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When it comes to getting a mortgage, the first factor most Canadians consider is the mortgage rate. This isn’t a total surprise, according to the experts at Canadalend.com ; after all, the higher the mortgage rate, the more money you put in the bank’s pocket and the less you get to keep.

For example, if you qualified for a $220,000 mortgage with a 4.5% interest rate paid out over 25 years, your monthly payment would be $1,217.65 and your total payment would be $365,292. Over the life of the mortgage, you would be giving the bank $145,292 in interest.

If you got the same mortgage at 3.5%, your monthly payment would be $1,098.39 and the total payment would $329,519; that simple one percent decrease means saving $35,773 in interest payments!

But aside from interest rates, another important factor to consider is the amortization period. Most people want to pay off their mortgage as quickly as possible; however, a shorter amortization period isn’t always the best option.

According to one recent survey, more than a third of first-time Canadian home buyers say they would rather take out a mortgage with a longer amortization period on their mortgage if they could.

Canadalend.com explains that home buyers might like longer amortization periods, but they are not without controversy. Back in 2006, Canadians could get a mortgage (covered by government back mortgage insurance) with a 40-year amortization period, but then the U.S. housing market collapsed in 2008.

In an effort to avoid the same fate in Canada and address high household debt, former Finance Minister Jim Flaherty introduced a number of tighter lending rules for those with down payments of less than 20%. Most notably, the government reduced the maximum amortization period for a government-insured mortgage to 25 years.

The longer the amortization period, the more interest homeowners pay—or, from the bank’s perspective, the more interest they can look forward to receiving. Some Canadian homeowners like a longer amortization period because their monthly payments are smaller. On the other hand, a short amortization period means higher monthly payments; it also means homeowners build up home equity more quickly.

Using the same example above, if you qualified for a $220,000 mortgage with a 4.5% interest rate with an amortization period of 20 years, your monthly payments would be $1,386.89 with $112,852 going to interest. Paying just $169.25 more a month translates into owning your home five years earlier and saving $32,440 in interest payments.

So, is it better to build up equity in your home and pay off that mortgage as quickly as possible? Not always, says the lending experts at Canadalend.com. Longer amortization periods might spread out your payments and cost more in interest, but sometimes, longer is still better:

1) A longer amortization period might suit your lifestyle better if you have other high-interest debt. Lower monthly payments can free up extra money that can be used for household expenses or to pay down other debt obligations.

2) Longer amortization periods can be a good option if you have higher yielding investments. If you have a 3.5% mortgage but can earn 4.5% or more after-tax on other investments, it might be better to lengthen the amortization period and put the extra cash flow in those investments.

3) A longer amortization period is a good idea if you expect inflation to rise over the long term. The idea here is that money you have today is worth more than the same amount in the future. Or, put another way, the higher the rate of inflation, the less your money is worth in the future. For those who think inflation will kick in, you may want to borrow money for a longer period of time; the smaller the difference between your mortgage rate and rate of inflation, the more sense it makes to extend your amortization period.

There is no one-size-fits-all approach to getting a mortgage. In fact, there are a large number of factors that must be taken into consideration, including the interest rate, the amortization period, and whether it’s a variable or fixed mortgage, to name just a few.

If you’re interested in stepping onto the property ladder but don’t know what kind of mortgage is best for you, contact the independent, licensed agents at Canadalend.com. They’ll search hundreds of banks and lending institutions to help you find the mortgage that will get you into your dream home, and in most cases, will get you pre-approved in 24 hours or less.

Source:

Perkins, T., “Survey finds third of first-time home buyers prefer long amortizations,” The Globe and Mail, June 2, 2014; www.theglobeandmail.com/report-on-business/economy/housing/survey-finds-third-of-first-time-home-buyers-prefer-long-amortizations/article18934676/.

As observed by Canadalend.com , many believe Canada’s robust housing market is being fuelled by short supply, strong demand, and low interest rates. In truth, with Canadian economic data being mostly solid, potential home buyers have been afraid the near-record low interest rates will start to climb higher.

