Financing a Home in Vancouver
Before you start the search for your home, take time to gain an understanding of the mortgage aspects of buying a home. With multiple lenders in the Vancouver real estate market, you will encounter a wide array of mortgage options. Often, similar products have different names.
Possessing essential knowledge of the basic types of mortgages can pay dividends by ensuring that you can differentiate between the choices and obtain the best mortgage product to fit your financial situation and objectives.
Do not wait to find a home before you begin the mortgage process. In fact, you will gain an advantage by obtaining a pre-approved mortgage, which is discussed below.
Bank, Mortgage Broker, or Credit Union?
You can work with a bank directly, enlist the services of a mortgage broker, or apply for a mortgage with your credit union. Bank loan officers receive a salary from their employer for their services. This could prevent you from receiving the most competitive interest rate for your mortgage. In addition, it might be difficult to obtain a mortgage from a bank if you have minimal credit history.
In contrast, mortgage brokers are independent business people. They have access to a wide variety of lenders and competitive interest rates. Mortgage brokers can find lenders to service all types of credit. They work with major financial institutions, including chartered banks, trust and insurance companies, and credit unions. Lenders pay mortgage brokers a fee or commission for their services.
One of five mortgages in British Columbia, according to the British Columbia Credit Union, originates at a credit union. Many credit unions provide mortgages for buying, building, and refinancing homes. They work with both employed and self-employed home buyers throughout the Greater Vancouver area.
They offer competitive rates and might provide more flexibility for mortgage repayment than banks. You must have membership in the credit union to apply for a mortgage. Credit unions have credit and income requirements that you must satisfy to obtain a mortgage. Contact your employer or the Greater Vancouver Community Credit Union to obtain more information about securing a mortgage from a credit union.
Types of Mortgages
Vancouver home buyers have a variety of mortgages available to meet their needs. Below is a summary of the main categories of mortgage options. Discuss the various options with your banker or mortgage broker. Select a mortgage that provides the repayment and interest rate that fit your personal circumstances.
Fixed Closed Mortgages Rates: The borrower gets locked into an interest rate that is fixed for the term of the mortgage — from one to ten years. Many closed mortgages offer buyers a more favourable interest rate. Premature sale of the property before the expiration of the term results in a penalty, which depends on the language in the mortgage contract.
Fixed Open Mortgage Rates: This mortgage has a term of six months to one year. This type of mortgage carries a higher interest rate and works for most home buyers who require short-term financing during the process of selling or remodelling their home. This type of mortgage does not carry a penalty for early repayment.
Variable Rate Mortgage: The term of the loan covers five years, and the interest rate fluctuates according to the prime rate. Vancouver home buyers with solid employment and good credit history should consider this option. Make sure that you have an awareness of the current trend of interest rates.
If you expect interest rates to rise, lock in at the lower rate. Usually, the term of the loan runs three years. Early repayment can cost you a penalty equivalent to three months of interest payments. You can obtain an “Open Variable Rate Mortgage,” which does not contain a clause penalizing you for early repayment of the mortgage.
Many Vancouver real estate buyers approach mortgages with a narrow-minded focus on obtaining the lowest interest rate. These special rates can seem attractive on the surface but can cost you more money in the end. Discuss the pros and cons of each product with your bank mortgage specialist or mortgage broker.
Obtain a Pre-Approved Mortgage
Secure a pre-approved mortgage — the lender’s estimation of how much money the institution will lend you for your home mortgage. The process works similarly to applying for an actual mortgage because the lender conducts a preliminary review your credit history and income. Mortgage lenders grant you advanced approval for a specific mortgage amount, interest rate, and term.
Lenders become obligated to the quoted rate for a certain amount of time, such as 60 to 120 days. A pre-approved mortgage does not require the buyer to follow through with a sales transaction; however, it does come with conditions such as verification of down payment, employment, and income later when you submit an offer.
When you make an offer, you demonstrate to sellers that you can close the deal, which puts you at an advantage over offers presented by buyers without a pre-approval. Even with a pre-approval in hand, make sure that you add a “subject to buyer obtaining financing” provision to the offer to purchase document.