That's right - I'm the proud owner of real estate!
I started my search for the perfect place during the summertime, when prices were still high from the Olympic bubble. That's not to say Vancouver's housing market is ever really low compared to the rest of the country, but considering the whole recession and financial crisis, I don't think homeowners in this city blinked once as homeowners elsewhere were facing foreclosures.
As I browsed through listings on MLS, I have to admit that my optimism was somewhat diminished. There certainly were a fair number of properties matching my criteria, but unfortunately, not within my budget. Even the building I was currently renting was selling for just under half a million dollars! At this point, I was still paying off my car, so I was content to hold on to my savings and see if the prices would drop after a few months. After all, it's common knowledge that summer is the peak period for buying and selling.
So, I waited. But I didn't just wait and twiddle my thumbs - I got myself a pre-approved mortgage. I learned about fixed rate mortgages and variable rate mortgages, what "closed" and "open" meant, and how to choose.
Getting Pre-approved
When someone decides to buy property, they don't have a briefcase filled with thousand-dollar bills to hand over for the transaction. Usually, banks have some role to play, and they're quite happy to lend money to potential home buyers in return for interest. But how? It depends. Very simply put, after borrowing tons of money from the bank, home buyers have the option of either committing to stable, "fixed" monthly payments that will not change over the course of the mortgage term (say, 5 years) or they have the option of gambling a bit and agreeing to fluctuating, "variable" monthly payments that will change according to the current interest rates over the course of the mortgage term.
Confused? According to the banks, if you're the type of person who likes to budget carefully and know exactly how much you're paying for bills each month, then you might prefer the fixed rate mortgage. Fixed rates are typically a bit higher than the variable rates so you could end up paying more in interest, but you get the peace of mind of not having to worry whether the interest rates will go up.
The variable rate mortgage allows you to (usually) pay less in interest than the fixed rate, but you're at the mercy of the interest rates. If the rates get hiked up, then you may be paying the same (hopefully not more) interest than those who took the less risky fixed rate mortgage.
The terms "closed" and "open" refer to the penalty you pay if you break the term of the mortgage. Very much like the contracts you sign with the cable company or the phone company, if you've signed on to the mortgage for a certain number of years, you will pay a penalty if you decide to abort before your time is up. This could happen if you wanted to sell your property, for example. Mortgages are generally "closed", which means you are tied to the contract. If you manage to get an "open" mortgage, that means you're free to buy and sell as you please.
When I decided to chase down a pre-approved mortgage, I had no idea where to go - I didn't know whether to ask a bank or see what mortgage brokers could offer, so I went to both! If you do the same, you'll notice that everyone has different products/mortgages, with all sorts of different options. I think I ended up speaking to at least 5 different banks and 4 different mortgage brokers, trying to get the cheapest interest rate.
One note of caution about getting lots of quotes: depending on the institution/mortgage broker, they may not be able to give you an accurate quote without pulling your credit report. Each time anyone accesses your credit report (including you), your credit score will decrease. From what I gathered, a "great" score is anything above 700. Why does your credit score matter? Banks will agree to loan you money only if they assess your "risk" level to be low. This means you will need to meet certain requirements in order to qualify for a mortgage. One of these is having a good credit report - the score indicates if you have a history of paying off your loans, whether you pay your credit card bills on time, how many times has your credit history been checked, etc.
Another requirement for mortgage qualification is whether or not you have a full-time job and have been employed with the same company for at least 2-3 years. Of course, related to that is your salary - which will determine how much money you can get from the bank.
On that note, when you apply for a pre-approved mortgage, you will definitely be asked: "How much money do you need from the bank?" When I asked myself this question, I had to take a look at the listings again and check the price range for the buildings I liked. I was also advised to stay under $425,000 to avoid incurring an extra tax - the Property Transfer Tax that is waived for first-time home buyers. Anyway, make sure you know how much money you'll need before you go hunting for a mortgage.
After I discovered that my credit score was in the "great" category, I had to sift through all the mortgage options. I mentioned 3 things to look for so far: "fixed" versus "variable", "closed" versus "open", and the low interest rate.
