What do I need to consider when getting a mortgage in the Okanagan?
- Amortization: This is the life of your mortgage. Making regular payments, this is how many years it will take to pay off your Vancouver mortgage. The maximum amortization is currently 35 years, however effective March 18th, 2011, the maximum amortization will be 30 years.
- Term: The term is the length of your mortgage agreement. This is the period of time you & the bank agree to a specific rate, payment (fluctuates with variable) & options. Unless you are planning on moving or selling in under 5 years, most people choose 5 years.
- Down Payment: The amount of equity you put into the property at the time of purchase. Currently, the minimum down payment is 5%. For down payments between 5-20%, you are required to purchase mortgage insurance (see below).
- Mortgage Insurance (aka: CMHC): Mortgage insurance is required for down payments between 5-20% or amortizations longer than 25 years. View the premiums here.
- Options: Mortgage options are just as important when financing real estate as having a competitive rate. In many cases, having the right options can save you much more than having the lowest rate. Elements such as lump-sum payments, increased payments, double up payments, etc. are the tools that enable you to become mortgage-free, faster.
How Much Can You Afford to Pay in Mortgage Payments?
Based on your Income:
A general guideline is to allow no more than 30% of your gross monthly income (before deductions) to make your monthly housing payments. This test of your ability to repay a mortgage loan is generally referred to as the Gross Debt Service Ratio.
Complete the following calculation to determine the approximate amount you may be able to afford for the mortgage payment, the property taxes and, where applicable, 50% of the strata maintenance fees.
Some lenders will require that this total maximum monthly payment also covers heating costs.
- Your gross monthly income $____
- Co-signor’s gross monthly income (if applicable) $____
- Other income (monthly) $____
- Total monthly income $____
- Multiply the Total line above by 30% to calculate your: Total monthly maximum housing payment $____
Based on Your Other Financial Obligations:
If you have other monthly financial obligations, such as car or credit card payments, the lending institution will also apply the Total Debt Service Ratio test to determine the maximum mortgage loan for which you can qualify.
$ ____ Your monthly housing payment
$ ____ Your calculated monthly debt payments (car, credit card, etc.)
$ ____ Total monthly payment
A general guideline should be that the total of your monthly housing payment added to your other monthly debt payments should not exceed 40% of your monthly gross income.
The Gross Debt Service Ratio and the Total Debt Service Ratio tests protect both you and the lender by ensuring that you do not take on more debt that you can reasonably afford to repay.
Many lending institutions will prequalify you for a specific size and type of mortgage loan before you begin searching for your new home. Taking the time to apply for a pre-approved mortgage will give you the security of knowing how much you can afford to spend.
Before concluding the loan agreement, most lending institutions will require an appraisal of your selected home.
The appraised value is a professional opinion of the value of the home and may differ from the purchase price you are willing to pay. The appraised value may affect the approved value of the loan.