Your First Mortgage Loan: 9 Important Criteria To Consider

Your First Mortgage Loan: 9 Important Criteria To Consider

Do you want to buy a condo or a house? By becoming a landlord, you can stop paying rent and you can even collect one. However, you must also have the ability to pay your mortgage loan as well as the new expenses to be expected when you become a homeowner with your first mortgage loan.

Here are 9 criteria to consider when obtaining your first mortgage loan.

The down payment

For mortgage loan insurance, you must pay an amount that is 5% of the purchase price of your home. So, for a property at $ 350,000, the down payment will be $ 17,500. If your home costs more than $ 500,000, the minimum amount is 5% for the first $ 500,000 and 10% for the rest.   

You will receive an insurance premium from CMHC if your down payment is greater than the minimum amount. This varies between 2.8 and 4.5% of your mortgage loan.

Your future budget

Before thinking about buying a first home, it is strongly recommended that you check your credit report. Anomalies could affect your chances of getting a mortgage. It is also good to try to plan for the money you may have in the future. A change in circumstances could potentially decrease your income.

Your mortgage borrowing capacity

Your mortgage payments should not exceed 40% of your gross income . Your borrowing capacity can depend on a multitude of factors which include, among other things, your annual salary, but also your current expenses such as your housing costs. 

To determine your ability to pay, see a mortgage advisor. They will ask you several questions to check if you are able to pay your mortgage. 

Mortgage pre-approval by your financial institution 

Receiving pre-approval from your financial institution will allow you to make a better estimate of your purchasing power . Sellers are also more willing to sell their property to buyers who have received mortgage pre-approval.  

Obtaining mortgage pre-approval is free and can be done by consulting a financial advisor. Keep in your possession all the documents that determine your financial situation (tax bill, bank statements, pay stubs, etc.). You will be better able to demonstrate to your financial advisor that you have the ability to buy a property. 

The amortization period of the mortgage loan  

The amortization period is the length of time the bank gives you to pay off your mortgage. The longer it is, the lower your monthly payments will be. However, you will pay more interest . 

The law provides for a maximum amortization period of 25 years . If you can afford it, you can choose to reduce your amortization period. This will allow you to pay less interest on your home mortgage.  

Fixed or variable rate? 

At the end of the term, which lasts between 2 and 5 years, you can renegotiate your interest rate. A variable rate, as its name suggests, varies depending on the market. 

The frequency of mortgage payments 

You can choose to pay your mortgage payments monthly, biweekly, or weekly. It is also possible to make an expedited payment rather than a regular payment.

You will pay a little more each year, but you will reduce the amortization period of your mortgage.

The possibility of early repayment 

You will have the choice between an “open” or “closed” mortgage. 

An open one will allow you to make an early repayment, that is, to increase your monthly payments to shorten the amortization period . However, it comes with higher interest rates. A closed mortgage comes with a lower interest rate, but you won’t be able to change your payment amount as you see fit.

Life insurance and disability insurance 

Some mortgages include life insurance or disability insurance.

Life insurance allows you to repay the amount of the mortgage loan to the institution if you die. It is useful if you are sharing your mortgage payments with someone else or if you have dependents.  Disability insurance protects the buyer in the event of accident, illness or injury. It is important to choose it well, because it comes with several conditions.