Practical Guide to Buying a home

Practical Guide to Buying a home Designed by the National Bank in collaboration with MD Management a subsidiary of the Canadian Medical Association How much room do you have? How much can you allocate to your home purchase? What monthly payment can you afford? The following exercise will give you an idea of how much you can pay for your home and what your maximum monthly payments would be. It goes without saying that these calculations will give you only an approximate idea. They do not take into account the size of your down payment, for example. Your MD Financial Consultant will provide you with more accurate information and valuable financial planning advice. How much can I pay for my home? Income Applicant’s gross annual income Annual rental income x 50% (if any) Co-applicant’s gross annual income Total income Total income x 30% Total income x 40% $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ A B Financial commitments Monthly car loan payment x 12 Monthly payment on other loans x 12 Total balance on lines of credit and credit cards x 5% x 12 Total financial commitments C D E Income available for home Amount B - Amount C Indicate Amount A or D, whichever is less Future housing expenses (estimate) Annual municipal property taxes Annual heating costs Annual condo fees x 50% Total housing expenses F G H I Maximum monthly mortgage payment Amount E - Amount F Amount G Ö 12 Amount H x 1,000 Approximate maximum mortgage amount* Ö6 Approximate maximum home purchase price Amount I + down payment * Assuming a 6% interest rate. $ 3 Strengthen your position with a pre-approved mortgage Before you even think about buying, you should apply for a pre-approved mortgage loan. The vendor will then know that your mortgage financing is assured and that you’re a serious buyer, which gives you a stronger negotiating position. To apply for your pre-approved mortgage, just contact your MD Financial Consultant who will refer you to our mortgage specialists. Custom-built mortgages! Now that you’ve determined the approximate amount you can pay for your home, you can start looking! Which leads us to another important question: what type of mortgage loan should you choose to finance your purchase? The answer is not necessarily simple. Your MD Financial Consultant and our mortgage specialist will help you identify the financing solution that suits your needs best. Taking a closer look Insured or uninsured loan? In accordance with the National Housing Act, you have two options when you finance the purchase of your home, depending on the size of your down payment: • Conventional mortgage: if you put down 25% or more of the value of your property, you are eligible for a conventional loan. • Mortgage insured by Canada Mortgage and Housing Corporation (CMHC) or by GE Capital Mortgage Insurance Canada: if your down payment is less than 25%, you have to take out an insured mortgage loan. Your insurance premium can be added to the total amount of your mortgage loan*. * As specified in the legislation, CMHC or GE Capital file analysis fees and taxes on the insurance premium cannot be added to the mortgage loan amount. Fixed-rate or variable-rate? Variable-rate products are aimed at people who are looking to save as much as possible on interest and pay off their loan quickly. However, they must be able to tolerate fluctuations in rate and in their payments. 4 Fixed-rate products are for people who want to live within a fixed budget no matter which way rates fluctuate. Their payments will always stay the same for the duration of their term. Open or closed term? The term of your mortgage loan represents the period of time during which the conditions of your loan remain in effect. At the end of the term, the loan conditions must be renegotiated. The term can vary from three months to 10 years and can be either open or closed. The term you choose will depend on your needs, priorities, as well as the prevailing economic situation and fluctuations in interest rates. A mortgage with a closed term can be repaid in full only at the end of the term. Its conditions can generally not be modified during the term. However, various prepayment options give you ample flexibility at no extra charge. Closed terms range from three months to 10 years, with interest rates lower than those of open mortgages. An open mortgage, with a term of six months or one year, allows you to renegotiate the terms and conditions of your loan or to repay it in full or in part at any time at no extra charge. Although the interest rate is higher than that on a closed mortgage, it is worth looking into if you are thinking about selling your home in the near future or are expecting an imminent drop in interest rates. Amortization: 15, 20 or 25 years? The total repayment period for your loan may be spread over a period as long as 25 years. The longer your chosen amortization period, the smaller your monthly payments are, but the more you pay in total interest. Payments: weekly, every two weeks, or monthly? Choose the payment frequency that best suits your budget. By opting for accelerated payments (weekly or every two weeks), you will be making the equivalent of one additional monthly payment a year. Over the long term, you will save a significant amount in interest. 