Are you ready to buy your first home but are overwhelmed by the jargon of credit scores, down payments and different types of mortgages? BCU Financial will help you navigate the home-buying process and find the right mortgage with the best possible rates and terms for your particular lifestyle.
The Canadian government’s Home Buyers’ Plan will allow you to use up to $25,000 per person of your RRSP savings towards the down payment of your first home. For more information, contact your local Financial Services Officer.
In a fixed rate mortgage, the interest rate is locked-in for the selected mortgage term. That means if interest rates go up or down, your monthly mortgage payment will remain unchanged and your principal and interest payments will stay the same for the duration of your mortgage term. After your mortgage term has expired you will have to renew or refinance your mortgage loan with a new term and interest rate or pay off your principal in full.
In a variable-rate mortgage, the interest rate can go up or down depending on the BCU Financial Prime Rate, which closely follows the interest rate set by the Bank of Canada. BCU Financial adjusts the interest on variable mortgages every three months to reflect any change in the Prime Rate. If the interest rate changes during that 3 month period, then your monthly payments will change. If interest rates go up, then your monthly payments will increase. If interest rates go down, then your monthly payments will decrease. After your mortgage term has ended, you will need to renew your mortgage loan with a new term and interest rate or pay off your principal in full.
A closed mortgage restricts the amount of the principal you are allowed to prepay during you mortgage term. BCU Financial allows you to prepay to a maximum of 20% of your original principal amount per calendar year without paying a penalty. You could also increase the amount of your payments by as much as 20% one time in each calendar year
An open mortgage is a mortgage that allows you to repay the principal amount at any time without paying a penalty. You can make lump sum prepayments or accelerated payments without penalty in order to pay off your mortgage before the end of the amortization period. Open mortgages are more flexible, but they have slightly higher interest rates than closed mortgages.
Before you start your search for a new home, you can apply for a BCU Financial pre-approved mortgage which can simplify your home buying process by setting the home price you can afford. To be considered for a pre-approved mortgage you must fill out an application form and provide BCU Financial with your employment details, income, assets, debts and your consent to obtain your credit bureau report. The pre-approved mortgage amount and interest rate calculated by BCU Financial will be guaranteed for a predetermined amount of time, usually for 60 days. BCU Financial does not guarantee the pre-approved rate or mortgage amount after the 60 day period has ended and you must reapply for a new pre-approved mortgage if you plan to continue with your home search.
Knowing your credit score is an important first step to getting a mortgage. Your credit score is a number on a scale from 300-900 that represents your credit history and credit risk. A high score means you are considered to be less likely to default on a loan. BCU Financial uses your credit score to determine the maximum amount of your loan, and your credit score may also be used to set your interest rate.
Your credit is assembled into a report and is managed by a credit-reporting agency such as Equifax or TransUnion. The report will include information about your credit cards, loans, outstanding balances, and payment history up to the last six years. To obtain your free credit report please contact one of the credit bureaus directly: Equifax at www.equifax.ca or TransUnion at www.transunion.ca.
A down payment is the initial amount of money you pay for a home up front. The rest of the home’s purchase price you will borrow in the form of a mortgage. If you put down 20% of the purchase price of a home, then you will take out a conventional mortgage which means you do not have to take out additional mortgage insurance. If you put down less than 20% of the home’s purchase price, then you will take out a high ratio mortgage which means your mortgage must be insured against payment default. You will then pay an additional mortgage insurance fee on top of your monthly mortgage payment.
The Canadian government’s Home Buyers’ Plan will allow you to use up to $25,000 of your RRSP savings, or $50,000 per couple, towards the down payment of your first home. The withdrawal is not taxable, provided you pay back the amount to your RRSP within 15 years.
An amortization period is the time in years it will take to pay off a mortgage in full. BCU Financial offers amortization periods up to 25 years for mortgage repayments. If you choose the maximum 25 year amortization period, you will pay lower monthly principal and interest payments, but you will end up paying more interest over the duration of your mortgage. If you choose a shorter amortization period, then your monthly principal and interest payments will higher, but you will end up paying less interest over the duration of your mortgage.
A mortgage term is a portion of the loan amortization period. BCU Financial offers mortgage terms from one to five years. Once your selected mortgage term has ended, then the remaining balance of the mortgage will need to be renewed, refinanced or paid in full.