Applying for a mortgage and buying a new home is exciting and scary all at the same time! There are many angles to a mortgage, some of which have penalties if addressed, and others might be opportunities. Some penalties might include not keeping in mind your credit score, whereas entirely using your first-time homebuyers could bring significant opportunities when understood thoroughly. Check out some of these mortgage insights and how they positively or negatively affect your new home buying experience.
Mortgage Payment Schedules
Did you know that you don’t have to pay your mortgage monthly? Everyone is different in terms of how they spend and save. Some prefer monthly bills whereas others pay bit by bit throughout the four weeks. Your mortgage can fit that as well. You can pay your mortgage off weekly, bi-weekly or monthly as well. For example, you can pay $2,000 off once per month or pay $1,000 bi-weekly. Depending on how you spend and save, you can have your mortgage payments work with your financial schedule.
Fixed VS Variable Mortgage Rates
Currently, 66 percent of Canadians have a fixed mortgage rate, whereas the rest request a variable rate. A fixed-rate occurs when a buyer keeps their interest rate on the home locked for a certain amount of time. Generally, people sign for a five-year term. Once the five years have passed, the rates can be renegotiated. With a Fixed Mortgage Rate, homeowners would see fluctuation when the Canadian Government bond yield is affected. A bond yield is the return investors see when holding a bond to its maturity. Therefore, bonds are affected by the stock market. If a stock goes up, so does the bond, which causes the yield to drop. When the bond yield drops, so do the fixed rates.
Variable Rates is interest linked to prime rates and the bank. The bank of Canada will set overnight lending rates that banks can borrow, giving the government control to manipulate the economy. Banks can set a prime rate as they wish to give this money back to the Canadian Bank. If the prime rate changes, the payment still stays the same, but the amount going towards paying the bank for taking out the loan (a.k.a interest) increases.
As a result, less money from your account goes towards the principal and more towards the bank. For example, you have $10 that the bank has lent you, and you have to pay back one dollar per month. One month, 50% may go towards paying off your loan, and 50% goes towards interest, whereas another month, it may be 30% towards your loan and 70% towards interest. Variable mortgage rates are less standard due to the uncertainty of the fluctuation in interest.
Canadian Credit Score Breakdown
Your credit score can affect your loan and chances of approval. But how exactly do your actions affect your credit, and what payments should you keep an eye on? Here is a breakdown of how your credit score seen and create stress when applying for a mortgage.
The Canadian credit score is viewed as:
o 35% timely payment on other loans
o 30% records the amount of outstanding debt
o 15% your length of credit history
o 10% of the number and types of accounts opened recently
o 10% looks into the mix of credit accounts, credit cards, department stores, finance companies, bank loans, etc.
The most significant factors are timely payments and the amount of outstanding debt. Your outstanding debt includes credit cards and other loans. If you have a credit card of $10,000 and you have spent $5,000, your amount of outstanding debt exceeds the 30% threshold. In terms of timely payments, this could include phone bills, taxes, car loans and more. When getting a service or loan, you will see a payment deadline. Failure to pay by the date or, better yet, before, could hinder your credit score. Your credit score is an essential factor in getting the best home approval and low-interest rates.
Lastly, Home Buying Incentives!
The government of B.C. and Canada offer many great incentives to help you with your home buying journey. In British Columbia, first-time home buyers only have to put 5% down on the home of their choice. B.C. will even lend half of that 5% without any fees to help you with your new house. GST/HST New Housing Rebate gives you a rebate of the GST and HST you paid for your home if you are building your house, sustainably renovating or adding to your new home. Canadian Greener Homes gives a grant to those who invested in a home but wish to make it more energy-efficient and eco-friendly. Ensure you know about all the incentives and make sure to utilize them when getting your mortgage.