In an effort to avoid a recession, like that faced in the U.S., the Bank of Canada lowered its overnight lending rate, which impacts short-term borrowing, to near-record lows. In fact, the Bank of Canada has kept the overnight rate at one percent since September 2010 and signalled it wouldn’t raise it until the Canadian economy showed more signs of sustained growth.

Some took that to mean that interest rates would rise later this year or in early 2015. However, there is some indication that Canadians may be able to take advantage of low borrowing costs for years to come.

The Bank of Canada said recently that the Canadian economy still has room to grow, and even when it does—likely in early 2016—interest rates are not expected to climb. Some economists think the bank’s overnight lending rate will settle in the 2.25% to 2.5% range; that’s more than a full point below pre-recession levels.

According to Canadalend.com, this is encouraging news for potential homeowners, as the Canadian spring housing market continues to heat up. For starters, there isn’t an urgency to jump onto the property ladder simply to take advantage of low interest rates.

At the same time, a number of lenders are hoping to attract first-time house hunters with low, low mortgage rates, some even below two percent. But, as Canadalend.com points out, things are not always what they seem. And when it comes to ultra-low mortgage rates , there are always conditions that are not apparent up-front.

That even goes for Canada’s big banks; just because they approve you for a mortgage doesn’t mean it’s the one best suited to your financial or lifestyle needs.

Canadalend.com explains that while interest rates are important, there are other factors to take into consideration when it comes to getting a mortgage, such as a variable or fixed mortgage, or even the duration of the amortization period. The standard amortization in Canada is 25 years, but some lenders will offer you 30 years if you have at least 20% home equity.

What’s the difference? If you get approved for a $200,000 mortgage at a three percent interest rate, after 10 years you’ll still owe roughly $137,000 if you go with a 25-year amortization. Choose a 35-year amortization period and you’ll owe roughly $162,000.

A longer amortization period means less money in your pocket and more money in the banks. It also means you have a bigger balance when it comes time to renew your mortgage.

Finding your dream home should be fun, but unfortunately, navigating the world of mortgages can be daunting. However, it doesn’t need to be. The independent, licensed agents at Canadalend.com can make getting a mortgage stress free. We will not only help you get qualified, but will also search out hundreds of banks and lenders to make sure you get the best mortgage possible.

Source:

“Bank of Canada’s Steven Poloz says Canada’s Interest Rates to Remain Low for Years to Come,” Financial Post, April 24, 2014; http://business.financialpost.com/2014/04/24/bank-of-canadas-stephen-poloz-says-interest-rates-to-remain-low-for-years-to-come/.

After a fairly quiet winter, the Canadian housing market is starting to heat up, and just in time for the spring buying season. According to the Canadian Real Estate Association, the national price for a home in March climbed six percent year-over-year to $401,417.

While rising home prices in a competitive market are a boon for sellers, they can be frustrating for first-time home-buyers, especially when coupled with low inventory levels.

While mortgage rates continue to hover below three percent, many home buyers are more motivated than ever to step onto the property ladder. However, there’s a lot to consider before going out and buying the welcome mat.

The lending experts at Canadalend.com can help you determine from the outset what you can afford; that means more than just interest rates and monthly mortgage payments. Many potential home buyers forget about some of the additional costs that go into purchasing a home, such as closing fees, the land transfer tax, GST/HST, legal fees, and inspections.

If you have a down-payment of less than 20%, you will have a high-ratio mortgage, which requires you having to pay a one-time insurance premium based on the amount of the mortgage.

Plus there are ongoing expenses you need to plan for, including homeowner insurance, property taxes, utilities, home maintenance, and, if applicable, a condo or homeowners’ association fees.

The independent, licensed agents at Canadalend.com will also look at your other debts, including loans, lines of credit, and credit cards, and help determine your debt-to-income ratio to make sure you don’t get in over your head.

They’ll also help you figure out both the amortization period and which kind of mortgage is best suited to your lifestyle needs. Do you want a fixed-rate mortgage or a variable-rate one? With a fixed-rate mortgage, the interest rate remains the same throughout the term. Many homeowners like the consistency of a fixed-rate mortgage.