5 Payment on principal, additional prepayment or increased regular payments? These are three free-of-charge prepayment options that can significantly reduce your interest payments. The amount you pay using any of the available options is applied directly to your borrowed principal, which reduces the length of your loan and, consequently, the cost to you in interest. Payment on principal At any time during every calendar year, you can repay up to 10% of the initial principal borrowed*. You have the option of making a single principal payment or multiple payments during the term. Additional prepayment On any regular payment date, you can decide to make an additional payment on principal up to the amount of your usual payment (principal and interest). Increased regular payments Once every calendar year, you can decide to increase the amount of your regular payments up to twice their original amount. The new payment amount then remains in effect for the remainder of the term. *Accrued interest will be calculated if the payment is not made on a regular payment date. Life insurance or life and disability insurance? For a few dollars extra every month, you can ensure that your mortgage will be repaid in the event of your death or disability. It’s a small price to pay for peace of mind! To make things easier for you, your premiums are added to your monthly mortgage payments. Don’t forget to discuss your insurance needs with your MD Financial Consultant. 6 Advantageous financing solutions Whatever your goals are, you need a mortgage financing solution that can meet your current and future needs while giving you peace of mind. Variable-Rate Mortgage Do you want to enjoy the lowest rate on the market? A Variable-Rate Mortgage entitles you to a reduction on the National Bank prime rate over a five-year period. The rate on your loan will be adjusted every month based on variations in the prime rate (which is usually the lowest rate on the market). You will therefore benefit from any reductions in the Bank’s prime rate at the time of your monthly adjustment. Even if rates go up, your rate will still be better than those on other mortgage terms. There are two payment options: 1- Fixed payments The payment can be fixed and based on the rate in effect for a term of three years or longer when the loan is opened. This type of payment makes it easier to manage your budget and secures the repayment of your mortgage. 2- Variable payments Payments can also vary from month to month based on current rates and the remaining amortization. A Variable-Rate Mortgage also offers you : • A rate that is automatically reviewed every month for five years • A monthly mortgage statement confirming your rate and payment amount Capped-Rate Mortgage With our Capped-Rate Mortgage, your maximum interest rate will be set for a term of 5 years when your mortgage is disbursed. Your actual interest rate will be adjusted monthly in line with the prime rate. In the event the Bank’s prime rate goes down, the monthly adjustment will work in your favour. And, should the rate go up, the interest rate you pay on your mortgage will never be higher than the capped rate set when the loan was disbursed. 7 Two payment options are offered: 1- Fixed payments The payment can be fixed and based on the rate in effect for a term of three years or longer when the loan is opened. This type of payment makes it easier to manage your budget and secures the repayment of your mortgage. 2- Variable payments Payments can also vary from month to month based on current rates and the remaining amortization. A variable-rate mortgage also offers you : • A rate that is automatically reviewed every month for five years • A monthly mortgage statement confirming your rate and payment amount Since it’s impossible to accurately predict interest rate fluctuations, the Capped-Rate Mortgage enables you to take advantage of short-term rates without ever exceeding your maximum rate, giving you more peace of mind. Money-Saver Mortgage Would you like to save on interest charges so that you can pay off your mortgage sooner? With a Money-Saver Mortgage, you benefit from a 5-year term at a variable rate that is adjusted quarterly. The rate offered is equal to the 3-month rate (generally one of the best rates on the market) less 0.35%. You also have the option of choosing a term equal to or longer than the remaining term of the commitment at any time without charge. You will profit from reductions in the Bank’s three-month rates for every quarterly adjustments. Even if the rates go up, your rate will still be better than those on other mortgage terms. The Money-Saver Mortgage also offers you: • Rate revised automatically every 3 months over a 5-year period. • Quarterly mortgage statement confirming your rate and payment amount. You’ll be able to save on your payments, and with the interest you’ll be saving, you’ll be able to repay your principal more quickly. 8 Multi-Choice Option Would you like to benefit from falling rates while protecting yourself against potential rate hikes? With the Multi-Choice Option, you can: • Divide your mortgage amount into two or more portions. • Include a product such as the Variable-Rate Mortgage, Money-Saver Mortgage, Capped-Rate Mortgage or a Fixed-Rate Mortgage in one portion. • Choose terms ranging from 3 months to 10 years. • Opt for amortization periods of up to 25 years. • Decide to have a different amortization period for each portion. • Set a different payment frequency for each portion. The Multi-Choice Option is ideal if you’re looking to renew or transfer your mortgage or you expect to be able to make a lump sum payment. If you and your spouse have different preferences and each pays its portion of the mortgage, this option is ideal. You benefit from any reductions in interest rates while protecting yourself against possible rate increases! Revolving Mortgage* Would you like the option of reborrowing the principal paid on your mortgage? With a Revolving Mortgage, you can reborrow the repaid or unused principal of your registered mortgage loan in several portions. Each portion can have a different interest rate, term and amortization period. For even more flexibility, you can draw the additional funds from an All-in-One account. The Revolving Mortgage also lets you: • Have access to the principal in less than 24 hours, subject to credit approval by the Bank. • Benefit from mortgage rates, which are lower than the rates for personal loans, so that you can finance your personal projects at substantial savings. • Avoid legal fees for each advance. You can therefore count on the Revolving Mortgage for even more ways to realize your projects. * Available only in Quebec, Ontario and B.C. Certain conditions apply to use to funds by homeowners with mortgages insured by CMHC (Canada Mortgage and Housing Corporation) or by GE Capital Mortgage Insurance Canada (GEMICO). 