The mortgage

When you apply for a mortgage, the caisse will evaluate your overall financial situation. The personal financial advisor will take into account your job stability, net worth and credit history. Accordingly, he/she may grant a loan to someone whose job is not very stable, but who has shown the ability to save money. When it comes time to negotiate a mortgage, the interest rate is not the only thing to consider. There are many different promotions available, and you should take the time to evaluate them all.

Amortization

Most often, a first-time homebuyer will opt for an amortization period of 20 or 25 years. Amortization periods of 30, 35 and 40 years are also available for loans secured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. The longer the amortization period, the lower the monthly payment but the higher the interest cost. Your budget will be your main guide when making this decision.

Mortgage term

You must also decide on the mortgage term, i.e. the period during which the interest rate, payments and other loan conditions will not change. When the term expires, you can renegotiate your loan conditions, if you wish. Choose a term that fits with your budget and your personality. If money is tight, opt for a longer term. This will mean that you know what portion of your budget will go to paying back your loan.

Open or closed mortgage

A closed mortgage does not allow you to pay off your loan before the end of the term, except upon payment of a penalty. An open mortgage allows you to pay off your debt, in part or in whole, with no penalty.

Suppose your mortgage is insured by the CMHC. Should you also purchase mortgage insurance from your financial institution? Yes, as these are two very different things. CMHC mortgage insurance protects the financial institution against a borrower defaulting on a loan. If, after having analyzed all possible avenues, the borrower is no longer capable of paying, the CMHC reimburses the financial institution and repossesses the home.

Mortgage insurance offered by the financial institution protects the borrower, not the institution. It includes life and disability insurance. In the event the borrower dies, the mortgage is entirely paid off by the financial institution. In the case of disability, the institution covers payments either partially, e.g. 50%, or completely, depending on the coverage chosen. For example, for a couple aged 31-35 with a mortgage of $102,000 at 7.5% interest amortized over 25 years, the premium for Desjardins mortgage insurance would be $67.14 per month.