Mortgages 101

Like real estate agents in Saskatoon there are many mortgage brokers in Saskatoon with varying degrees of knowledge and competency. You can call your bank and ask them to put you in touch with a mortgage person however you are often better off with a mortgage broker in Saskatoon who doesn’t work for a specific lender. Mortgage brokers work in a similar way as REALTORS® in that they don’t get paid until they secure your mortgage. As they often don’t have the same constraints as mortgage consultants who work for a specific bank they can shop around for the best rates and products for your specific needs. Mortgage brokers often have more flexibility with both time and with products they have access to and they will often be flexible with where and when they can meet with you. Ensure that your mortgage broker is experienced and find out how much time they need from the time your Saskatoon REALTOR® sends them the offer to purchase documents to being able to get approval. If they need more than 5 business days you need to find another broker!

Don’t make the mistake of going online to see how much you qualify for and expecting this to be 100% accurate. This is often just a quick snapshot of your monthly income and expenses but most people don’t accurately put in or even know their exact level of debt. The online calculators should state it is an estimation only. Do not rely on this as it will often qualify you higher than a proper mortgage specialist. Getting qualified is the first step and it differs from getting pre-approved. If you are pre-qualified you are not pre-approved as there is a world of difference between the two.

Getting pre-qualified is the initial step of the mortgage process and it is generally fairly simple. You will need to supply your bank, broker, or lender with an overall snapshot of your financial picture which will include your debt, income and assets. After evaluating this information the lender can give you an idea of the mortgage amount that you may qualify for and these can be done over the phone or online but this does NOT include an analysis of your credit report or an in-depth look at your ability to buy a property.

As this is just a first step and it is not definite by any means being pre-qualified is only a starting point and you should not be out looking at houses for sale in Saskatoon when you are only at this stage. Being pre-qualified is not as strong as being pre-approved and if you are in a position of competing with another offer the pre-qualified buyer will not be taken as seriously as the pre-approved buyer.

Getting pre-approved is the second step and it tends to be much more in depth. This is where you will complete an official mortgage application (there is often a fee involved) and then supply the lender with all of the needed documents to be able to perform and extensive check on your financial background and your current credit score. From this information the lender can now give you a specific mortgage amount where you will be approved therefore a guideline of a maximum mortgage you can carry. You will also have a good idea of the interest rate you will be paying and you may even be able to lock in for a 60 or 90 day hold. Interest rates change all the time so it doesn’t hurt to get a rate held and if it gets better you can work with that. This pre-approval means you have a conditional commitment in writing and then you can look at homes at or below this price point.

This pre-approval is also advantageous as it will enable you to move quickly when we find you the perfect house in Saskatoon or surrounding area. In a multiple offer situation it can also give you a leg up on any competition as we may be able to eliminate the condition of financing if needed.

The final step in the process is the actual loan commitment which is only issued by the bank or lender when you have been approved as the borrower and the house in question has been approved. This means the home should pass any inspections deemed necessary and that the house for sale in Saskatoon or surrounding area appraises at or above the purchase price. They will check your income and credit once again to ensure nothing has changed so make sure you don’t go out and buy a new vehicle before you get possession. The lender can pull the approval if your credit has changed or if your debt ratio has changed.

Rules are constantly changing in the mortgage world so make sure to ask your Saskatoon mortgage broker or your lender if there are any changes that affect your ability to borrow.

The final step in the process is the actual loan commitment which is only issued by the bank or lender when you have been approved as the borrower and the house in question has been approved. This means the home should pass any inspections deemed necessary and that the house for sale in Saskatoon or surrounding area appraises at or above the purchase price. They will check your income and credit once again to ensure nothing has changed so make sure you don’t go out and buy a new vehicle before you get possession. The lender can pull the approval if your credit has changed or if your debt ratio has changed.

Rules are constantly changing in the mortgage world so make sure to ask your Saskatoon mortgage broker or your lender if there are any changes that affect your ability to borrow.

When you are purchasing a house for sale in Saskatoon you will need a down payment. This down payment can be partially paid for with the deposit that you also need when putting in an offer to purchase. The most common down payment needed is 5% unless you are an investor or purchasing a second home in which case you may need up to 20%. Your lender will determine what you need for a down payment so this is another reason to ensure you are pre-approved before getting too far ahead of yourself.

A conventional mortgage is where the buyer is required to put at least 20% of the purchase price or appraised value.

The smaller 5% down payment is considered a high-ratio mortgage. This is a higher risk mortgage for a lender therefore it requires default insurance.

The larger the down payment the greater the savings. A larger down payment means a lower amount of your monthly principal and interest payment and it also reduces the total amount of interest you pay over the life of your mortgage.

You may also be eligible to take advantage of the RSP Home Buyer’s Program which allows a first time buyer to take out up to $25,000 from RSP’s for the purchase of a home. The amount taken out must be paid back within 15 years and the minimum annual repayment is 1/15 of the amount withdrawn.

Some buyers can also borrow their down payment so ask your lender if you qualify for this program.

When you have a high ratio mortgage (under 20% down) you need to insure the mortgage loan with either CMHC or Genworth. There is a premium involved and it is based on the down payment and the loan amount. You will typically see fees ranging from 1% to 3.5% of the principal amount of your mortgage. The insurance can either be paid up front or added to the principal amount of the mortgage. The only way to avoid mortgage insurance is if you put down 20% or more towards your down payment in your Saskatoon home purchase.

Mortgage rates change on a weekly basis and there are many different rate scenarios that you see. You will sometimes see advertisements for low interest rates but you have to be aware of the term involved or if it is an open variable or a closed mortgage as there are several different type of mortgages.

You are best to meet with a professional mortgage broker or mortgage specialist in Saskatoon to determine what type of mortgage and payment options work best for your unique situation.  Be sure to shop around for the best rate and terms that works for your individual Saskatoon real estate buying needs.  Below is a website that provides a comparison of mortgage rates for mortgage lenders across Canada.  Be sure to contact your local lending institute to verify and confirm the available rates.  You want to be sure you select a mortgage company that has your best interest in place and are not just trying to get a quick sale.

Compare Mortgage Rates

You can pay your mortgage either weekly, biweekly, semi-monthly or monthly. I don’t recommend monthly if you can avoid it as you can save a lot of interest over the mortgage period if you pay more often. When speaking with your mortgage broker they should be able to provide you a comparitive summary of your different payment options and provide you the cost savings of selecting different payment types. Many mortgages also give you the option to pay down up to 15% of your original mortgage amount each year. This option isn’t feasible for many people but it does allow you to pay any addition amount extra each year. It is important to understand the total amount of interest you are paying on your home and identify ways to lower that overall interest as it will save you money in the long run. By doing this you can save money on interest and own your home outright sooner.

This is a big word that simply means the time over which equal payments and an unchanged interest rate would bring the balance of the mortgage or loan to a zero. When you apply for a mortgage your amortization period is set at that time. The most common amortization is 25 years but currently the maximum period is 30 years. In previous years there were options as long as 40 years but lending institutes eliminated these long term mortgages as it allowed people to over extend themselves very easily. If interest rates increased these individuals would be in serious problem as the long term interest and costs to carry the mortgage would increase substantially. This is one of the many issues that happened in the United States. Canada has implemented safe guards in our real estate lending market to avoid this issues to Canadians.