Part 1 of a 3 part series: A simplified guide to buying your first house
Buying your first house is a daunting process but it is one of the most important decisions you will make. In this article, I will share some of the things I have learned from my own recent experience that will hopefully facilitate your house buying experience.
Alright, first things first, in order to get a house, you need to muster up a down payment of at least 5 percent or more. You cannot use funds from your credit line or credit cards. This amount should be from your savings or as a gift amount from relatives. It is also a good idea to get pre-approved for a mortgage.
If you are reading this article, most probably you have been thinking of buying a house. You might be pondering over google on where to start and if you can find consolidated information with practical advice. You have certainly come to the right place. Here, in this article, I will take you on a short journey from thinking about the house to moving into your home.
Phase I: Do your math
Learn about Mortgage and interest rates:
For most of us, Mortgage is one of the biggest loans we carry for a significant period of our lives. So make sure you take the time to learn about it. In this section, I will try to familiarize you with some of the key things you need to know about Mortgage.
To start on your math phase, first thing is learning about the terms. used in Mortgage Arena. Here is a link from TD Bank containing the most frequently used terms in the mortgage world. Read up on Amortization Rate, Closed Mortgage, Fixed Rate Mortgage, High Ratio Mortgage, Mortgage Term, Open Mortgage, Principal, Variable Mortgage Rate.
The interest rate is an important variable. The interest rate is decided by Bank of Canada. It is revisited frequently through out the year. The schedule for interest rate revision can be found on Bank of Canada’s website @ http://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/
Phase II : Search for an interest rate
You can find an initial no-commitment general interest rate from Rate Hub. This will give you an idea of what you can find on the market. This will prepare you for the conversations ahead with mortgage specialists and lenders including your own banking institution.
One thing to note is that the term length is different from amortization period. When you signup for a mortgage, amortization is usually for 25 years or less. That means you will pay the mortgage dues in 25 years or less. However, the term length is the length of mortgage agreement with the current lender. The most common Term length is 5 years.
Looking at the website Rate Hub (click here).
Once you enter the information, the web service will provide interest rates offered by multitude of vendors as shown in the infographic below:
Until now, we have an idea of our parameters. For example, let us say we are looking for a house worth $350,000 with an amortization of 25 years and an interest rate of 2.29%. To calculate the monthly payments and look at the yearly principal and interest payments you can use any of the online mortgage calculators. Moreover, you can play around with different variables including mortgage amount, amortization, payment frequency and interest rate. While having a monthly payment you have to worry about mortgage payment once a month, it might be beneficial to go on bi-weekly where you are paying less interest in an year.
I used Scotia Bank Mortgage Payment calculator found on the link below:
Stay tuned for Part 2 of this series coming next week. In Part 2, I will cover how to select a community based on neighborhood statistics.