My wife and I had been dating for a while when we decided that we were going to get married. But we ended up buying our first house together nearly two years before we finally exchanged vows. And I don’t mind saying that the decision to co-sign for a mortgage was definitely the more stressful commitment. The house we bought cost about $340,000 and for weeks afterwards I’d bolt awake in the middle of the night in my rental apartment thinking, “One third of a million dollars. Have we made a mistake?” Of course, in the 10 years since that place has probably doubled in value. Yes, getting a mortgage is stressful. But truly understanding how they work – and your own financial situation – can help you stop mortgage stress.
According to a survey conducted for ING, two-thirds of Canadians with mortgages admit to it being a stressful process, specifically, finding it complicated (31 per cent), confusing (20 per cent), or hard to figure out (16 per cent). Many also find it to be time consuming and “annoying.” Only seven per cent of survey takers claimed it was a stress-free process. Here’s how you can become one of the seven percenters.
Why So Stressful?
The simple fact is that for the vast majority of Canadians, buying a house will be far and away the biggest purchase they ever make. And with many of us balking at signing even a one- or two-year contract for cellphone service or an internet connection, the fact that mortgage commitments typically start at 25 years, it’s easy to understand why people’s hearts start racing.
On top of that are difficult choices to be made (should you get a fixed or variable rate mortgage? What about a blended product?), potentially confusing clauses (are overpayments allowed? If so, how much per year?), and the fact you have to negotiate for fractions of a percentage point that can mean thousands of dollars in savings over the course of the mortgage, it’s a wonder we don’t all run away screaming.
Understanding the Basics
As the saying goes, knowledge is power. The first thing to understand is the difference between fixed rate mortgages and variable rates. There’s a detailed explanation here, but, in a nutshell, a fixed rate stays the same over the (usually) five-year term of a mortgage, while a variable rate – which is generally initially a bit lower than a fixed one, can go up or down as the Bank of Canada changes it’s prime rate.
If you require a mortgage that amounts to more than 80 per cent of the value of the property, you’ll be required to pay a one-time fee for mortgage insurance from the Canada Mortgage and Housing Corporation, or a private lender like Genworth Canada. Note that you need to have at least five per cent for a down payment to qualify for a mortgage in Canada.
Tougher Rules For Home Buyers
Last year, the federal government reduced the maximum amortization period of a mortgage from 30 years down to 25. But mortgage terms (the period of time a rate and other conditions are in place) are typically negotiated in five-year blocks – though terms can range from a few months up to 25 years.
Finally, you should understand how accelerated payments (paying your mortgage every two weeks instead of once a month) can help pay your loan off faster, while reducing the amount of interest you pay, and determine if you’re better suited for an “open” mortgage that allows you to make over payments when extra money becomes available or if a “closed” mortgage at a lower rate is the better bet for you.
For more details on these and more mortgage basics, look under the Mortgage Rates tab on this site mortgage-related tutorials, tips, and calculators, plus a listing of the best-available currently posted rates with a variety of providers.
Don’t Hesitate To Get Help
Finally, if it all still feels too overwhelming, it’s worth seeking some professional help. A mortgage broker knows the ins and outs of all types of mortgage and a broker’s fees are paid by the mortgage lender, so their services won’t cost you anything. You can find an certified mortgage professional on the Canadian Association of Accredited Mortgage Professionals’ website.