Now, I had to calculate exactly how much my mortgage would be. It's not quite as straightforward as "mortgage = price of property". It all depends on how much your down payment is - if your down payment is at least 20% of the purchase price, then your life is much easier. If you don't have that much cash lying around, then you'll have the pleasure of paying some extra insurance which I'll explain in the next couple of paragraphs. Remember that you are allowed to withdraw $25,000 from your RRSP account(s) if you are a first time home buyer. (For the RRSP withdrawal, you'll have to visit the Canada Revenue Agency website and fill out the T1036 form.)
In total, if your down payment is less than 20%, the Canadian Bank Act states that you have to buy mortgage loan insurance from Canada Mortgage and Housing Corporation (CMHC). This means that, if you are not self-employed, you could pay up to 2.75% of your loan for this extra insurance, which will be added to your mortgage. The percentage of your loan is proportional to the amount of your down payment - you can find the chart that calculates the percentage at the CMHC website.
If you have to pay the CMHC insurance, you'll also have to take into account how long you're expecting to take to pay off your mortgage. Usually, there are 3 choices: 25 years, 30 years, and 35 years. If you decide that you want to be aggressive with your monthly payments and pick the 25-year "amortization", then you will pay less for your mortgage loan insurance. If you pick the 30-year or 35-year "amortization", then you will be paying a bit more for your CMHC insurance.
At this point, I'd called a bunch of different people, and gotten my credit report pulled a few times. I didn't have a property I wanted to buy yet, but the interest rates were pretty low, so I wanted to lock in a good rate first. I decided to call one of the mortgage brokers to get pre-approved for a 5-year fixed rate mortgage, with 10% down payment, and 25-year amortization. (If you agree with my decision, just wait. If you just shook your head, don't worry, I'll tell you now that I changed my mind later.)
As luck would have it (or, as some real-estate gurus would be able to predict), the housing prices dropped in the next couple of months. It was turning into a buyer's market - sellers were getting anxious about further price drops so buyers had the upper hand for negotiations. I'd just paid off my car, and was ready to start focusing on getting an apartment.
The Search Begins
First things first - I needed a real estate agent. Fortunately, my co-worker recommended a very friendly, knowledgeable agent who helped me get started. I'm not sure what the normal process is for finding an agent, but I'm guessing you would probably be able to find someone who recently bought a property that liked their agent. Just ask for their contact information, and you'll be good to go!
I realize this entry is getting rather lengthy, so I'll try to summarize my search a bit. After chatting with my real estate agent about what I was looking for, and the price I was willing to pay, he helped me set up a bunch of viewings. We went to the viewings together, and I looked at various aspects of each available unit: the square footage, the age of the building, which company built the property, who managed the property, the amenities, the location with respect to public transit and major roadways, whether the building was concrete or wood (it makes a difference for noise), how much the strata fees/property taxes were, whether rentals were allowed, and investment value. It was difficult to find a match, and as we looked at all the units without coming up with any promising results, I started to lose hope. But, as we searched, the prices were dropping.
After more than a month of booking viewing after viewing, I decided to ask my agent to check all the available listings in my current building, just to see what the prices were. I realized that as I was searching for properties, I was subconsciously comparing each unit to the one I was currently living in - I essentially wanted to buy what I was renting. I wasn't sure what to expect, but when I found out that the prices were within my budget, I was ecstatic! I immediately scoured all the listings to see which one I wanted to view, and we booked the appointments as quickly as we could.
It wasn't long before I found "the one". The perfect unit: it met all the requirements, wasn't too high up so that I could take the stairs if I didn't want to wait for the elevator, had two parking spots, and had a view of the courtyard. The next step was to put in an offer for the unit.
Wheeling and Dealing
I knew what price I wanted to pay, and I knew that I had to leave room for bargaining. My initial offer was $20,000 less than my desired purchase price. Over the next few days, I was on the phone with my real estate agent every day, sometimes multiple times per day. I signed multiple offers, trying to bargain down the price with the sellers, and I know my real estate agent spent many hours persuading the seller's real estate agent to lower the price.
