Most common enquiries and answers to them
Before you even start looking for a home, you need to know exactly how much home you can afford – otherwise, you could spend time looking at homes that are out of your price range. If that happens, it's hard not to be disappointed later when you view less expensive homes.
To get an idea of what you can afford, you'll need to take into account the following:
Look closely at ALL your expenses.
You've got to put food on the table, clothes on your back and gas in your car-and have a little fun now and then. You also need to be prepared for emergencies as well.
Your mortgage specialist will help you make sure you have money left over to pay for the necessities of life, as well as some of your lifestyle choices. The following calculations are used by most lenders as a guide to help determine the maximum you should spend on housing costs and overall debt levels:
If your monthly housing and housing-related costs don't leave you enough money for your other expenses, then you have a few options.
You and your mortgage specialist may also need to factor in expenses or changes that you know are on the horizon. Maybe you'll need to replace your car within the next year. Or if you're expecting your first baby you may need to consider the impact of a maternity or paternity leave on your budget in addition to expenses related to having a baby.
When all is said and done, you need to feel comfortable with your mortgage amount, term and payment schedule. And you want to feel good about any sacrifices that you choose to make.
As a home purchaser, you’ll want to learn as much as you can about mortgages—what they are, how they work and how they can benefit you. While you may be consulting a lot of people, friends or even mortgage specialists during the home-buying process, the more knowledgeable you can become about mortgages, the more likely you’ll be able to articulate what you need—and want—in a mortgage.
Here’s a short primer on mortgages and key mortgage terms to help get you started.
What is a mortgage?
A mortgage is a loan given by a private investor, bank or mortgage lender to help you buy a home. It can allow you to get into a home sooner than if you had to save up for the whole purchase price. The house acts as collateral for the money you are borrowing.
How a mortgage works when buying a home
Choosing the right mortgage
Choosing a mortgage is one of the biggest decisions you’ll make. Consult a mortgage specialist for overall guidance and support.
Some things you’ll want to consider:
A longer amortization period usually means lower monthly mortgage payments. It can also mean you’ll pay more interest overall because you’re taking longer to pay back the mortgage principal to the lender. Note that if you choose an amortization over 25 years, you must have a down payment of at least 20% of the purchase price.
If you are considering an RBC Royal Bank mortgage, read a brief overview of three RBC mortgage solutions.
Home ownership and building equity in your first home
Building equity is an important part of owning a home and having a mortgage. Equity is the difference between your property’s value and the amount you owe on your mortgage. There are extra things you can do to build equity:
Frequency of mortgage payments
You will also have the flexibility to choose the frequency of your mortgage payments. While monthly payments remain the default choice of many home buyers, there are a number of other options available, including: semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly. Keep in mind that the more often you make payments the more you will save on interest over the life of the mortgage.
When you select an accelerated weekly or bi-weekly payment option, you are essentially making the equivalent of one additional monthly payment each year which will help pay down your mortgage faster.
This answer offers general information and should not be regarded as a complete analysis of the subject matter discussed. It is not intended as legal, financial or other professional advice. Consult a professional advisor regarding your specific situation.
As of February 14, 2016, new federal rules require bigger down payments on some home purchases. If you’re a first-time buyer buying property less than $500,000, nothing changes.
Achieve Your Goals
Sometimes thinking about saving money is harder than actually doing it. If you’ve got a savings plan to help you focus, you’re well on your way.
However, if you’re still asking yourself, “Where’s it going to come from?”, here are three tried-and-true methods to help you save.
Remember The Golden Rule – Pay Yourself First
Get in the habit of setting aside some money from your paycheque to achieve your short-term goals. Hint: It’s easier if you think of it as something you have to do, like setting aside money for your mortgage or rent.
Curb Your Impulses
Just because something is “on sale” doesn’t mean you should buy it. Focus on your goals and resist the urge! Also, be aware of when you’re vulnerable – ignore the impulse to buy things to treat yourself when your work or personal life is stressful.
Focus On The Expenses That You Control
Unlike your mortgage or rent, you have control over your variable expenses – lunches, coffee, clothing, music, entertainment, etc. This is the first place to look when you want to save money. Keep track of what you spend in a month to see where your money is going. You may be surprised!