It is to state the obvious to say that buying a home is among the most important financial moves you will ever make. Still, too many of us make these decisions (sometimes more than once in our lives) without the benefit of professional advice and careful research. “The excitement of buying a home is sometimes overwhelming,” said Kirk Bacon, chairman of the Mortgage Broker Regulators’ Council of Canada (MBRCC) in an interview with me. His organization has published a useful pamphlet titled Know Your Mortgage Risks & Responsibilities.
“We advise people to do their homework ahead of time,” Bacon said. “Meet with a mortgage broker prior to writing an offer. If you’re only meeting with someone after you’ve made an offer, then you’re under the gun. You have a short timeframe to make a decision.”
MBRCC’s piece is worth sharing. Here are four mortgage rules everyone should know:
1. Don’t buy more house than you can afford.
You can qualify for a mortgage with a down payment of as little as 5% of the purchase price, provided you purchase mortgage loan insurance from the Canada Mortgage and Housing Corporation. But a mortgage that pays for 95% of the purchase price isn’t for everyone. Think carefully about your ability to manage the monthly mortgage payments, even as rates rise in the coming years. Think about the stability of your job, and that of your spouse’s or partner’s. Think about the stability of your relationship. Your personal situation ought to dictate how much mortgage debt is right for you.
2. Not all mortgage brokers are created equal.
Bacon recommends asking around. “Word-of-mouth referrals are always a good place to start,” he told me. “But you need to ask the questions. Are you licensed as a mortgage broker? Who do you represent? How are you compensated? What services do you provide?”
3. The answer to fixed vs. variable depends on you.
Variable-rate mortgages are usually a better deal over the long term. But this is a highly personal decision, and the answer may have as much to do with your own financial situation (not to mention peace of mind) as it does dollars and cents. If your mortgage keeps you up at night, it’s not right for you.
4. Read the contract.
As obvious as this sounds, few of us actually do it. Just because you’ve used a broker doesn’t mean you can turn on the autopilot. At the very least, ask your broker the key questions: about fees and penalties, payment options, interest rates and the renewal process.
While you’re arranging your mortgage, think about safeguarding your investment. Mortgage protection insurance, which combines term life insurance and critical illness insurance, will protect your family from the significant financial impact of your death or serious illness.