Debunking Mortgage Myths
Buying Real Estate in Toronto is one of the most expensive purchases most people will ever undertake. When you combine that with the time involved in saving up for your down payment as well as all the research needed to find the best location as well as the best mortgage rate, actually buying your home can also become one of the most stressful endeavours we'll ever decide to undertake.
With all this on the table it’s important not to waste time and energy over things that simply are not factual. With so much misinformation out there about buying real estate in Toronto, here are a few solid facts that will set the record straight about some common mortgage myths.
1. Down payments always need to be 20% of the purchase price of the home.
False. Yes, a 20% down payment is required on any home that is valued at more than $1 million, however with lower real estate prices comes lower down payments. The minimum down payment on a home priced from $500,000 to under $1M is 5% on the first $500,000 and 10% on the remainder. Less than $500,000 requires as little as a 5% down payment.
2. Maximum amortization time for a mortgage is 25 years.
False. While it’s true that 25 years is the maximum amortization on an insured mortgage, those who put down 20% can in fact increase the amortization to 30 years. Remember thought, the longer the mortgage the less your monthly payment but it also increases the total amount of interest you will pay over the lifetime of that longer mortgage.
3. Pre-qualification and pre-approval are 2 ways to describe the same process.
False. Pre-qualification for a mortgage is the only the first step that actually comes before getting officially pre-approval for your purchase. Pre-qualification is a faster usually simplified process that involves supplying your bank or mortgage broker with personal financial items such as your total income, debt and assets. This process only allows the bank to estimate what your monthly payments will look like. The actual pre-approval process involves a much more detailed evaluation of all your statistics and at that time your lender of choice will provide you with the maximum amount of a mortgage to which you qualify.
4. Pre-approval guarantees you’ll get a great mortgage.
False. As outlined above, a pre-approval takes a very close look at all your finances to decide the maximum size of a mortgage qualification. However, as interest rates can fluctuate from month to month or quarter to quarter, being pre-approved doesn’t guarantee you’ll always receive that maximum amount you were originally quoted. The actual value of the rea estate you intend to purchase, and the percentage of your down payment are other factors taken into consideration when actually completing your loan for that real estate.
We have been buying and selling Real Estate in Toronto for over 20 years. As a result we know some very good mortgage brokers at both banks and private institutions that can help you with all your questions and mortgage needs. Just let us know your need some additional assistance and we will be more than happy to connect you..and there is no obligation whatsoever.