Posted on Thursday May 16, 2024

Five terms every future homeowner should know

Like many New Brunswickers, do you dream of owning your own home? To do so, you need to take out a substantial loan - a mortgage - with a financial institution. Here are the key terms you need to know before embarking on this adventure. Familiarizing yourself with the buying process will save you a lot of time when the time comes to take action!

Home ownership in New Brunswick

Recently, New Brunswick stood out for its spectacular rise in home prices. Even though our property prices are still well below the Canadian average of $662,437, the increase has been worrisome for many buyers. However, sales and prices have been declining in recent months, and we may well have reached the bottom. 

In these more favourable times for starting to shop for a first property, young working people don't always have all the tools on hand to make the most of their opportunities. That's why the following article may be of great help to you. What's more, improving your financial knowledge will serve you well for the rest of your life!

Pre-authorization: the starting point for first-time buyers

Before you visit the home of your dreams, you need to know how much you can afford to invest. There's no point spending hours admiring the beauty of a property you won't be able to pay for! That's why your first step should be to contact a financial institution. A mortgage specialist can then assess your situation and give you a pre-qualification confirming the maximum financing you're entitled to. They can also guarantee your rate for 90 days.

Borrowing capacity

Do you already have a budget? If so, congratulations, you have a solid basis for calculating your borrowing capacity. If not, hurry up and do it, taking into account your income, your current expenses and those that will arise with the purchase of a home. For example, we are replacing rent with a mortgage, property taxes, contingency fund (for eventual repairs) and an amount for insurance.

One you have determined your budget, estimate the monthly mortgage payments you can afford based on the purchase price of the home, your down payment, the interest rate and the amortization period of the loan. Your financial institution's mortgage specialist can help you establish your budget.

Down payment

To obtain a mortgage, you need to invest 5% of the property's value out of your own pocket, sometimes more. For example, if you're aiming for a $300,000 property, you'll need at least $15,000 in cash. Do you have this amount? To this will be added start-up costs (lawyer, moving, etc.).

What's more, all buyers with a down payment of less than 20% of the property price are required to take out mortgage insurance with the Canada Mortgage and Housing Corporation. The premium payable can be integrated into your monthly mortgage payments, but will then increase the amount of your payments.

Your down payment can come from any type of account or donation, but it can also be raised using two tax-advantaged tools. With the Home Buyers' Plan (HBP), you use your RRSP contributions as a down payment. You can withdraw up to $35,000 from your RRSP, but you'll have to repay this tax-free amount over the next 15 years. Since 2023, you can also contribute up to $8,000 a year to a tax-free savings account for first-time home buyers (FHSA).

The interest rate on your mortgage

The amortization period of your mortgage is the number of years over which you will repay the loan. Most mortgages are amortized over 25 years. However, the mortgage term can vary from 6 months to 10 years, and is closely linked to the interest rate.

The eternal buyer's dilemma is well known: fixed or variable rate? At UNI, we offer much more than these two options. While the fixed rate remains the same throughout the term, the variable rate follows interest rate fluctuations. The "5 in 1" annually adjustable rate combines the advantages of the two previous options: your rate, to which a predetermined reduction has been applied, is reviewed each year. As for the protected variable rate, it allows you to benefit from an advantageous rate while protecting you against a sharp rise. Your rate will never exceed a pre-defined ceiling.

Mortgage renewal

At the end of your term, whether 6 months or 5 years, you will need to renew your loan. This is the ideal time to assess your needs and situation.

Are interest rates rising or falling? Does your budget allow you to increase the amount or frequency of your payments? Ultimately, paying off your loan faster will save you money. Conversely, you may prefer to consolidate debts to benefit from a lower interest rate.

To find out now how much of a mortgage you could be eligible for, and to receive expert advice from our mortgage advisors, please contact us.