Valley First

Getting a Mortgage

Getting a mortgage is simply borrowing the money you need to buy the home you want. The right mortgage for you will depend on the stability of your income and your comfort level with fluctuating interest rates.

 

Get pre-approved for your mortgage

You may want to consider applying for a pre-approved mortgage so you’ll know the price range of homes you can look at.

Saving your down payment

  • Your down payment is the amount of money you can pay upfront on the purchase price of your new home.
  • A typical down payment is 20% of the purchase price of the home which makes you eligible for a conventional mortgage.
  • You can, however, buy a home with less than 20% down and as little as 5% down. This type of financing, called a high-ratio mortgage, requires you to purchase insurance from Genworth or Canada Mortgage and Housing Corporation (CMHC).
  • You can pay the associated application fee and premium upfront or add it in to your overall mortgage. Premium varies depending on Loan-to-Value (LTV) ratio and amortization.

EXPERT TIP

The larger the down payment you make, the smaller your mortgage will be and the less interest you’ll pay over the life of your mortgage.

Mortgage interest rate options

  • Fixed rate mortgages are great if you’re looking for set payments on regular payment dates.
  • Variable rate mortgages are the better bet if interest rates are low and you don’t mind a payment amount that fluctuates. As the interest rate fluctuates with the market, the portion of your payment that goes toward reducing your principal changes. If rates go down, more of your payment is applied to reduce the principal. If rates go up, more of your payment goes toward paying the interest. Research has shown that over the long term, most consumers come out ahead with this type of financing.

Mortgage term options

  • A “closed” mortgage has a longer, set term (usually six months to 10 years) and limited prepayment options. If you decide to refinance, renegotiate or pay out the mortgage before your term ends, a penalty applies. However, what you sacrifice in flexibility, you usually make up for on rate. A closed mortgage is a great choice for buyers who suspect that interest rates are on the rise and aren’t planning to move in the short term.
  • An “open” mortgage can be repaid at any time during the term of the mortgage without a penalty and usually has a shorter term (from six months to one year). While open mortgages can allow you to pay your mortgage off faster, they often come with a slightly higher interest rate. But, if rates appear to be going down or you’re thinking you may be moving again in the next few years, an open mortgage may be exactly what you need.

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Effects of amortization

Reducing the amortization period can help you save a great deal of interest over the long term. Have a look at this example:

 

Amortization
30 Year
Conventional
25 Year
Conventional
20 Year
Conventional
Interest
Rate
6.00%* 6.00%* 6.00%
Number of
Payments
360 300 240
Mortgage
Amount
$200,000 $200,000 $200,000
Payments
Per Month
$1,190 $1,280 $1,424
Total
Paid
$428,271 $383,882 $341,849

*Assumes an average rate of 6% over entire amortization for illustrative purposes only. Actual rates would vary depending on term selected.

Documents required for pre-approval

  • Income confirmation—this can include a letter from your employer, T4 slips, financial statements, and Revenue Canada assessments.
  • Down payment confirmation—your down payment can include saved funds on deposit with your financial institution, RSPs, a gift from an immediate family member, and/or equity from the sale of another property.
  • Credit application—this will provide us in assessing your mortgage request and your net worth. It also authorizes us to do a credit bureau check.
  • Credit confirmation—we'll need to do a credit investigation and confirm that your credit rating is satisfactory for lending purposes.

Finalizing your mortgage

When you sign your mortgage agreement, you’ll need to provide:

  • Income confirmation—this may include a letter from your employer, T4 slips or financial statements.
  • Down payment confirmation—this can include statements that verify deposits, RSPs, equity from another property or a gift from a family member.
  • Credit application and confirmation—this will give Valley First the information we need to review your credit rating and assess your mortgage request.
  • Purchase agreement—this is the legal document between you and the seller.
  • Real estate listing—this verifies the property.
  • Contact information of your notary or lawyer.
  • Contract and building plans, if your home is being built.

 

Have a question? Simply contact us and we'll provide you with the information you're looking for.

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