to actively shop for a new home. The rationale is simple — avoid possible disappointment. The last thing you need is to fall in love with a home only to find that it’s outside your comfort zone. On the other hand, in many circumstances you may think your price range is capped at a certain price then be pleasantly surprised to learn that you can afford more. You should get that pre-approval done at the first step of considering a new house/condo purchase if for no other reason than to lock in a guaranteed low interest rate.

For any questions on anything discussed herein, or on real estate in general, feel free to email Amit at amitp@rogers.com.

Happy Hunting!

– Amit is a Realtor/Developer with Re/Max. amitp@rogers.com

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