Mortgage Rules & Tips When Buying A New Home

Mortgage regulations have changed significantly over the last few years, making your options wider than ever. Subtle changes in the way you approach mortgage shopping, and even small differences in the way you structure it, can cost or save you literally thousands of dollars and years of expense.

“home buyers must now put at least 10 per cent down on the portion of a home that costs more than $500,000.” – The Globe & Mail

Whether you are about to buy your first home or are planning to make a move to your next home, it is critical that you inform yourself about the factors involved.

New Mortgage Rules Change 2016

Recently, The Liberal Government has made changes to the mortgage rule. The new rules are geared to slow down the racehorse pace of growing home prices in cities like Vancouver & Langley. Starting in February 2016, CMHC will require a 10 percent down payment on the portion of any mortgage it insures over $500,000. The five percent rule remains the same for the portion up to $500,000.

“We want to make sure we create an environment that protects the people buying homes so they have sufficient equity in their home.” – Finance Minister Bill Morneau

What This Means To You

If you buy a home in Langley or Surrey after February 2016 for $700,000, you will need a down payment of $45,000: 5% of $500,000 & 10% of $200,000.

“Rather than a blunt instrument to cool the market, this is a targeted measure designed to deter a very small segment of buyers from stretching into the market with a very low equity position,” –  Robert Kavcic, senior economist with BMO.

It will be interesting to see how this change will affect the Langley housing market.

Before You Buy, Know These 6 Tips About Mortgages

Industry research has revealed that there are 6 common mistakes that most home buyers make in mortgage shopping that can have a significant impact on the outcome of this critical negotiation. If handled correctly, these issues could result in a mortgage that will cost you less over a shorter period of time.

Before you commit your hard earned dollars to monthly home payments, consider these 6 issues. Effective consideration of these important areas can make your payments work much harder for you.

[bctt tweet=”Before you commit your money to monthly mortgage payments, consider these 6 tips #MortgageRules #CMHC”]

1. You can, and should, get pre-approved for a mortgage before you go looking for a home

Pre-approval is easy, and can give you complete peace of mind when shopping for your home. Your local lending institution can provide you with written pre-approval for you at no cost and no obligation, and it can all be done quite easily over the phone. More than just a verbal approval from your lending institution, a written pre-approval is as good as money in the bank. It entails a completed credit application and a certificate that guarantees you a mortgage to the specified level when you find the home you’re looking for.

2. Know what monthly dollar amount you feel comfortable committing to

When you discuss mortgage pre-approval with your lending institution, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Your situation may give you a pre-approval amount that is higher (or lower) than the amount of money you would want to pay out each month. By working back and forth with your lending institution to determine what this monthly amount is, and what value of home this translates into at today’s rates, you won’t waste time looking at homes that are not in your price range.

3. You should be thinking about your long-term goals, and expected situation, to determine the type of mortgage that will best suit your needs

There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How long do you think you will own this home? What direction are interest rates going in, and how quickly? Is your income expected to change (up or down) in the near term, impacting how much money you can afford to pay to your mortgage? The answers to these and other questions will help you determine the most appropriate mortgage you should be seeking.

4. Make sure you understand what prepayment privileges and payment frequency options are available to you

More frequent payments (for example weekly or biweekly) can literally shave years off your mortgage. Simply by structuring your payments so that they come out more frequently, will significantly lessen the amount of interest that you will be charged over the term.

For the same reason, authorized prepayment of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably.

These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the proper questions.

5. Ask if your mortgage is both portable and/or assumable

A portable mortgage, where available, is one that you can carry with you when you buy your next home and avoid paying any discharge penalties. This means that you will not have to go through the entire mortgage process again unless you are making a move up to a much more expensive home.

An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table making it much easier and more desirable for a buyer to buy your home and again saves you any discharge penalties.

6. You should seriously consider dealing with a Mortgage Expert

Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. For example, they can make the process faster thereby avoiding costly delays. Typically there is no cost or obligation to inquire.

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