Today’s homebuyers tend to do a lot of online research, but when it comes to choosing the right mortgage, it’s essential to get personalized, up-to-date information from an advisor early in the process.
For most Canadians, buying a home is about much more than money – it's about creating a place we call our own, where we can enjoy time with the people we love and find comfort from the stress of our busy lives. But buying a home is also about taking on what may be the biggest financial commitment of a lifetime, one that it is crucial to fully understand.
An important first step is to make time to seek advice from an advisor early in the home-buying process to learn about the various available options and what they mean, says Todd Lawrence, senior vice president of products and payments at CIBC.
At the most basic level, an advisor will explain two primary kinds of rate agreements available, fixed or variable, and the reasons why you might choose one over the other. An advisor will also help you determine whether your mortgage should be closed, open or convertible.
"The kind of mortgage that will work best for you depends on your personal circumstances," says Mr. Lawrence. "There is no one-size-fits-all solution, so it is important that your advisor understands your situation in order to help you find the mortgage that is right for you – today and in the future, as your life evolves."
If you choose a five-year closed mortgage term, for example, and sell your home before your maturity date, you may be able to transfer your mortgage to the new home, he explains. "If you have a variable-rate mortgage here at CIBC, and the prime rate on which the variable rate is based rises, your mortgage payment will remain the same – but you'll pay off less of your principal with each payment."
While today's homebuyers tend to do a lot of online research before they buy a home, that research doesn't always provide a complete picture, says Ainslie Sadler, a realtor who has helped people buy and sell homes in Vancouver's competitive real estate market for 22 years. "When someone tells me they are interested in buying a home, I encourage them to see a mortgage advisor to get prequalified before they start their search – it can save them a lot of time and energy."
Without that individualized, up-to-date information, homebuyers can develop unreasonable expectations about what might be available in their price range, setting themselves up for disappointment. "People sometimes think the amount they'll be qualified to borrow is based solely on their income because they've used a calculator on the Internet," says Ms. Sadler. "They don't understand that other debts, such as car loans and credit card balances, play into their ability to purchase as well."
An advisor can also help homebuyers develop a comprehensive picture of how owning a home will affect their lifestyle and can itemize costs related to the home purchase, she adds. "First-time buyers, in particular, are often in a situation in which they're stretching financially to buy a home, so it's important that they be aware that there are often costs beyond their mortgage payments, such as property taxes and perhaps condo fees."
Rushing into a mortgage agreement without adequate professional advice at the time of the home purchase can also create challenges when it's time to sell, notes Ms. Sadler. "When people wish to purchase a new property, they usually have to sell their existing home to do so. If they don't understand the conditions of their mortgage, they may be surprised to find that there is a substantial pre-payment penalty to get out of their existing mortgage."
Very few of life's decisions have a more potentially profound effect on lifestyle than the commitment to buy a home. "Whatever you choose, you need to be comfortable with your mortgage payment today as well as when interest rates rise," says Mr. Lawrence. "A mortgage is just one piece of your overall financial plan, and it's important to get the right level of advice."
For more information, visit cibc.com/mortgages.