Just a few notes about the offer - it is a legally binding contract that states several things. There are the obvious pertinent facts such as the seller's name, the buyer's name, the property in question, and the offer "purchase price". You should also be prepared to put down a deposit for the offer - this is typically around $10,000 (or more) - to show that you are serious about buying the property. (If you decide to back out of the deal after the seller agrees to accept your offer, you will lose your deposit, so don't go around putting offers on a bunch of places just to see if you have awesome negotiating skills. More on this later.) You will state on the offer when you want to complete the sale (the "completion date" is when the land title will be transferred) and when you will take possession. All the included items will be clearly listed - for example, in an apartment, any appliances that will remain in the unit, how many sets of keys, etc. The offer will also have an expiry date that you determine - you should set a deadline within 24-48 hours to hopefully seal the deal before other potential buyers put in their offers. Most importantly, the offer will contain "subjects".
What are subjects? No, you won't be granted slaves for your tiny kingdom within your property. These are conditions/clauses that protect you in case you find the property unsuitable and need an exit strategy. For example, one of the subjects is always "finance". If the offer is subject to finance, that means you can back out if you don't get the money to buy the property. Other common subjects are "inspection" (if you find something during the property inspection that's a deal breaker), "title search" (if there's a lien on a property that prevents the seller from selling the property), and "minutes" (if there is a levy on the property that the seller hasn't cleared or there's something else in the strata council minutes that is a deal breaker). Eventually, if everything works out, you will remove all the subjects during the "subject removal" phase, which is when you will submit your deposit bank draft to your real estate agent. One important thing to note is that if you do not remove your subjects during the "subject removal" phase (i.e. you back out of the offer), you will not get your deposit back!
After days of hard negotiations, the seller accepted my offer at the price I wanted! Now, it was time to pay up.
Closing the Deal
The next few days were not stressful, per se, but were extremely busy. I had to get a bank draft for the deposit, payable to the real estate company (to hold in trust), and I also had to withdraw the funds from my RRSP account in another bank draft, payable to the lawyer (yes, you need a lawyer, but I'll explain more later). There were tons of forms and minutes to read (e.g. the strata plan containing floor plans of the entire building, all the minutes from the strata council) from my real estate agent.
If you're a first-time apartment buyer, you might be a bit overwhelmed by all the documentation - I know I was. When looking through the minutes, just look for anything out of the ordinary - if there's nothing that alarms you, then there's nothing to worry about. If you have questions, tell your real estate agent, and he/she will be able to direct you to the appropriate person to answer (i.e. the building manager or the strata). If it's a relatively new building, you have less to worry about because you will most likely be under warranty - verify the warranty and what it covers. Make sure that you know what additional insurance you need, if any. Note that if you are buying an apartment, check with the strata council if you want to change anything in the apartment because you may have to buy additional insurance for any major renovations.
The most time-consuming task was deciding on the mortgage. I mentioned earlier that I was pre-approved for a 5-year fixed rate mortgage, with 10% deposit, and 25-year amortization. I ended up getting a 3-year variable rate mortgage, with 10% deposit and 35-year amortization. Why? In the end, I was convinced that the variable rate was a better way to go. Yes, it's a bit riskier, but if you are allowed to make lump-sum payments every year (in addition to your monthly payments), it's possible to pay off your mortgage faster because you're paying off more of your principal loan instead of just paying off the interest.
Let's back up a bit. I used the term "lump-sum payments". This is one of many mortgage options which the bank or mortgage broker will explain to you. When you're paying off the mortgage, you will have monthly payments (or accelerated bi-weekly payments). If you have a variable rate mortgage, you should confirm that you are making accelerated bi-weekly payments to take advantage of your variable rate. Some lenders will allow you to make larger monthly payments in order to pay off more of your principal, up to a certain amount per month. Another option available may be to make lump-sum payments, which will go towards paying off your principle. Sometimes lenders will allow you to do this only once a year on the anniversary date of your mortgage, others will allow you to do it anytime during the year but only once, and yet others will allow you to make multiple lump-sum payments at anytime during the year. The lump-sum payments usually have a limit as well - such as no more than 20% of the principal per year. Another option is for prepayment - this is if you decide to abort the mortgage - and what the penalty is. The standard penalty is 3 months interest. Every mortgage product is different, so you have to be careful. Some options related to flexibility may start as soon as you commit to the mortgage, others may not be available until after the first anniversary. You may find that one lender may offer a really low interest rate, but with fewer options. If those options are important to you, then see if you can bargain with the lender!
