Mortgage Basics and Beyond: Roundtable Q&A

May 30, 2017

Buying a home is a big deal. It’s the largest purchase many of us make and can be an exciting—and sometimes overwhelming time. But whether you’re considering a new home, or making changes to your current space, choosing the right mortgage doesn’t have to be complicated.  As part of our roundtable series, a team of our financial experts sat down to answer questions and give honest, straightforward mortgage advice.

A big thanks to Tom Saulnier from OMISTA Credit Union and Jill Harris from NBTA Credit Union, and to our panelists, Jared, Emily and Victoria. 

Here are a few of the helpful highlights, outlining some important mortgage basics.

Q. How much is a down payment on a home?

A. The minimum down payment is five per cent of the purchase price of your home. That can be saved funds, a gift from a family member – or, with the help from a financial expert, a loan.

Q. How do I know what kind of home I can afford, and what kind of price range I should look at?

A. It all comes down to your debt ratio. This is determined by looking at your household income, and dividing your current fixed expenses by your salary. The key is making sure you can afford the home, and are still able to live comfortably and enjoy it. It’s important to have a discussion with your financial expert, so you can look at the numbers and talk through your budget and lifestyle.

Q. What can I do to pay down my mortgage faster?

A. The simplest way is go from a monthly payment to an accelerated bi-weekly payment. This means your monthly payment is cut in half, so that you pay it every other week. By the end of one year you will have made 26 payments, which is an extra month’s worth of payments. This could shave years off the life of your mortgage!

Q. What about a lump sum payment – is that possible?

A. Yes. That should be possible, but it would be based on your mortgage contract. Typically, you’re able to prepay anywhere from 15 to 25 per cent of your mortgage, once per calendar year. Most lenders allow a borrower to double up on their monthly payment without penalty. This can allow you to save thousands of dollars in interest and cuts the total time to pay down your mortgage substantially.

Q. If I decide to sell my house, is there a penalty to break my mortgage?

A. It depends. If you’re going to sell your home to buy another one (which is usually the case), and your new mortgage is going to be the same size or larger than your existing mortgage, you are often able to transfer your mortgage into the new one to avoid that penalty. However, if you do sell your home and don’t stay with the same financial institution, or don’t take on a new mortgage, you would have a penalty. The best thing to do is have a discussion with a financial expert before making any decisions. They can talk through the options and potential penalties, and help you avoid any problems.

What do I have to expect with interest rates when it’s time for us to renew our mortgage?

A. It depends on where the market is in five years. Your mortgage renewal is an opportunity to renegotiate the terms of your contract, including your interest rate and the length of your next term. If you’re concerned about movement in the rates, contact your lender. An early renewal could be an option to allow you to take advantage of today’s rates.

Q. I’m looking at doing some renovations on my home – what are our options?

A.  You can use your own resources to pay for them, or you can apply for a line of credit, or a loan with your lender.

Renovations are a great opportunity to increase the value of your property and build up equity. Once you reach renewal time for your mortgage, you can apply to refinance up to 80 per cent of the new, renovated value.

Q. What if I decide to buy a fixer upper? Can I add renovation money into the mortgage?

A. Yes!  If you find a home that you want to update, or change, you can look into a Purchase Plus Improvements mortgage. This means you can borrow the money to buy the home, and also for the renovations – up to 95 per cent of the value once the renovations are done. Even if you are planning changes or repairs within a five year period, this is a great option to consider with a financial expert while you’re looking at your mortgage application.

For more information about buying a home, the options to consider and the questions to ask, check out our First Time Homebuyers Guide.

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