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Understanding Mortgages in Canada: How to Finance Your First Home?

Today, more people choose to rent a living space instead of buying a home. As a result, the global home-ownership rate has declined with each generation since the Baby Boomers. However, in some countries, homeownership is still quite popular.

Canada, for instance, is still predominantly a nation of homeowners. Most people in the country own homes, with less than a third of the population renting. The ownership rate rose steadily since 1971, hitting a high of 69% a decade ago

The question among buyers in Canada, then, is how to obtain mortgage financing? What are some of the benefits of getting a home loan in Canada? And how does one obtain mortgages for their first home?

This guide provides information on all these queries, helping you understand what steps need to be taken to buy your first house successfully.

Mortgage in Canada

A mortgage is a type of loan offered by financial institutions such as the Royal Bank of Canada (RBC), where the borrower uses their home to guarantee payment. 

The money you borrow from the bank is given to you in exchange for your signature, promising to pay it back with interest. You can use a mortgage for refinancing purposes, to consolidate debts into one fixed payment every month, as well as buy your first home.

The process entails some steps, including applying for a mortgage and getting approved, searching for homes on sale in Canada, evaluating properties by touring them and making an offer if you find one that meets all your preferences, closing the deal, and moving in.

Mortgage Rates in Canada

The lender will base your mortgage interest rate on multiple factors, including:

  • Size of your loan 
  • The terms of the mortgage
  • Your credit score

There are many other factors, as well. For example, variable rates mortgages are where the bank can change the rate during the mortgage term, usually every three months. On the other hand, fixed rates mortgages have a set interest rate for a specific period.

After that fixed period, the borrower has to renegotiate a new mortgage at the then-current market rates. Banks in Canada offer both variable and fixed rates mortgages.

The Royal Bank of Canada, for example, offers a 3-year fixed mortgage rate of 2.69% and a 5-year fixed mortgage rate of 3.04%. It also provides variable rates mortgages at prime plus 0.80% to prime minus 2.50%. The peak is the interest rate banks charge customers with perfect credit scores, in case you’re not aware yet.

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Checklist for First-time Homebuyers

Now you know how mortgages in Canada work and the average rates. However, we’re sure that buying a home for the first time still seems intimidating. Don’t worry; we’re here to help you. Here are a few things you need to know before buying the house of your dreams.

Figure Out What You Can Afford

The first step to buying a house is to figure out how much you can afford. Next, you need to consider your income, debts, and other monthly expenses.

Your mortgage lender will also look at your debt-servicing ratio, which is the percentage of the money you earn each month that will be used to pay off the mortgage each month. That includes the mortgage principal, interest, property taxes, and heating costs.

Also, keep in mind that you’d need to set aside money for things like moving costs, repairs, and furniture.

Save for a Down Payment

A down payment is an amount you put towards purchasing a home. The minimum down payment in Canada is only 5%, but you may be able to get a mortgage with a lower down payment if you have a guarantor.

The larger your down payment, the lower your mortgage payments will be each month. Furthermore, you must be able to get a home with no money down; however, you’ll likely have to pay a higher interest rate.

Get Pre-approved for Your Mortgage

Before you can go house hunting, it’s crucial to get pre-approved for a mortgage. That shows sellers that you are serious about buying and lets them know how much money you have available to spend on a home.

Pre-approval is not the same as getting a mortgage. It is simply an indication from the lender that you meet their basic eligibility requirements.

That means that you can apply for a mortgage after you have found a house, but pre-approval will let the seller know that you’ll more likely be able to close on time and pay what you promised in your offer.

Search for Homes on Sale in Canada

Once you’re pre-approved for a mortgage, it’s time to start looking at houses to buy in Canada. Ensure the real estate agent knows that you are looking for something within your price range and that you want to get pre-approved for a mortgage.

You can also look online at Canadian real estate listings and see what homes are selling in your area. Some lenders offer services where they will shop around for the best mortgage deal, but you should never pay an agent to do this for you. It should be part of their job.

Once You Have Found Your Dream Home:

Make An Offer For The House

Once you find the perfect home, it’s time to make an offer. The seller may accept, reject, or counter your offer with something different.

That’s why your offer must be reasonable. However, even if your request is accepted, the deal isn’t done yet. The seller will still have to agree to your mortgage terms and conditions.

Finalize Your Mortgage Details

Once the seller accepts your offer, it’s time to finalize your mortgage details. That includes signing the mortgage agreement and getting the funds released by your lender. You may also need to do this using a mortgage broker.

You should also confirm what the closing costs will be and when they’re due, as well as who will pay these costs – you or the seller. Keep in mind that you can constantly renegotiate any details of your mortgage before closing day.

Be sure to get all of the necessary signatures from everyone involved, including yourself.

And That’s How You Buy Your First Home

Now you know how it works in Canada. Keep in mind that buying a house is one of the most significant financial decisions you will make in your life; try not to rush into anything or sign any legal documents without reading them carefully first. And always keep in mind that if something seems too good to be true, it probably is.

Best Mortgage Online can help you more on the matter, let us help by calling us at 1-855-567-4898 (Toll Free) or find more ways to contact us via here.

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