OK, so I went with the variable rate mortgage. Why 3 years instead of 5 years? This will give me the opportunity to shop around again after 3 years to see if I can find a better mortgage rate. Lastly, why 35-year amortization instead of 25-year? I pay a bit of a penalty upfront because of higher CMHC insurance, but the 35-year amortization means that I have a lower monthly payment. I can always increase my lump-sum payment, so as long as I'm disciplined with my lump-sum payments, it doesn't matter how much I'm committed to pay monthly. (Note that you should not pay off more than 10% of your mortgage in the first year, otherwise you will be taxed. I'm not sure of the specifics, but I know the tax exists.)
After I signed the commitment letter for the mortgage, I had to find a lawyer.
The lawyer's role is to handle all the money and make sure it's sent to the right place, get the land title transferred from the seller's name to the buyer's name, and ensure all the strata forms and documents are properly completed. You could choose to enlist the services of a notary, instead of a lawyer - their rates may be slightly cheaper. Note that you should be prepared to pay the lawyer the remainder of your down payment and whatever closing costs are associated with the sale of the property (you can ask your mortgage broker to explain further) in the form of a certified cheque or bank draft. To get the total amount of the closing costs, you can ask your lawyer for a copy of the "buyer's statement of adjustments" a few days before you go to the lawyer's office so that you can prepare the funds.
That brings me to today. I'm now off to the lawyer's office to sign all the last legal papers and get the land title transferred to my name. Within the next few days, I'll have the new set of keys and be moving into my new apartment!
I started my search for the perfect place during the summertime, when prices were still high from the Olympic bubble. That's not to say Vancouver's housing market is ever really low compared to the rest of the country, but considering the whole recession and financial crisis, I don't think homeowners in this city blinked once as homeowners elsewhere were facing foreclosures.
As I browsed through listings on MLS, I have to admit that my optimism was somewhat diminished. There certainly were a fair number of properties matching my criteria, but unfortunately, not within my budget. Even the building I was currently renting was selling for just under half a million dollars! At this point, I was still paying off my car, so I was content to hold on to my savings and see if the prices would drop after a few months. After all, it's common knowledge that summer is the peak period for buying and selling.
So, I waited. But I didn't just wait and twiddle my thumbs - I got myself a pre-approved mortgage. I learned about fixed rate mortgages and variable rate mortgages, what "closed" and "open" meant, and how to choose.
Getting Pre-approved
When someone decides to buy property, they don't have a briefcase filled with thousand-dollar bills to hand over for the transaction. Usually, banks have some role to play, and they're quite happy to lend money to potential home buyers in return for interest. But how? It depends. Very simply put, after borrowing tons of money from the bank, home buyers have the option of either committing to stable, "fixed" monthly payments that will not change over the course of the mortgage term (say, 5 years) or they have the option of gambling a bit and agreeing to fluctuating, "variable" monthly payments that will change according to the current interest rates over the course of the mortgage term.
Confused? According to the banks, if you're the type of person who likes to budget carefully and know exactly how much you're paying for bills each month, then you might prefer the fixed rate mortgage. Fixed rates are typically a bit higher than the variable rates so you could end up paying more in interest, but you get the peace of mind of not having to worry whether the interest rates will go up.
The variable rate mortgage allows you to (usually) pay less in interest than the fixed rate, but you're at the mercy of the interest rates. If the rates get hiked up, then you may be paying the same (hopefully not more) interest than those who took the less risky fixed rate mortgage.
