Finding the best choice
With all the mortgage options available for first-time buyers, the task of choosing one that's right for you can be a daunting duty.
Dal Bianco says for the most part risk tolerance is a key determinant. Whether you're comfortable having your interest rate move with the market will determine if a variable or fixed rate is right for you.
Since many buyers are often younger and taking on a large debt for the first time, many choose fixed rate options for their first mortgage term, she says. Once they're comfortable and have had a home for a while and gone through a mortgage term or two, they can consider switching to variable. Another option may be to have a fixed rate mortgage and then get a Home Equity Line of Credit, which would be variable attached to the mortgage. This could allow them to do improvements or renovations later on.
A single person with only their own income may like the idea of knowing exactly how much they're going to pay.
"We're finding a lot more single women are buying homes now, and are quite comfortable with that - they're confident in their jobs and have good paying jobs," says Dal Bianco. "Even in pockets of the country where housing prices have increased significantly in the last several years -Alberta, British Columbia and in the GTA (Greater Toronto Area) - we're seeing a lot more single women buying."
Short term versus long term
Mortgages are split into terms that may range from a few months to five or more years. At the end of a mortgage term, your current lender will offer you a renewal agreement. It's always a good idea to see what else is available in the marketplace, says Siegle, and if need be, change the terms of your mortgage if your needs or circumstances change.
When deciding what term is right for you, one thing to consider is your lifestyle and circumstance. For instance, if you're buying a home and plan to move in three years, you may want to take a three-year term or a five-year term that's portable.
When you're considering term and interest rates, also look at what you can live with in terms of payment amounts, because it's very difficult to predict where interest rates are headed.
If, for example, you're happy with current interest rates and you want to lock in a rate for as long as possible, go with a long term, or generally a five-year term, says Siegle. If interest rates appear to be rising, take advantage of the lower rate for as long as you can.
It's also a good idea to ask if your mortgage is transferrable across provincial borders or if it is assumable. If you sell your property, you can take the mortgage with you to a new property, or have someone take over the mortgage. It could prove to be a great selling feature if you have an assumable mortgage at a very low rate. However, most lenders will need to qualify the person assuming the mortgage.
If you think rates will fall, you can choose a shorter term mortgage that offers the flexibility to switch to a longer term at any time, in the event that rates start to rise.
Kuo says he's seen first-time buyers sign for short-term mortgages. Currently, one- or three-year terms are much more popular than five-year terms, he says.
In the past - even a few years ago - first-time homebuyers often wanted to fix their rate for a longer period of time so they had peace of mind. But now, in a more challenged economy, they still want to buy a home but they may prefer a shorter-term, fixed-rate option, if they decide to go with a fixed rate, he says.
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