August 30th 2021
Home Loans For First Time Home Buyers
By Rachel Burke
Buying a home is one of the biggest decisions you'll ever make. It’s easy to get caught up in the excitement of it all, which might explain why many first-time homeowners don't realize that they’re signing up for a long-term investment that may last up to 30 years. Since you'll be in your home for so long, it's important to educate yourself on the different types of mortgages you can purchase early on in the home buying process.
There are many factors to consider when deciding which mortgage loan is right for you, such as the amount you can afford, your credit history, the type of property you want to buy, and the investment you hope to make.
It's safe to say that most first-time homebuyers don't know a lot about mortgages. If this sounds like you, then read on, as we'll provide some basic definitions to make sure you understand what mortgages are all about.
Mortgage term: The length of time of your mortgage contract. Terms can vary from a few months to 5 years or longer. At the end of your term, you can renew your mortgage if you cannot repay the remaining balance at that time. Typically borrowers require multiple renewals before the full mortgage is paid off.
Mortgage amount: The total amount being borrowed by the lender, which is typically the purchase price minus the total payment.
Mortgage payment (principal and interest): The regular payments made to service a loan and the primary financial obligation for a home. This includes the cost of borrowing money from a financial institution, plus interest and other related fees.
Mortgage payment frequency: A mortgage requires payments to be made at fixed intervals, which are usually monthly or semi-monthly. Some mortgages also have a final payment due upon the loan's maturity.
Fixed-rate mortgage: A mortgage with a set rate for its term. The most common term length is 5 years.
Variable-rate mortgage: A mortgage with an interest rate that changes periodically. The most common term length is 5 years.
Interest-only mortgage: A fixed-rate or adjustable-rate mortgage in which the borrower pays only the accrued interest, and does not pay any principal until periodic payments are made at the end of a set period of time. These mortgages are only available through private mortgage lenders.
Mortgage insurance: Insurance against default on a mortgage loan taken out by a homebuyer. Mortgage insurance may be required if the buyer does not have sufficient assets or income for a lender.
Refinancing: Refinancing a mortgage occurs at the end of an initial fixed-rate or adjustable-term mortgage when new loan terms are established at a level where the interest rate is lowered and the term extended.
Home equity loan: Home equity loans are advanced against the value of an existing home, minus any outstanding debt thereon. The borrower receives cash in hand and pays back monthly installments over time until the loan balance is repaid.
Home equity line of credit: Home equity line of credit, also known as a home equity loan, allows the borrower to withdraw cash against their property value minus any existing debt. This may be done in lump sums or regular installments over time.
Property taxes: Property tax is calculated by using the assessed value of your home and multiplying it by the combined municipal and education tax rates for your class of property.
Home insurance: Home insurance protects from financial loss due to disaster or other damage to property. It can cover physical damage to your house (from fire or wind) as well as personal effects in the case of theft or vandalism. Some policies also provide "contents" coverage for personal possessions, which are usually not covered by homeowner's insurance. You may be required to carry contents coverage if your regular policy does not cover them.
Home inspection: An objective examination of the condition and a general assessment of the elements that make up a house or apartment for purchase purposes.
First-Time Homebuyer Incentive
The First-Time Homebuyer Incentive helps first-time homebuyers purchase a property. The incentive is a shared-equity mortgage with the Government of Canada. It offers 5 to 10% for a newly constructed home and 5% for a resale home or mobile home. The government has a shared investment in the home, meaning they share both the upside and downside of the property value.
The incentive allows borrowers to not have to save as much for a down payment to be able to afford monthly mortgage payments. A larger down payment results in lower monthly payments. The homebuyer will have to pay back the incentive according to the property’s fair market value at the time of repayment. For example, if a homebuyer received a 5% incentive, they would repay 5% of the home’s value at the time of repayment. The incentive has to be paid back after 25 years, or when the property is sold, whichever comes first. The homebuyer can pay the incentive back at any point without penalty.
What mortgage should I get?
As a first-time homebuyer, you may not know exactly what to look for when searching for a mortgage, which can make choosing the right one a stressful process.There are so many types and features with so many opinions from so many experts who don't even know you. But, the good news is that the mortgage company you choose will be there for you every step of the way. And, by working with your mortgage advisor, you'll be able to get the loan that best suits your needs.