Chap 8: Mortgages

There are really only two ways to buy a house - with your money or someone else’s money. What would baby boomers of the past generations have done without the huge tax-free equity they now have in their principal residence? This only came about through hard beginnings, a down payment scraped together or borrowed, and a mortgage.

Obtaining a mortgage is almost a dance - the lender wants the largest return for the least amount of risk while the borrower wants the most generous terms at the lowest rate, for the longest time… Getting your mortgage comes in various stages. The before window of starting to look for a house and the getting ready stage. The during stage when the purchase and mortgage are really happening and the after stage of making payments and pre-payment options you’ve agreed to – or signed away…

Shopping for a Mortgage

Mortgage shopping has nothing to do with convenience and where you currently bank is irrelevant to this. It’s not as if you’re ever going to visit your mortgage company for coffee. Whether they are located across town or in a different province, all that matters are their rate and terms. The payments will be debited from your account no matter where you live or bank…

…anyone can do most of the pre-approval process. Just complete the income and debt load calculations from the charts at the back of the book. This will give you the maximum amount of a mortgage payment possible. Lenders look at the total debt service ratio (TDSR) vs. your gross income, which cannot exceed 40 percent. With this figure, use a mortgage rate range and look up the mortgage payments in the back for various terms and the payment frequency you desire. For example:…

…surveys by CIBC found that almost two-thirds of consumers felt that their best option was to secure a fixed rate mortgage while less than 30 percent were comfortable with a variable-rate option. Moshe Milevsky of York University conducted a study that covered the period of 1950 to 2000 and found that a $100,000 mortgage over 15 years would have cost $22,000 less on a variable rate mortgage rather than five-year terms.

Paying More – Paying More Often

This acceleration takes advantage of making extra payments over a year in small amounts. There will still be 26 (bi-weekly) or 52 (weekly) payments, but they are calculated differently to accelerate the payments. It will make a big difference with very little effort. On a $100,000 mortgage at five percent the savings quickly add up: