Things to remember when buying a home.

Things to remember when buying a home

Things to remember when buying a home.

Buying a home is not something you do in a blink of an eye. It will take a lot of effort and patience to decide which house you will buy. There are many things to consider also when you buy a home. Such as the interest rate, down payment, monthly payments, or what mortgage rate you choose. All that decisions are, for one thing, to save money. You can find homes for sale in Durham, Ontario and other places in Canada that are affordable and expensive.

There are two mortgage rates to choose from Variable rate and Fixed rate.

With Variable rates, your interest rate changes when the interest rate rises. Meaning it may fluctuate anytime and unexpectedly. If you are ready for the risks of unpredictability in interest rates, you can choose variable rates. It also has a lower interest rate than the fixed rate.

In comparison, a Fixed rate has a constant interest rate. If you want stability on your monthly budget, this rate may be your best choice. However, the fixed rate has a higher interest rate than the variable rate.

Choosing the right rate for you is crucial in buying a home. You may waste hundreds and thousands of your savings in one wrong move. Another factor that you want to consider when purchasing a home is your mortgage term.

The mortgage term is classified into short-term fixed/variable mortgage and Long-term fixed/variable mortgage.

A mortgage term is when the agreed interest rate will take effect. The common term used is five (5) years.

  • 5-year Variable rate is 4.75%
  • 5-year Fixed rate has 4.99%

Short-term is below two (2) years. You have to renew your mortgage after 2 years or earlier, depending on your agreement with your lender. While long terms are the ones, you can continue above 3 years.

Your mortgage broker Ontario can help you decide better terms for you.

Another thing you need to know when you buy a home is your amortization period.

What is an amortization period?

It is time it will take to fully pay off your loan. Your mortgage can be amortized for up to 30 years, depending on the amount of your loan and lender.

It is essential to know which period you will save more money. Not just the payment period. Will you be able to pay less with lesser monthly payments? Or are you going to spend more?

15-year vs 30-year amortization period.

Even if the 30-year mortgage has been the practice for decades now, it doesn’t mean it is the best option for all. The 15-year mortgage, on the other hand, offers a lower interest rate. However, you have to pay it off within 15 years, half of the time of the 30-year mortgage. There are benefits of it that longer terms do not compare. Yet there is still a downside.

The benefits of a 15-year mortgage are:
  1. Own your home quicker.
    -with the shorter amortization period, you can have your own house quicker than when you apply for a more extended period.
  2. Faster Equity
  • because you’re paying lower interest, you’ll be paying down your principal quicker and building your equity faster.

3. Pay less interest

  • regardless of paying higher interest every month, you’ll be paying a lesser interest rate over time when you finish your loan.
The downside of a 15-year mortgage are:
  1. Higher interest rate
  • short-term rate tends to have a higher interest rate.

2. Higher monthly payment

  • because of the short term, you will have a more significant amount to pay monthly.

3. Lower loan amount

  • because a short period of paying comes with a larger monthly payment, lenders don’t lend a higher amount of money because some can’t pay a large amount of money every month.

In comparison, the benefits of a 30-year mortgage include the following:

  1. Lower monthly payments.
  • with a longer loan payment duration, you will be granted a much lower monthly payment.

2. Qualify for higher loans.

  • lenders tend to approve bigger loans when you choose 30-year amortization. This will give you a more extensive home-buying budget.

3. More cash flow

  • with the lower monthly payment, you will have extra cash for other things, like investments, retirement, renovation, etc.

The downside of the 30-year amortization period:

  1. Higher interest rate
  • despite paying for lower interest monthly, you’ll be paying a lot more interest at the end of your mortgage than when you apply for 15 years.

2. Loan remains higher for longer

  • because of the lower monthly payment, the amount that goes towards your principal is much lower, which is why your loan remains higher for a more extended period.

3. Builds home equity slowly
Like in equity, with your lower monthly payments, it is building your home equity for a longer time.

In conclusion:

Buying a home takes a lot of effort and brainstorming. The decision you make is as essential. You have to think hard about how you can save money in the long run, not just how you can save money now. Getting help from a mortgage broker Oshawa or your location may help you decide which home you should buy and the other aspects that need to be considered.