Home Buying Essentials

Within the ever-changing real estate market, Canada has managed to remain relatively unscathed despite the economic fluctuation that has occurred in North America. This can be attributed to the various preventative measures that the Canadian government has put into place regarding mortgage regulations, in order to protect the country from incurring substantial debt woes.

Although the changes to mortgage regulations can make the application process appear more difficult, mortgage specialists can help ease homebuyers through the process of applying for, qualifying for and repaying a mortgage, so before they know it, they are living in their dream home.

Regulations

Since October 2008, the Canadian government has begun the process of implementing a series of changes to mortgage regulations. One of the most recent changes occurred last March when the government reduced the maximum amortization period down to 30 years.

“The government wants to make sure that consumers don’t overextend themselves in terms of the debt they are taking on,” says Marcia Moffat, vice-president of home equity for the Royal Bank of Canada (RBC). “They want to make sure that there is an incentive to pay off debt and shortening the amortization period makes mortgage payments higher so that clients will pay off their debt faster.”

Qualifications

Although the basic qualifying standards, such as income and credit rating, remain intact, the new changes make qualifying for a mortgage quite different compared to five years ago. But it doesn’t necessarily mean that it’s more difficult. Consulting with a mortgage specialist can help make the process seem a lot less tedious.

“When we qualify a client for a mortgage, we want to make sure they can afford it,” Moffat explains. “This isn’t just for first-time homebuyers but also if you want to upgrade to a larger home, you still need to think through all the additional costs. A bigger home usually means higher property taxes and higher maintenance costs. It can also mean you will need more money to furnish the home. These are some of the factors to consider and part of the advice that we give our clients.”

Consulting with a mortgage specialist ensures that the client is receiving the individual review needed to accurately assess their mortgage qualifications. Since it is a multi-step process, the more that homebuyers can educate themselves about mortgages, the more it can help them in the long term (see Q&A for more advice).

What To Know

In light of the changes that have occurred, mortgage specialists can provide further insight into what homebuyers should know about mortgages. Moffat says that the conflicting advice out there for homebuyers can sometimes make it a confusing process.

An example that Moffat sees on a frequent basis is the mistake that clients make by focusing solely on the interest rate.

“Rate is an important factor, absolutely, but alongside that, you really want to look at some of the other options and flexibility within the mortgage that you’re choosing. For example, the ability to move your mortgage from one property to another is an important feature that gives you the flexibility to sell your home and buy a new one without breaking your mortgage and possibly incurring substantial breakage costs. Also consider the ability to make extra payments or changing your payment frequency to help pay down your mortgage faster,” she explains.

For instance, according to Moffat, if you double up your payments once per year for 25 years, on a $250,000 25-year mortgage at a five per cent interest rate — you can save over $30,000 and shave years from your amortization term (have your mortgage paid off in 21.6 years and not 25 years).

The Mortgage Payment Calculator available on RBC’s website (rbcroyalbank.com) allows homeowners to calculate their payments based on mortgage amount, rate type, interest rate, interest term, payment frequency and amortization period. “An online mortgage calculator can help make sure that you know what is affordable along with the extra costs involved in home ownership,” Moffat adds.

When it comes down to the discussion of interest rates, and the comparison of variable to fixed, Moffat says that her clients can sometimes find benefits in both types of rates.

“Most people aren’t aware that you can actually choose to combine the two,” she explains. “A lot of people like the lower rate that a variable rate mortgage can offer, but then are worried about the fact that it does float so if interest rates started to rise rapidly they may end up paying more than expected. But you can actually combine the two, with half of your mortgage as fixed and half of it as variable,” she explains.

Despite the mortgage rule changes that have occurred, Moffat says her clients feel at ease with the help of a mortgage specialist.

“Canadians are feeling quite confident about real estate and about how they are managing their mortgage debts, to ensure they are in a strong financial position.”

For more information visit
» rbc.com
 

Q&A: CHRIS KISKUNAS
The regional mortgage manager for RBC discusses the importance of consulting with a mortgage specialist and offers advice for homebuyers. 

Tell me about the role of a mortgage specialist.

The role of the mortgage specialist is designed to be very client-focused. Our focus is on delivering and serving the client’s needs to the best degree possible.

Where does the meeting typically take place?

The first step would be in understanding where the client would be the most comfortable in providing all of this personal information. If the client says, “I would prefer the comfort of dealing with my bank branch because I am comfortable meeting people there,” then the mortgage specialist will arrange to meet them at the branch of their choice.

If they are comfortable having the mortgage specialist come to their home, we can do that as well. It’s actually very convenient for the client, because you tend to keep all of your personal documents at home. Occasionally, I do see where they choose to meet in neither a branch nor a home location, such as a place of business.

What is discussed during this meeting?

The first thing that [mortgage specialists] will do is probably to spend a good 15 minutes or more doing some investigating into the client’s needs: What is it that you are looking to do? What are the hopes that you have? What are your aspirations around buying this home? It’s the get-to-know-you piece, so I can better tailor the financial advice that I’m giving to you. From there, they will go into some of the details around the purchase. Why it is important to be pre-approved. What affordability of a house really means. Some of the hidden costs involved in home ownership. They will walk them through the process.

Why should people consult with a mortgage specialist?

There are so many places where homebuyers obtain information, whether it’s family, friends and peers at work. There are a variety of sources in terms of where they are drawing information from. Sometimes, it can be very confusing and very conflicting. I think the advantage that they have in dealing with a specialist is that they are going to get sound financial advice from someone who works in the industry, understands it and is up-to-date on current information.

What are some tips you have for buyers looking to purchase their dream home?

Make sure the first thing that you do is get a pre-approval from a professional mortgage specialist, so that you know what you can afford — this can save you time when you’re looking to buy. You want to make sure you don’t set yourself up for great disappointment by not understanding, at the outset, how much you can afford. I would say, always, as you go through that process with a specialist, lock in your interest rate so that you have a bit of security on your rate. Since none of us know what is going to happen in the rate market, it’s always nice to know that “I’ve got a commitment on an interest rate, on a deal that I can afford today.”•

For more information visit 
» rbc.com