6 Things to Know

1. Ensure that you obtain pre-approval for a mortgage before you go looking for a home. A mortgage pre-approval from your financial institute is fast, easy to arrange and free. It will assist you in your search for a suitable home in your price range. More than just a verbal approval from your lending institution, a written pre-approval is as good as money in the bank. It entails a completed credit application, and a confirmation letter, which guarantees you a mortgage to the specified level when you find the home you are looking for.  In times of interest rate uncertainty, a pre-approval may be able to protect interest rates from rising by offering a guaranteed period of 60 – 90 days.
    
2. Know your finances – and what amount you are comfortable committing to monthly. When you discuss mortgage pre-approval with your lender, find out what level you qualify for, but also pre-assess for yourself what monthly dollar amount you feel comfortable committing to. Is this amount realistic? Your situation may give you a pre-approval amount that is higher (or lower) than the amount of money you would want to pay out each month. Try putting the amount of your proposed principal, interest, taxes and heat aside each month and see if you are comfortable with that size of monthly financial commitment. By working back and forth with your lender to determine what this monthly amount is, and what value of home this translates into at today's rates, you won't waste time looking at homes that are not in your price range.
    
3. Any long term plans that may affect or determine the type of mortgage that will best suit your needs? There are a number of questions you should be asking yourself before you commit to a certain type of mortgage. How secure is your (and your spouses) income? Can you expect an increase in salary over the next term, impacting how much money you can afford to allocate to your mortgage? How long to you think you will own this home. Are you planning a family? Could your family income be greatly reduced if one of you is planning on staying home with children in the future? What direction are interest rates going in, and how quickly? Could you afford a mortgage this size if rates were to escalate at the end of the first mortgage term? Remember that during the first 10 years of a 25-year mortgage, the principal does not reduce greatly as the majority of your payment is dedicated to interest. The answer to these and other questions will help you determine the most appropriate mortgage you should be seeking.
    
4. Understand all of your mortgage options and prepayment privileges. Simply put, the more that you can afford to pay and reduce the amortization period, the more you save.  Many times an extra $20 per payment may result in savings of thousands of dollars over the life of your mortgage. More frequent payments (for example weekly or biweekly) can literally shave years off your mortgage. Simply by structuring your payments so that they come out more frequently, you will significantly lessen the amount of interest that you will be charged over the term. For the same reason, authorized prepayments of a certain percentage of your mortgage, or an increase in the amount you pay monthly, will have a major impact on the number of years you will have to pay and could shorten your payment term considerably. These two payment options can cut years off your mortgage, and save you thousands of dollars in interest. However, not every mortgage has these prepayment privileges built in, so make sure you ask the proper questions.  Whatever you decide, be sure that you can live comfortably with your mortgage payments. 
   
   You are supposed to own the house – not it own you!
    
5. Will your future mortgage be portable and/or assumable? A portable mortgage is one that you can carry with you when you buy your next home and avoid paying any discharge penalties. (provided that you require as much, or more money than is currently outstanding on your mortgage). This means that you will not have to go through the entire mortgage process again unless you are making a move up to a much more expensive home. If you do require more money, you may be able to obtain a blended rate mortgage allowing the old amount to stay at the old interest rate (without penalty) and the new amount to be at the current interest rates charged.  You will still need a lawyer to register the mortgage and assure title and you will most likely require an appraisal of the property. An assumable mortgage is one that the buyer for your home can take over when you move to your next home. This can be a very powerful tool at the negotiating table making it much easier and more desirable for a buyer to buy your home especially if you have a low interest rate, and again saves you any discharge penalties.
    
6. Deal with people you know whenever possible, but always deals with an expert!  The best place to start is with the financial institution you use regularly.  You may have developed a rapport with some of their personnel and may speed up the process and eliminate some of the normal red tape. Consider dealing only with a professional who specializes in mortgages. Enlisting their services can make a significant difference in the cost and effectiveness of the mortgage you obtain. For example they can make the process faster thereby avoiding costly delays. Typically, there is no cost or obligation to inquire.

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