Financing Your Purchase

Buying a home is an exciting milestone, but navigating the world of mortgages can feel overwhelming. We're here to simplify the process and provide you with the essential information you need to make informed decisions

Understanding Mortgage Basics

Before you start talking to lenders, it's helpful to get familiar with some key mortgage terms. Knowing the basics will make conversations with financial professionals smoother and help you feel more confident.


  • Amortization Period: The total length of time you'll take to pay off your mortgage. Up to 35 years.

  • Fixed Interest Rate: An interest rate that stays the same for a set period, giving you predictable payments. Fixed rates are the least flexible, however, payments and rate doesn't change over the contract period. 

  • Variable Interest Rate: An interest rate that can change based on market conditions, which can affect your payment amounts.

  • Prepayment Penalty: A fee some lenders charge if you pay off your mortgage early or make extra payments beyond what's agreed upon. Some lenders will allow up to 15% of the mortgaged amount be paid on top of your normal payments. 


The Benefits of Getting Pre-Approved

What Is Mortgage Pre-Approval?

Mortgage pre-approval is when a lender reviews your financial situation—including your income, debts, and credit history—to determine how much they're willing to lend you. While it's not a final commitment, it provides a clear picture of your borrowing capacity.

Why Get Pre-Approved?

  • Know Your Budget
Understanding how much you can borrow helps you focus your home search on properties within your price range, saving you time and potential disappointment.
Example: If you're pre-approved for $500,000, you can confidently look at homes in that range.
  • Secure an Interest Rate
Many lenders will lock in an interest rate for up to 120 days during the pre-approval process. This means you're protected if rates rise while you're house hunting.
Example: If interest rates increase from 5% to 5.5%, your rate remains at the lower 5% you secured during pre-approval.
  • Strengthen Your Offer
Sellers are more likely to take your offer seriously if you're pre-approved, as it shows you're a committed and qualified buyer.
Example: In a competitive market, pre-approval can give you an edge over other buyers who haven't secured financing yet.
  • Streamline the Closing Process
With much of the paperwork already completed, finalizing your mortgage can be quicker and less stressful.
Mortgage Pre-Approval Process
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FINANCING YOUR PURCHASE






Where to Get Pre-Approved

You have several options when seeking pre-approval:

Financial Institutions: Banks and credit unions offer mortgage services and may provide benefits if you're an existing customer. Don't hesitate to ask for better rates or terms, especially if you have a strong relationship with your bank.

Mortgage Brokers: Mortgage brokers can shop around on your behalf to find the best rates and terms from various lenders. They can be especially helpful if you're looking for options beyond the traditional banks.

I alway recommend you speak to A) your bank and B) a mortgage broker.

What You'll Need for Pre-Approval

• Personal Information: Identification, marital status, number of dependents.
• Employment Details: Proof of employment and income, such as pay stubs or a letter from your employer.
• Financial Assets: Bank statements, investment accounts, details of any other properties or assets.
• Liabilities: Information on existing debts like loans and credit card balances.
• Consent for Credit Check: Lenders will need to assess your credit history.

Having these documents ready will make the pre-approval process smoother and faster. 
PRO Tip: Once approved, do NOT buy a car or quit your job, you will severely effect your approval. 

Tips for Managing Your Mortgage Payments

Paying off your mortgage efficiently can save you money over time. Here are some strategies to consider:

    Shorten Your Amortization Period:

    Choosing a shorter amortization period, such as 20 years instead of 25, means you'll pay off your mortgage sooner and pay less interest overall. Keep in mind that your monthly payments will be higher.
Example: On a $500,000 mortgage, reducing the amortization period could save you thousands in interest.

    Make Prepayments:

    If your lender allows it, making extra payments directly toward your principal can reduce the total interest you pay and shorten your mortgage term. Be sure to check for any prepayment penalties.

    Example: Applying an annual bonus or tax refund to your mortgage can have a significant impact over time.

    Switch to Biweekly Payments:

    
By making payments every two weeks instead of monthly, you'll make 26 payments a year—equivalent to one extra monthly payment annually. This can reduce your amortization period and save on interest.
Example: If your monthly payment is $2,000, switching to $1,000 biweekly payments accelerates your mortgage payoff.

    Mortgage Calculator Example

    Let's look at a practical example to illustrate these concepts.

    Scenario

    •            Home Price: $1,100,500

    •            Down Payment: 20% of the home price = $220,100

    •            Mortgage Amount: $1,100,500 - $220,100 = $880,400

    •            Interest Rate: 5.75% (Five-year fixed rate)

    •            Amortization Period: 25 years

    Monthly Payments

    •            Standard Monthly Payment: Approximately $6,579

    •            Total Interest Over 25 Years: Calculated over the life of the mortgage.

    Accelerated Biweekly Payments

    •            Biweekly Payment: Approximately $3,290

    •            Total Interest Over ~22 Years: Reduced due to extra payments.

    •            Savings: Paying off your mortgage in about 22 years instead of 25 saves you three years of payments and interest.

    Note: These figures are estimates and can vary based on specific lender terms and any additional payments you make.

    Understanding the Stress Test

    Quick Synopsis 

    •            Stress Test Rate: The higher of 5.25% or your contract rate plus 2%. In this case, 5.75% + 2% = 7.75%. (example above)

    •            Purpose: Ensures you can afford payments if interest rates rise.

    •            Impact: You'll need to qualify for the mortgage at the stress test rate of 7.75%, not just the contract rate of 5.75%.

     

    Financing a home is a significant commitment, but with the right information and planning, you can make decisions that align with your financial goals.

    •            Educate Yourself: Understanding mortgage terms and options empowers you to make informed choices.

    •            Shop Around: Compare rates and terms from different lenders to find the best fit for your needs.

    •            Seek Professional Advice: Don't hesitate to consult with mortgage professionals who can provide personalized guidance.

    I'm here to support you throughout the home-buying process. Feel free to reach out with any questions or for recommendations on trusted mortgage professionals.

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