You should first find out about a first time home buyer mortgage before you really start to seriously consider buying a home. Talking to lenders and going so far as to get a mortgage pre-approval is sound advice for anyone considering buying a home because without pre-approval you can’t be 100% sure as to how much you could borrow on a mortgage. Getting pre-approved means you have gone through the application process and been approved – in principle – for a maximum purchase amount, and once you have this information you can start looking at homes to buy.
Different Types of Mortgages
Of course, getting pre-approval doesn’t mean you’re making a final decision on the mortgage product you want, it is merely an agreement that – all things going to plan – the lender will give you a first time home buyer mortgage of up to that amount. So you don’t need to decide on the type of mortgage you want until you’ve found a home.
Once you’ve found the home you want to buy and got your offer accepted you’ll have a set period in which to secure the mortgage. It’s at this point you make a final decision on the type of first time home buyer mortgage you want.
So what are those types of mortgage? Well, actual products vary with each bank but here’s a summary of three of the main mortgage products available:
Fixed Rate Mortgage – Choose a fixed rate mortgage when you want to lock-in the interest rate for a certain period (the term). This is good if an interest rate hike is on the cards and it gives you security in not having to worry about changing costs. Fixed rate mortgages can be ‘closed’, ‘open’, or ‘convertible’. Closed is good if you’re not planning to pay off the mortgage any time soon and rates are generally lower for this kind of mortgage than an open one. Open mortgages are better if you are planning to pay off the mortgage quickly and you can usually pay extra chunks to your mortgage at different times. A convertible closed mortgage is the same as closed but can be converted to a longer, closed term at any time without penalty.
Variable Rate Mortgage – If you’re not concerned about changes in the prime interest rate then a variable rate mortgage is a good choice. As a first time home buyer mortgage these can end up saving you thousands of dollars if interest rates go down because that means the amount of interest you owe on your mortgage goes down too. Of course, there’s always the fear that rates could go up but because most banks will fix your actual monthly payments you won’t have to worry about coming up with more money each month. Variable rate mortgages can be open or closed.
Cash Back Mortgage – A number of lenders, including RBC, offer a Cash Back Mortgage which is a popular mortgage option. The idea is that the lender actually gives you a chunk of money at the time that your mortgage is advanced. That money is yours to do with as you please, but as a first time home buyer it’s going to be very useful to go towards paying legal fees, land transfer taxes, other closing costs, moving costs, or to buy some furniture for your new home!
The cash back you get depends on what you borrowed for your first time home buyer mortgage and whether you agree on a 4%, 5% or 7% cash back deal – these are the levels that RBC offers, though other banks may differ.
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