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3 Mortgage traps, mortgage pitfalls, mortgage problems and how to avoid them
The mortgage trap: Panicking and accepting a high mortgage rate.
Be wary of banks that offer you an extremely low initial rate with a significant increase a year later. For a first time home buyer in Canada, the complexities of mortgages can be very overwhelming, and it can be easy to get locked into a mortgage without getting the best rate possible.
The solution: Talk to an independent mortgage specialist.
It’s important to give yourself the time to rationally consider whether what you’re getting is really the best mortgage rates in Canada. So before you jump on something that seems super low, such as the current mortgage rate, make sure you talk to an independent mortgage provider. They’ll be able to give you a clearer picture of what your savings could be and are able to tailor their advice to your unique situation.
The mortgage trap: Overstretching your finances.
This is especially easy to fall into with variable rate mortgages as their rates can go up and down with very little warning. Even with fixed rate mortgages, the stresses of a changing job environment or new family can affect your ability to pay your mortgage. While everyone wants to get the most spectacular house their budget can afford, being financially overstretched is a huge headache and can cause a lot of unnecessary stress.
The solution: Budget and use a mortgage calculator.
Take the time to draw up a well-thought-out budget. Be honest with your incoming and outgoing expenses and also consider any major life events that you could expect in the next five to ten years. Afterwards, you can use an online mortgage payment calculator to discover what monthly payment you’d be able to afford. Try it out with a few scenarios too such as having a new baby or new car. If you’re considering a variable rate mortgage, remember to also test how much more your payments would be should rates rise. Could you still afford payments if rates were to increase by 20%? 30%? Double? Once you’ve answered these questions, you’ll be able to confidently talk to your mortgage specialist and know that you’re getting a mortgage you can comfortably afford.
The mortgage trap: Not reading the fine print
It’s fair for your mortgage lender to charge a penalty if you break a fixed contract early. However, stay away from mortgages with penalties after the end of the fixed term (ie 5 years). Another pitfall you might encounter in the “fine print” is compulsory insurance. This involves the borrower charging a one-off fee if you don’t get insurance with them.
The solution: Carefully go over any penalties and additional costs with your mortgage provider.
When talking to your lender, make sure you discuss any questions and concerns you have with them. That way you won’t be surprised later on by hidden costs. For the most customized help and solutions, talk to an independent mortgage provider like Aleem at The Mortgage Specialist. Not only will you be able to get some of the best mortgage rates in Canada, you’ll also be able to get all your questions answered without having to worry about big banks’ weird hidden penalties and fees.
So what are you waiting for? Call or email Aleem today so you too can get started on your home ownership journey.