On the other hand, with interest rates still near historic lows, maybe you’d rather consider a variable-rate mortgage. A variable-rate mortgage fluctuates with the prime rate throughout the mortgage term; the monthly payment will remain consistent, but the amount of principal that you pay off each month will differ.

How long do you want to take to pay off your mortgage: 15, 20, or 25 years? The longer the period, the lower your payments, but that also means more in interest.

That doesn’t mean you’re locked in at that rate for good—finances change. A Canadalend.com agent can help you renegotiate the mortgage when the term expires; that could mean changing the payment schedule or shortening the amortization period.

Getting a mortgage can be confusing, but it doesn’t have to be. For more information, contact Canadalend.com today or apply online to find out how an independent, licensed Canadalend.com agent can make getting a mortgage both easy and stress-free.

The Canadian real estate market is one of the more discussed markets in North America, and for very good reason; between Toronto, Vancouver, and Calgary, you are dealing with some of the most expensive housing markets on the entire continent. One bank even insisted that Canada has the most overvalued housing market in the entire world. And with Toronto reaching a milestone this quarter of seeing their average cost of single-family homes escalate over $1.0 million, the experts atCanadalend.com advise that some first-time home buyers looking to get on the property ladder may have to take a different route.

With condos in Toronto averaging a third of the cost of a single-family home—approximately $376,000—first-time buyers are almost forced into considering a condo as their initial purchase instead of a house. It’s a tough pill to swallow, especially for those buyers who are looking to start or already have a family, but as the housing market continues to soar, condos are becoming the most affordable option.

Seventy percent of all Canadian first quarter condo transactions took place in Toronto, comprising the majority of the 9% year-over-year increase in sales. And while the average price of a condo within Toronto is also up 5.6%, it still seems to be the more affordable route for first-time homeowners.

Another option for first-time home buyers is to wait, but with the current interest rates remaining as low as they are, that may not be the most intelligent decision. In addition, first-time buyers are typically in the market because they need a home right away and waiting just isn’t an option. This may be because they are having their first child, about to get married, or have settled into jobs that allow them the stability and finances they need to take that step.

While Vancouver still remains the most expensive city in North America to buy a home, Toronto and Calgary are both in the top 10. With those being three of the major cities in the country, it’s difficult for first-time buyers to do anything but consider purchasing condo units.

The high cost of living doesn’t seem to be affecting homeowners in general; Vancouver in particular saw a 40% year-to-date sales increase despite a three-percent rise in prices. Low interest rates may be a factor in that stat—a variable that experts are saying won’t last much longer.

It’s important for first-time home buyers to visit Canadalend.com to determine their financial reality. Canadalend.com will find a suitable lender and then establish a mortgage rate that works best for you. For first-time home buyers in particular, Canadalend.com is a great asset because we take all of the initial work off your hands.

We’ll search our databases and get you approved by a lender within 24 hours; then you can decide what type of housing is affordable for you and whether or not living in one of the major Canadian cities is worth the cost.

The high cost of living in any of these cities should not deter first-time home buyers. Overall, there is an abundance of homes, and with some patience, finding the right one at the right cost is definitely possible. Affordable homes are also available not far outside each of these major cities, and usually at much better rates. As the purchaser, it’s up to you to determine what is most important to you when buying your first home; start by visiting Canadalend.com to get the absolute best mortgage rate that works for you.

Sources:

“North America’s top 20 housing markets: Vancouver, Toronto, Calgary among most expensive on continent,” The National Post , March 5, 2014; http://business.financialpost.com/2014/03/05/north-americas-top-20-housing-markets-vancouver-the-most-expensive-on-continent-while-toronto-calgary-beat-new-york-city/ .

Tencer, D., “Average Price for a Single-Family Home in Toronto Passes $1 Million,” Huffington Post , April 18, 2014; http://www.huffingtonpost.ca/2014/04/18/house-prices-toronto_n_5174437.html .

Pigg, S., “Condo sales, prices up—but rents starting to ease,” The Toronto Star , April 15, 2014; http://www.thestar.com/business/real_estate/2014/04/15/condo_sales_prices_up_but_rents_starting_to_ease