9 All-in-One account Would you like to take advantage of the equity in your home to borrow additional funds at a reduced rate? If the equity you’ve built up in your home represents at least 25% of your home’s value, you can opt for a All-in-One with a reduced rate and a credit limit of up to 75%* of your home’s value (less your mortgage balance)! The All-in-One also offers you: • A credit limit which can range from $25,000 to $250,000* or more and can be integrated with a bank account. • Complete freedom in determining your payment frequency and amounts. • A single credit application for all your financial needs. • Access to funds at any time via personalized cheques, banking machines, withdrawals at a National Bank’s branch, Internet banking services or point-of-sale terminals (InteracTM Direct Payment). • The minimum monthly payment is limited to the amount of monthly interest plus life insurance premiums, if applicable, and can be made for you automatically without charge from any of your accounts. • You can make additional payments at any time without penalty. • A detailed monthly statement of account for all your credit transactions. It’s the ideal tool if you want to do renovations to your home. We know that projects like that don’t always proceed exactly as planned. Since the All-in-One is secured by a mortgage, you can borrow more and benefit from a lower rate. In addition, any reductions in the National Bank's prime rate are reflected in your rate! * Certain conditions apply. Approval of the maximum amount may depend on specific conditions in each region. TM Registered trademark of Interac Inc. Two tips for first-time homebuyers The main impediment to purchasing a home for first-time buyers is often the down payment. We’ve got a couple of tips that could help you open the door of your new home faster than you ever thought possible! 10 Home Buyers’ Plan If you are buying your first home, or if either you or your spouse have not owned a home for at least five years, you are eligible to participate in the Home Buyers’ Plan and use the funds in your RRSP as a down payment on your new home. Each spouse can withdraw up to $20,000 from his/her RRSP without any income tax being withheld. You then have 15 years to transfer back into your RRSPs the total amounts withdrawn under the Home Buyers’ Plan. Your repayment period starts the second year following the year in which the withdrawals were made. Generally, you have to repay 1/15 of the total amounts withdrawn each year until you have repaid the full amount. If you haven’t contributed enough to your RRSP to date, talk to your MD Financial Consultant. He or she will suggest ways to maximize your contributions. Two tips for owner-vendors Suppose you have a closed mortgage and decide to pay it off or sell your home before the term expires. Normally, you would be charged an indemnity to have your mortgage agreement modified. Here are two ways you can carry out the transaction without additional cost to you. Rollover mortgage To avoid additional costs, you can transfer the interest rate, balance and term expiry date of your current mortgage loan to a new loan. Any amount over and above your current balance is negotiated at the current interest rate in effect*. Assumption of mortgage If your buyer assumes your current mortgage, you will not be required to pay an indemnity. * To qualify for a rollover mortgage, the new mortgage loan must be disbursed within 90 days of closing the old mortgage loan. 11 But that’s not all... There are many expenses connected with buying a home. The following examples will give you a clearer idea of what’s involved: Taxes GST and/or PST apply to the purchase of a newly built home. However, you could be eligible for a rebate. Check with your builder. Appraisal fees The appraisal establishes the market value of the property. Properly taxes (plus school taxes in Quebec) They are based on the market value of your property. Home insurance Compulsory: it constitutes security for the lender. Plus, it prevents you from having to repay a loan of thousands of dollars in the event a disaster hits your home. Adjustment of property taxes and public utility bills paid in advance (plus school taxes in Quebec) If the vendor has paid these taxes and bills in advance, you will be required to reimburse him or her for the period starting on the date you take possession of the property. Land transfer tax This is a tax levied by the municipality and based on the selling price of the property. Fees for an insured mortgage loan (CMHC or GE Capital) Only the insurance premium may be added to the total amount of your mortgage. Legal fees (lawyer or notary) Inspection fees A building inspector may check to see if any repairs are necessary and estimate the cost. Maintenance fees These fees apply to the yard, roof, snow removal, pool, etc. 12 Moving expenses These vary depending on the distance and type of service you choose. Utility charges Installation of utility services (electricity, telephone, cable, etc.) at your new address will add to your expenses. Miscellaneous expenses Don’t forget to include the cost of decorating and remodelling your new home. 13 Wake up in the house of your dreams! Through National Bank, MD Management offers you a wide selection of mortgage financing solutions. Our mortgage specialists are always ready to provide you with advice on making the best choices and can assist you in buying a new home. We are qualified to answer any questions you have and can give you documentation that explains the many advantages of our mortgage financing solutions, free of charge. We look forward to hearing about your dream home! 14 For more information Whether you’re all set to go or still need more information, call your MD Financial Consultant, or the National Bank’s MD Management Banking Service Centre at 1-866-333-2580. Web site: www.md.brs.cma.ca.