The terms "closed" and "open" refer to the penalty you pay if you break the term of the mortgage. Very much like the contracts you sign with the cable company or the phone company, if you've signed on to the mortgage for a certain number of years, you will pay a penalty if you decide to abort before your time is up. This could happen if you wanted to sell your property, for example. Mortgages are generally "closed", which means you are tied to the contract. If you manage to get an "open" mortgage, that means you're free to buy and sell as you please.
When I decided to chase down a pre-approved mortgage, I had no idea where to go - I didn't know whether to ask a bank or see what mortgage brokers could offer, so I went to both! If you do the same, you'll notice that everyone has different products/mortgages, with all sorts of different options. I think I ended up speaking to at least 5 different banks and 4 different mortgage brokers, trying to get the cheapest interest rate.
One note of caution about getting lots of quotes: depending on the institution/mortgage broker, they may not be able to give you an accurate quote without pulling your credit report. Each time anyone accesses your credit report (including you), your credit score will decrease. From what I gathered, a "great" score is anything above 700. Why does your credit score matter? Banks will agree to loan you money only if they assess your "risk" level to be low. This means you will need to meet certain requirements in order to qualify for a mortgage. One of these is having a good credit report - the score indicates if you have a history of paying off your loans, whether you pay your credit card bills on time, how many times has your credit history been checked, etc.
Another requirement for mortgage qualification is whether or not you have a full-time job and have been employed with the same company for at least 2-3 years. Of course, related to that is your salary - which will determine how much money you can get from the bank.
On that note, when you apply for a pre-approved mortgage, you will definitely be asked: "How much money do you need from the bank?" When I asked myself this question, I had to take a look at the listings again and check the price range for the buildings I liked. I was also advised to stay under $425,000 to avoid incurring an extra tax - the Property Transfer Tax that is waived for first-time home buyers. Anyway, make sure you know how much money you'll need before you go hunting for a mortgage.
After I discovered that my credit score was in the "great" category, I had to sift through all the mortgage options. I mentioned 3 things to look for so far: "fixed" versus "variable", "closed" versus "open", and the low interest rate.
Now, I had to calculate exactly how much my mortgage would be. It's not quite as straightforward as "mortgage = price of property". It all depends on how much your down payment is - if your down payment is at least 20% of the purchase price, then your life is much easier. If you don't have that much cash lying around, then you'll have the pleasure of paying some extra insurance which I'll explain in the next couple of paragraphs. Remember that you are allowed to withdraw $25,000 from your RRSP account(s) if you are a first time home buyer. (For the RRSP withdrawal, you'll have to visit the Canada Revenue Agency website and fill out the T1036 form.)
In total, if your down payment is less than 20%, the Canadian Bank Act states that you have to buy mortgage loan insurance from Canada Mortgage and Housing Corporation (CMHC). This means that, if you are not self-employed, you could pay up to 2.75% of your loan for this extra insurance, which will be added to your mortgage. The percentage of your loan is proportional to the amount of your down payment - you can find the chart that calculates the percentage at the CMHC website.
If you have to pay the CMHC insurance, you'll also have to take into account how long you're expecting to take to pay off your mortgage. Usually, there are 3 choices: 25 years, 30 years, and 35 years. If you decide that you want to be aggressive with your monthly payments and pick the 25-year "amortization", then you will pay less for your mortgage loan insurance. If you pick the 30-year or 35-year "amortization", then you will be paying a bit more for your CMHC insurance.
At this point, I'd called a bunch of different people, and gotten my credit report pulled a few times. I didn't have a property I wanted to buy yet, but the interest rates were pretty low, so I wanted to lock in a good rate first. I decided to call one of the mortgage brokers to get pre-approved for a 5-year fixed rate mortgage, with 10% down payment, and 25-year amortization. (If you agree with my decision, just wait. If you just shook your head, don't worry, I'll tell you now that I changed my mind later.)
As luck would have it (or, as some real-estate gurus would be able to predict), the housing prices dropped in the next couple of months. It was turning into a buyer's market - sellers were getting anxious about further price drops so buyers had the upper hand for negotiations. I'd just paid off my car, and was ready to start focusing on getting an apartment.
