Steps to Purchasing a Home

General Ben Bourgeois 31 Mar

Build a Budget. The 4 factors that determine what you can afford from mortgage professional standpoint are credit, down payment, income, and debt. When trying to figure out what you can afford its best to speak to a mortgage professional in order to get an exact figure. It is also a good idea to speak to your mortgage professional about any sort of future liabilities you foresee and include them in your budget for a home.

Investigate your Mortgage Options. Did you know that the average person stays in their mortgage term for 38 months? Did you know many discounted mortgage rates have much higher mortgage penalties and no prepayment privileges? When speaking to your mortgage professional make sure you’re getting all the facts!

Choose a Realtor. An excellent realtor is a strong negotiator, consultant, and personal advisor. They will play an extremely important part in providing guidance on those tough decisions and making sure you get a home at a fair price.

Choose a Lawyer. Make sure you have a lawyer that is experienced in the real estate law. It doesn’t hurt to have a lawyer look over any purchase agreement. They are also responsible for conducting a title search, transferring title, checking for liens and outstanding taxes on the property.

Searching for a Home. When hunting for a home it is extremely important to create a list with all the things that you need in a home, wants and things you can’t live with. Factors may include future plans, current needs, and lifestyle. My recommendation is to create a checklist and bring it to every property you view. This will allow you to compare one property to another very accurately and help you make the correct decision. Provide this information to your realtor, they can help you narrow your search and provide excellent recommendations.

Make an Offer. Your realtor will make an offer, this will include price, conditions, deposit and closing date. The seller will either accept, counter or reject the offer. This the area where your realtors strong negotiating skills will come into play.

Home Inspections or New Home Warranty. Hiring an inspector is optional but it may be a good idea for a resale home. You can make your offer conditional on a home inspection which will allow you to negotiate repairs or withdraw your offer. New home warranty is typical when you purchase a brand new home. The builder provides a new home warranty to cover deposits, completion dates labor and material for at least one year after the home was built. It also protects against structural for a minimum of 5 years.

Finalizing the Deal. Meet with your lawyer to discuss insurance, title, and conditions.

Getting Ready to Move. It’s important to get everything in order like electricity, internet/TV, change all your mailing. If you rent, make sure you give your landlord sufficient notice.

Closing Day. This is the day you officially take possession of your home! Your lawyer will complete the paperwork, your payments are finalized and you’ll receive your new set of keys and deed! Congratulations!

Variable vs Fixed?

General Ben Bourgeois 2 Mar

Speaking with a Mortgage professional and asking their opinion on whether or not you should go with fixed interest rate or a variable interest is one of the most common questions in the mortgage industry. Do you go with the cheaper 5-year variable rate, do you go with the shorter term cheaper fixed rate or do opt to go with the more expensive five-year fixed rate? This is a common dilemma, please allow me to shed my 2 cents on the subject.

The current state of the market is on a slight upward trajectory. Current fixed rates have risen the past five months slowly and could continue to climb. There have been new rules set in place which makes the market less competitive than it once was and more expensive for lenders to operate in. Unfortunately for the consumer these circumstances usually only translate into one thing, less money in your pocket. For these reasons, my suggestion would be to not go with a 2-year term which is currently sitting at about .25% lower than a standard five-year fixed term.  sure you get a slightly cheaper rate but what are the rates going to look like in two years? Is it worth the risk for .25%? Now that we have one option out of the way lets take a peek at how a variable mortgage looks vs five year fixed.

Variable mortgages are always the bank’s prime rate + or – basis points. The Bank of Canada sets prime rate which every lender but TD currently uses which is 2.70%. If prime rate fluctuates so does the interest rate you’ll be paying. Now there are two types of mortgages, high ratio(insured) or conventional (not insured). For this blog entry, I’ll compare two high ratio products. Currently, the best interest rate on a 5-year variable is prime -.70 which currently translates into a fantastic rate of 2.00%. The best 5 year fixed is 2.59. That’s a big difference! In order to understand variables rates further, let’s take a look at the history of the prime rate. What has it done the past 10 years?

http://www.tradingeconomics.com/canada/bank-lending-rate

Looking at the above link, if you were lucky enough to have prime -.70 since 2009 you would have been a major winner! This means you would have been paying between 1.55% and 2.3%. People who took the risk were rewarded. Now don’t rush out and get a variable mortgage just yet. If prime were to go up 1% in the next year you would definitely be on the short end of the stick. If prime were to go up 1% two and half years from now you would break about even.

Now the real question is “Where is prime rate going?” There are several different opinions, some economist say we’re in for a rise in prime rate, others think it will stay relatively the same. The fact is no one really knows. Very few predicted the economic crisis we had a decade ago and those that did not make it public knowledge. This is a classic risk-reward scenario. Are you someone who likes to roll the dice? Or are you someone who buys extended warranty with every product. My advice is if you like to gamble go with variable or if you like to play it safe go with a fixed rate.