Mortgage borrowing tips for homebuyers
November is Financial Literacy Month in Canada. To help celebrate this occasion folks at the Financial Consumer Agency of Canada (FCAC) have provided you with some helpful tips on how you can find your financial balance.
Most Canadians have some form of debt. Not all debt is bad — for example, taking out a mortgage to buy a home can be a good investment. Borrowing wisely will help you keep your budget in balance. Here are some things to keep in mind.
Shop around for a mortgage
Shopping around is key when getting a new credit product such as a mortgage. Different lenders will have different interest rates and conditions. Take some time to compare the different options available such as variable and fixed interest rates, and open and closed mortgages. Also, talk to several lenders to make sure you’re getting the best mortgage product for your needs.
Try the Financial Consumer Agency of Canada’s Mortgage Qualifier Tool to help you determine whether or not you can qualify for a mortgage based on income and expenses. The tool offers unbiased, trustworthy information. The FCAC also offer several different calculators to support you at every stage of your home buying journey.
If you already have a mortgage and are having trouble making your payments, don't hesitate to contact your financial advisor to evaluate the different options available to help you.
Think carefully about getting a HELOC
A home equity line of credit, often referred to as a HELOC, is a form of credit that relies on using your home as a guarantee that you’ll pay back the money you borrow. Unlike a loan, a HELOC lets you borrow money, pay it back and borrow it again up to a maximum credit limit.
It can seem like using the equity in your home is a quick and easy way to pay for larger expenses. While you may benefit in the short term, it’s also important to consider the longer-term risks. Large amounts of available credit can make it easier to over-spend and carry debt for a long time. You may also have to pay back your HELOC in full if you want to switch lenders when renewing your mortgage.
If you decide a HELOC is right for you, make sure you understand all the terms and conditions of your product before signing on the dotted line. Take time to review and compare your options and ask potential lenders to clarify anything you don’t understand.
Ask yourself these questions
Consider the following before you borrow:
- Do you need the money now or could the expense wait until you’ve saved for it?
- Do the monthly payments fit into your budget?
- Will you still be able to afford the payments if interest rates change?
- What happens if you miss a payment?
You can find more practical tips and tools to help you borrow wisely at canada.ca/financial-literacy-month.