The Search Begins
First things first - I needed a real estate agent. Fortunately, my co-worker recommended a very friendly, knowledgeable agent who helped me get started. I'm not sure what the normal process is for finding an agent, but I'm guessing you would probably be able to find someone who recently bought a property that liked their agent. Just ask for their contact information, and you'll be good to go!
I realize this entry is getting rather lengthy, so I'll try to summarize my search a bit. After chatting with my real estate agent about what I was looking for, and the price I was willing to pay, he helped me set up a bunch of viewings. We went to the viewings together, and I looked at various aspects of each available unit: the square footage, the age of the building, which company built the property, who managed the property, the amenities, the location with respect to public transit and major roadways, whether the building was concrete or wood (it makes a difference for noise), how much the strata fees/property taxes were, whether rentals were allowed, and investment value. It was difficult to find a match, and as we looked at all the units without coming up with any promising results, I started to lose hope. But, as we searched, the prices were dropping.
After more than a month of booking viewing after viewing, I decided to ask my agent to check all the available listings in my current building, just to see what the prices were. I realized that as I was searching for properties, I was subconsciously comparing each unit to the one I was currently living in - I essentially wanted to buy what I was renting. I wasn't sure what to expect, but when I found out that the prices were within my budget, I was ecstatic! I immediately scoured all the listings to see which one I wanted to view, and we booked the appointments as quickly as we could.
It wasn't long before I found "the one". The perfect unit: it met all the requirements, wasn't too high up so that I could take the stairs if I didn't want to wait for the elevator, had two parking spots, and had a view of the courtyard. The next step was to put in an offer for the unit.
Wheeling and Dealing
I knew what price I wanted to pay, and I knew that I had to leave room for bargaining. My initial offer was $20,000 less than my desired purchase price. Over the next few days, I was on the phone with my real estate agent every day, sometimes multiple times per day. I signed multiple offers, trying to bargain down the price with the sellers, and I know my real estate agent spent many hours persuading the seller's real estate agent to lower the price.
Just a few notes about the offer - it is a legally binding contract that states several things. There are the obvious pertinent facts such as the seller's name, the buyer's name, the property in question, and the offer "purchase price". You should also be prepared to put down a deposit for the offer - this is typically around $10,000 (or more) - to show that you are serious about buying the property. (If you decide to back out of the deal after the seller agrees to accept your offer, you will lose your deposit, so don't go around putting offers on a bunch of places just to see if you have awesome negotiating skills. More on this later.) You will state on the offer when you want to complete the sale (the "completion date" is when the land title will be transferred) and when you will take possession. All the included items will be clearly listed - for example, in an apartment, any appliances that will remain in the unit, how many sets of keys, etc. The offer will also have an expiry date that you determine - you should set a deadline within 24-48 hours to hopefully seal the deal before other potential buyers put in their offers. Most importantly, the offer will contain "subjects".
What are subjects? No, you won't be granted slaves for your tiny kingdom within your property. These are conditions/clauses that protect you in case you find the property unsuitable and need an exit strategy. For example, one of the subjects is always "finance". If the offer is subject to finance, that means you can back out if you don't get the money to buy the property. Other common subjects are "inspection" (if you find something during the property inspection that's a deal breaker), "title search" (if there's a lien on a property that prevents the seller from selling the property), and "minutes" (if there is a levy on the property that the seller hasn't cleared or there's something else in the strata council minutes that is a deal breaker). Eventually, if everything works out, you will remove all the subjects during the "subject removal" phase, which is when you will submit your deposit bank draft to your real estate agent. One important thing to note is that if you do not remove your subjects during the "subject removal" phase (i.e. you back out of the offer), you will not get your deposit back!
After days of hard negotiations, the seller accepted my offer at the price I wanted! Now, it was time to pay up.
