Understanding Mortgage Options for First-Time Homebuyers in Canada

Understanding Mortgage Options for First-Time Homebuyers in Canada

Now that the temperatures are climbing, the real estate industry is starting to pick up as more people are entering the market. Summer is typically the busiest time of the year for the industry.

If you’re a first-time buyer, this can be an exciting but stressful time. There are many things to consider when looking to buy your first home and secure a mortgage. These first time home buyer tips will help you navigate the process of buying and financing your first home.

What is a mortgage?

Most people don’t have the money to pay for a property in full when they buy it, so they take out a mortgage from a reputable lender or lending institute. A mortgage is a loan that an approved buyer is given so they can purchase a property. Lenders assess your financial situation and assess different factors such as:

  • Your finances including assets and debts.
  • Employment
  • The amount of money you are putting down for your purchase.
  • Price of the property.
  • Mortgage rates.
  • Number of years you want to take to pay off the mortgage to determine if and how much they are willing to loan you.

The more money you put down on your first-time buyer mortgage, the less you will have to borrow from the bank. This not only improves your chances of qualifying for a mortgage, but it also gives you more options when it comes to picking the right type of mortgage to suit your budgeting needs.

Do first time home buyers need a down payment?

Yes. To be considered for a mortgage, first-time homebuyers need to put down a minimum between 5% to 20% down on their new home purchase. The more expensive the home, the higher percentage you will need for a down payment. For example, if the home you are planning to buy is $500,000 or less, you only need to put down 5% of the home’s prices. If you are buying a home that is $1,000,000 or more, you need to put 20% of the total purchase price down.

First time home buyer mortgage rates will vary and depend on the Bank of Canada’s current lending rates as well as the type of mortgage you choose. As a new home buyer, talk to your bank about all mortgage options available to you so you can opt for the type of mortgage and timeframe that best suits your needs.


Types of Mortgages

There are several first-time buyer mortgages available.

  • High Ratio Mortgage

A high ratio mortgage is offered to new homebuyers who put less than 20% down and borrow over 80% of the home’s purchase price. Because the financial institute is lending most of the money, homebuyers also need to purchase a high ratio insurance to protect the lender’s investment.

  • Conventional Mortgage

This type of mortgage is available to homebuyers who put more than 20% down and are borrowing less than 80% of the home’s total purchasing price. Insurance is not needed for this mortgage type.

  • Fixed Mortgage

With a fixed mortgage, your interest rate stays the same, so your mortgage payments are the same for the duration of the term. First time buyer mortgage advice is to consider this mortgage if you want predictable payments, or you want to lock in a low lending rate.

  • Variable Mortgage

Variable mortgage rates aren’t predictable each month because they change with the market. This mortgage type works for homebuyers who have the financial flexibility that allows for unpredictable mortgage payments.

  • Open Mortgage

Open mortgages let you make additional payments or pay off the loan sooner without penalty. If you are planning to pay down, refinance or renegotiate your mortgage before the end of your term, this is your best option.

  • Closed Mortgage

Closed mortgages can’t be prepaid, renegotiated, or refinanced before the term of the mortgage is up. Doing any of these will result in penalties and additional bank charges.

When looking for your first home in Canada, don’t hesitate to ask questions and research all your options. There are plenty of first-time home buyer tips to help you navigate the homebuying process. Check out our Preferred Lender list for our trusted partners.

Published May. 28, 2024


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