Calgary Tips on Applying for a Home Mortgage
By Alan G. Whitnack, RPA
President of JOAL Consulting Inc.
Buying a home can be one of the most stressful and confusing times and yet is probably the largest single decision that most of us will ever make. Careful planning and knowing what to expect can make this journey much more pleasant and save you lots of time and money.
Know your own capacity for making payments
Banks will generally allow in the range of 30 per cent of your gross income for mortgage payment (PIT - principle, interest, taxes) and an overall debt service ratio of 40 per cent. These numbers are a good guideline but you should also consider your life style. For some people there aren't enough funds left to pay this amount. Only you can truthfully assess what you can and are willing to afford.
Have a mortgage amount pre-approved
Most mortgage companies have a process that will pre-approve you for a maximum amount subject to certain restrictions. These restrictions generally are a satisfactory appraisal of the property being purchased, the amount of the down payment you may be required to pay, confirmation of employment stability, satisfactory credit reports, etc. By having a mortgage amount pre-approved you have now established how much you have available and a price range of house you are looking for. There's no point looking for a castle if you can only afford a chateau; it will only leave you unsatisfied.
Know what you want in a mortgage and what's available
By getting literature from several mortgage companies you can educate yourself on what options are available, what special deals may be offered, and overall reviews of what mortgages are about.
Consider the following options when making the decision
- Amortization (length of time to pay back the entire mortgage) -- this is the easiest way to save substantial cost on your mortgage. For example, a $100, 000 mortgage at 6 per cent over 25 years would cost about $644 per month. By increasing your payment by only $20 per month you will reduce the length of the mortgage by over 1.6 years and save over $12, 000 in interest costs.
- Payment frequency -- the choices are generally monthly, semi-monthly (two times per month), bi-weekly (every two weeks), and weekly. Pick a payment frequency that is convenient to you and generally matches when you get paid. DO NOT LET ANYONE convince you that you will save thousands of dollars by paying weekly instead of monthly ... it just isn't so. For example, a $100, 000 mortgage at 6 per cent over 25 years would cost approximately $193, 290 over its lifetime with monthly payments and $193, 131 over it's lifetime with weekly payments. The savings for choosing weekly over monthly here would be only $159.00 in total over 25 years.
- Insurance - make sure you have insurance over your mortgage by either directly insuring the mortgage through your broker, or by having separate outside insurance. There are several arguments either way so you make the choice which best suits you and your investment habits and preferences.
(Alan G. Whitnack, RPA is President of JOAL Consulting Inc. He can be reached by calling (403) 948-0082, by fax at (403) 948-9503 or by e-mail at firstname.lastname@example.org)