Answers to some of the most frequently asked questions
What does a mortgage broker do?
A mortgage broker acts as an intermediary between a lender and a borrower. In other words, they facilitate the transaction between you and your bank or mortgage lender.They take care of the legwork of searching for the best mortgage product and interest rate by utilizing their network of lenders and financial institutions.
Do mortgage brokers work for the bank or a financial lender?
At Karista Mortgage, all of our brokers work for you, not your bank or mortgage lender.
What do you charge?
Here’s some great news: Karista Mortgage doesn’t charge you anything. Our fee is paid by the lenders we secure your mortgage through, not you. In special circumstances, and depending on the length and amount of the loan, we may have to charge a fee. However, we don’t charge our clients in the majority of cases.
What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price; a loan to value of or less than 80%, and does not normally require mortgage loan insurance.
What is a down payment?
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage; the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.
The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.
The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs (and possibly insurance fees – for high ratio mortgages) will be lower and over time this will add up to significant savings.
How can you pay off your mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage. You’ll enjoy significant savings by:
- Selecting a non-monthly or accelerated payment schedule
- Increasing your payment frequency schedule
- Making principal prepayments
- Making Double-Up Payments
- Selecting a shorter amortization at renewal
What are the costs associated with buying a home?
First and foremost, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself.
To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a high ratio insured mortgage with a down payment as low as 5%.
Secondly, you will require money for closing costs (up to 2.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don’t, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.
Remember, there will be all kinds of things you’ll have to purchase early on – appliances, garden tools, cleaning materials etc. so factor these expenses into your initial costs.
What are the monthly costs of owning a home?
Needless to say, you’ll have financial responsibilities as a home owner.
Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.
The Mortgage Payment
For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term and amortization.
Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.
In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.
As a home owner, you’ll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
What is a fixed rate mortgage?
The interest rate on a fixed-rate mortgage is set for a pre-determined term – usually between 6 months to 10 years. This offers the security of knowing what you will be paying for the term selected.
What is a variable rate mortgage?
A mortgage in which payments will fluctuate month to month depending on prime. If prime goes up so does your payment.
How can you use your RRSPs to help buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you’re using must be on deposit for at least 90 days. You’ll also need a signed agreement to buy a qualifying home.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $20,000 for a down payment – and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount, you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.
What’s the advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.
Note: Rules and guidelines are subject to change.