Understanding the real facts about mortgages is crucial for making informed decisions that can save you time, money, and stress. Unfortunately, there are many myths out there that can lead to confusion or missed opportunities. In this newsletter, we’ll debunk some of the most common mortgage myths.

Myth #1: You Need a 20% Downpayment

While it’s true that a 20% downpayment can help you avoid mortgage loan insurance and reduce your monthly payments, it’s not a hard and fast rule. There are several loan options available that require much lower downpayments as long as you have insurance. For example, Canada has three mortgage insurance companies CMHC, Sagen, and Canada Guaranty which allow you to put down as little as 5% if the house is under one million dollars. If the home you are looking to purchase is over one million dollars, the minimum down is 20%. Don’t let the 20% myth hold you back from exploring your options.

Myth #2: Pre-qualification and Pre-approval Are the Same

It’s easy to confuse pre-qualification with pre-approval, but they serve different purposes. Pre-qualification is an initial estimate of how much you might be able to borrow, based on self-reported information. It’s a useful starting point but not a guarantee. Pre-approval, on the other hand, involves a thorough credit and financial check, providing a more accurate and reliable estimate of your borrowing power. This can make a significant difference when you’re ready to make an offer on a home. We always do a full pre-approval for our clients to ensure you have the most accurate information possible!

Myth #3: You Can’t Get a Mortgage with Student Loans

Many people believe that having student loans automatically disqualifies them from getting a mortgage. However, if you meet the required ratios and have a good credit history, student loans do not have to be a barrier to homeownership. Lenders consider several factors, including your debt-to-income ratio, credit score, and employment history. To improve your chances, focus on reducing existing debt and avoiding new loans. Maintaining a good credit score by making timely payments on your student loans will enhance your mortgage application. With diligence and the right strategy, balancing student loan payments and securing a mortgage is within reach.

Myth #4: The Lowest Rate Is Always the Best Option

While securing the lowest mortgage interest rate may seem like the best option, it’s essential to consider the bigger picture. A lower rate can be enticing, but it often comes with trade-offs such as higher fees, or less favourable loan terms. It’s crucial to evaluate the overall cost of the mortgage, including closing costs, fees, and the loan’s duration. Sometimes, a slightly higher interest rate might come with better terms, such as lower closing costs or more favourable repayment options, which could be more beneficial in the long run.

Myth #5: You Should Always Choose a 25-Year Amortization

The 25-year amortization is a popular choice and can often increase overall cashflow, but it’s not the only option. Depending on your financial situation and goals, you may want to explore a 15-year amortization where you will pay less interest on the overall term of your mortgage however you will have higher monthly payments. Another option to improve cashflow can be a 30-year amortization (but certain requirements apply for this, so please give us a call if you are interested). With a 30-year amortization, you will pay more interest over the course of your mortgage, however it is a good option to increase monthly cashflow. Always remember, the best solution is to consult with your mortgage broker.

Understanding the realities behind these common mortgage myths can empower you to make better decisions and take advantage of the opportunities available to you. If you have any questions or need personalized advice on your mortgage needs, don’t hesitate to reach out.