Watch Out for These Mortgage Myths!
Taking your first steps towards a mortgage and getting a foot on the property ladder can be a really exciting time. But it’s also important you’re armed with the right information before you start your journey to homeownership. However, splitting the fact from fiction isn’t all that easy, particularly when some of the mortgage myths out there have been doing the rounds for many years. To make sure you know fact from fiction, we have written down a few myths commonly heard amongst friends, family and co-workers.
Myth 1: You need at least a 20% down payment to purchase your first home
It never ceases to amaze me how often I come across this assumption. We often hear from clients looking to purchase their first home “I know we don’t have 20% yet, but we just want to put a plan together for when we do”. They are always so pleasantly surprised to learn after speaking with us that as long as their first home is $500,000 or less, their minimum down payment is only 5%! That’s only $25,000 instead of the assumed $100K needed. If the home price is less than $1 million but above $500K, then buyers will need to provide 10% of the remaining balance above the $500,000. For example, at $600,000 their minimum down payment is $35,000 (5% X $500K) + (10% X $100K).
Myth 2: You should ALWAYS choose a five year fixed rate
When our parents were young adults buying their first home, interest rates were DRASTICALLY higher, anywhere from 8% to as high as 20%, depending on when they purchased in the past. Because interest rates were so high, it was more imperative to secure their future by taking an interest rate that they knew was locked in. This is often why when you seek advice from parents, they will often be biased to this option based on past experience that is not relative to today’s market.
Often times, bank advertising encourages the five-year fixed rate too. What many don’t know is that this is because it comes with the highest penalty cost if there is a need to break the mortgage early, which most people don’t know is over 60% of the time! This is how the banks really make their money - by charging a penalty that equates to 4 to 5% of your mortgage balance to leave them early. Times have changed in Canada, and for the last twenty years, interest rates haven’t been higher than 7%, and for the last ten years, no higher than 5%. Right now, with the pandemic having a dramatic effect on the economy, we are witnessing the lowest mortgage rates of all time especially the variable rate. This creates huge opportunities for homeowners to take advantage of the exceptionally low variable interest rate that will help hedge against any risk associated with rising interest rates. Of course, homebuyers will want to speak with their mortgage broker and do a need analysis about which interest rate is best for their situation, but my point here is to stop taking advice from those who are biased to a “one shoe fits all” approach to mortgage rates and stop listening to the bias advertising pushed by the banks. Talk to us by clicking here as we are experts in the field and can provide independent unbiased advice to new and existing home buyers based on today’s current market conditions.
Myth 3: My bank will give me the best interest rate
Clients are always shocked when we can beat their home bank’s mortgage offer. They assume that because they hold their savings and credit card accounts with them, their bank will reciprocate in the form of the lowest interest rate. Don’t be fooled - banks are IN THE BUSINESS of making money. This means they will give clients the highest interest rate they can get away with to increase their bottom line, not their client’s. That financial advisor homebuyers are dealing with at the bank may be friendly and helpful, but don’t forget that they work for the bank, not you. At the risk of being fired, they can’t advise home buyers or borrowers to go across the street to another bank, where there may be a better offer available.
So, for borrowers to know whether they are getting the best rate for their given situation, they need to speak with an independent mortgage broker who can provide them a list of different options from a list of different banks. Remember, we work for our clients, not the banks or lenders, and our services are completely free to our clients. So what are homebuyers losing out on by assuming their bank is giving them the best offer? A lot potentially.
If you are looking for a mortgage broker in Victoria, BC, reach out to us to have a complimentary discussion about your situation. As a top 10% mortgage broker and credit specialist for Canada’s largest national mortgage brokerage Dominion Lending Centres, I assist my clients to create and implement long-term strategies to assist in achieving their real estate goals. With access to a vast network of major banks, credit unions, trust companies, and alternative lending options, I can ensure the correct solution for unique situations. With access to over a hundred options, including major banks, credit unions, and trust companies, clients can be certain I will fight to negotiate for their best interest. I offer services like first-time home buyer mortgage, mortgage renewal, mortgage refinancing, reverse mortgage, private mortgage lending, self-employed mortgage, investment property mortgage, and new to canada mortgage. I provide Mortgage Services to clients Comox, Vancouver, Campbell River, Victoria, Mill Bay, Cobble Hill, Duncan, Nanaimo, Saanich, Langford, and Sidney, British Columbia.
To learn more about the services I offer, please click here. To get in touch with me, please click here.