Closing the Deal
The next few days were not stressful, per se, but were extremely busy. I had to get a bank draft for the deposit, payable to the real estate company (to hold in trust), and I also had to withdraw the funds from my RRSP account in another bank draft, payable to the lawyer (yes, you need a lawyer, but I'll explain more later). There were tons of forms and minutes to read (e.g. the strata plan containing floor plans of the entire building, all the minutes from the strata council) from my real estate agent.
If you're a first-time apartment buyer, you might be a bit overwhelmed by all the documentation - I know I was. When looking through the minutes, just look for anything out of the ordinary - if there's nothing that alarms you, then there's nothing to worry about. If you have questions, tell your real estate agent, and he/she will be able to direct you to the appropriate person to answer (i.e. the building manager or the strata). If it's a relatively new building, you have less to worry about because you will most likely be under warranty - verify the warranty and what it covers. Make sure that you know what additional insurance you need, if any. Note that if you are buying an apartment, check with the strata council if you want to change anything in the apartment because you may have to buy additional insurance for any major renovations.
The most time-consuming task was deciding on the mortgage. I mentioned earlier that I was pre-approved for a 5-year fixed rate mortgage, with 10% deposit, and 25-year amortization. I ended up getting a 3-year variable rate mortgage, with 10% deposit and 35-year amortization. Why? In the end, I was convinced that the variable rate was a better way to go. Yes, it's a bit riskier, but if you are allowed to make lump-sum payments every year (in addition to your monthly payments), it's possible to pay off your mortgage faster because you're paying off more of your principal loan instead of just paying off the interest.
Let's back up a bit. I used the term "lump-sum payments". This is one of many mortgage options which the bank or mortgage broker will explain to you. When you're paying off the mortgage, you will have monthly payments (or accelerated bi-weekly payments). If you have a variable rate mortgage, you should confirm that you are making accelerated bi-weekly payments to take advantage of your variable rate. Some lenders will allow you to make larger monthly payments in order to pay off more of your principal, up to a certain amount per month. Another option available may be to make lump-sum payments, which will go towards paying off your principle. Sometimes lenders will allow you to do this only once a year on the anniversary date of your mortgage, others will allow you to do it anytime during the year but only once, and yet others will allow you to make multiple lump-sum payments at anytime during the year. The lump-sum payments usually have a limit as well - such as no more than 20% of the principal per year. Another option is for prepayment - this is if you decide to abort the mortgage - and what the penalty is. The standard penalty is 3 months interest. Every mortgage product is different, so you have to be careful. Some options related to flexibility may start as soon as you commit to the mortgage, others may not be available until after the first anniversary. You may find that one lender may offer a really low interest rate, but with fewer options. If those options are important to you, then see if you can bargain with the lender!
OK, so I went with the variable rate mortgage. Why 3 years instead of 5 years? This will give me the opportunity to shop around again after 3 years to see if I can find a better mortgage rate. Lastly, why 35-year amortization instead of 25-year? I pay a bit of a penalty upfront because of higher CMHC insurance, but the 35-year amortization means that I have a lower monthly payment. I can always increase my lump-sum payment, so as long as I'm disciplined with my lump-sum payments, it doesn't matter how much I'm committed to pay monthly. (Note that you should not pay off more than 10% of your mortgage in the first year, otherwise you will be taxed. I'm not sure of the specifics, but I know the tax exists.)
After I signed the commitment letter for the mortgage, I had to find a lawyer.
The lawyer's role is to handle all the money and make sure it's sent to the right place, get the land title transferred from the seller's name to the buyer's name, and ensure all the strata forms and documents are properly completed. You could choose to enlist the services of a notary, instead of a lawyer - their rates may be slightly cheaper. Note that you should be prepared to pay the lawyer the remainder of your down payment and whatever closing costs are associated with the sale of the property (you can ask your mortgage broker to explain further) in the form of a certified cheque or bank draft. To get the total amount of the closing costs, you can ask your lawyer for a copy of the "buyer's statement of adjustments" a few days before you go to the lawyer's office so that you can prepare the funds.
That brings me to today. I'm now off to the lawyer's office to sign all the last legal papers and get the land title transferred to my name. Within the next few days, I'll have the new set of keys and be moving into my new apartment!
Comments