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4 ways to avoid mortgage traps

September 21 2017 by Multi-Prêts Hypothèques
What you'll learn
  • Down payment
  • Budget
  • Credit report
  • Shopping around 

Even with the help of a broker to help you see things clearly, you’re always better off knowing about mortgage traps. Here’s how to avoid them.

Think long and hard about your down payment

If your savings allow it, it can be worthwhile to put down a 20% down payment when purchasing a property. A big down payment will allow you to avoid the mortgage insurance premium, even if the interest rate is sometimes higher. Furthermore, you’ll have a much easier time qualifying for a loan with a down payment of at least 20%.

Make sure the funds you plan on using are available at the time of purchase. In certain cases, administrative delays could force you to miss out on a good deal.

The Home Buyers’ Plan that allows you to withdraw up to $25,000 from your RRSPs can bring an important contribution to your down payment. To find out more, refer to the federal government’s website.

budget calculations

Budgeting

It can never be overstated, any major financial decision must pass the realistic budget test.

Short term, you have to consider the inspection, transfer charges, taxes on the CHMC premium (for down payments of less than 20%), notary fees, tax adjustment costs, moving costs, furniture purchases. Then add municipal and school taxes, condo fees, etc. 

Long term, could you afford your mortgage rate going up a few points when the time comes to renew? Or face unforeseen situations? It’s hard to predict the future, which is why you should always keep some wiggle room to keep saving money and maintain an emergency fund after purchasing your property.

As we mentioned in our article, “What’s your borrowing capacity?” it is not recommended to maximize your borrowing capacity. Also, our calculator will help you determine your borrowing capacity.

You can find apps to help you manage your budget here

Obtaining your credit report and credit score ahead of time

Even if you believe you have a spotless payment history, make sure you get your credit report from Equifax and TransUnion. This will avoid any unpleasant surprises after you submit your mortgage application.

Since the agencies responsible for your credit report handle the information of millions of consumers provided by an array of businesses, these types of mistakes or omissions can occur:

  • An old account that you paid off still shows a balance
  • Credit cards or lines of credit that you no longer use can still be active
  • A mistake in your information causes a file to appear twice
  • An account that does not belong to you shows up (fraud)
  • Any information that is not up-to-date

Your credit score will also have an impact on the conditions of your mortgage contract. A score of 720 or more is desirable. Read our article to find out more about the myths surrounding your credit report

If ever you realize that your score is not as high as you thought it was, apply some of our tips to improve your credit rating. Your mortgage broker can also help you find solutions. 

Don’t choose your mortgage strictly based on the rate

It’s just as important to shop for your mortgage as it is to shop for your home. If lower percentage rates can help you save on a monthly basis, they may wind up costing you more in the long run if they lock you into unfavourable conditions. Before making your choice, make sure that you can live with all the conditions: duration, penalties, early repayment, transferability, etc.

Read our article to better understand mortgage conditions.

This is precisely why your Multi-Prêts broker will be your best ally. By dealing with many lending institutions, they can find the financing that’s best suited to your needs and your situation.  

Key takeaways
  • It is not recommended to maximize your borrowing capacity.
  • Even if you believe you have a spotless payment history, make sure you get your credit report from Equifax and TransUnion.
  • If lower percentage rates can help you save on a monthly basis, they may wind up costing you more in the long run if they lock you into unfavourable conditions.