UCU Mortgage Primer for First Time Home Buyers

You’ve heard it before – buying a home is the single largest, long-term purchase you will likely make in your lifetime. So if you are thinking about buying a home - it is important to learn as much as you can about the mortgage process before you start your home buying journey. Knowing what to do and what to avoid - will better position you to get the best mortgage tailored to your specific financial situation.

Here are some tips to help you get the best mortgage package for your new home:

Know Your Credit Score

Your credit score will determine whether or not you qualify for a mortgage. A bad credit score may signal you are less likely to qualify for a mortgage while a high score may unlock better interest rates for your mortgage.

There are two main credit bureaus in Canada: Equifax and Transunion. Contact one to request your credit report.

Get Pre-Approved

Apply for a mortgage pre-approval first - before you start your home search. With a mortgage pre-approval in hand, you will know to the top end of your price range – which will allow you to make an informed home purchase that will fit within your budget.

UCU mortgage pre-approval is quick and easy – just call your local UCU Branch and speak to a mortgage specialist who will provide you with expert advice.

Aim for a 20% Down Payment

A down payment is the amount of money you pay upfront when you buy a home – it is calculated as a percentage of the purchase price. Your mortgage will be based on the remaining amount of the purchase price.

You could put down as little as 5% of the purchase price and as much as you could afford on the high end. But keep in mind that a down payment of less than 20% means you will have to buy a high ratio mortgage insurance premium which will increase your monthly payments.

Don’t Forget Closing Costs

On average you will need up to 2.5% of your home purchase price to cover closing costs. This includes the cost of land transfer taxes, PST, home inspection fees, legal fees, appraisal fees, property tax, property insurance, fire insurance, utility hook-ups and possible mortgage insurance.

The closing costs are in addition to the home purchase price – so put aside some money to cover the fees.

Interest Rate Options

You have two choices when it comes to how interest rates are calculated on your mortgage: fixed-rate or variable rate.

A fixed-rate mortgage – the interest rate of the mortgage will remain the same until the mortgage comes up for renewal - even if the interest rates change during your mortgage term.

A variable mortgage - the interest rate of the mortgage will fluctuate throughout the term. The prime interest rate is determined by the Bank of Canada and the variable mortgage rate is set by each financial institution’s prime rate.

Mortgage Payment Schedules

You chose a payment plan that suits your financial needs which could include setting up automatic payments from your account. UCU offers several payment plan options from paying once a month, twice a month, every two weeks, or even once a week. You have the flexibility to choose a rapid pay-down option to pay off your mortgage sooner.

Mortgage Pay Back Period

The typical amortization period for a mortgage is 25 years – but you can choose a shorter amortization or a longer one of up to 30 years.

Longer mortgage re-payment plans mean smaller monthly payments but you will end up paying more interest during the length of your mortgage. Shorter mortgage re-payment plans mean larger monthly payments but you will end up paying less interest during the length of your mortgage.

Mortgage Terms

A mortgage term is a period in which you are locked into a selected mortgage rate. Mortgage terms vary from a 6-month term up to a 5-year term. Once the term expires you will have to renegotiate the terms of your mortgage – you can keep your current term or select a different mortgage term option.

 Mortgage Types

There are two mortgage types to choose from: open mortgage or closed mortgage.

Open Mortgage – Allows you to increase your mortgage payments – by either paying more in each installment or by making a lump sum payment. You can pay off your mortgage sooner without penalty but your interest rate will be higher.

Closed Mortgage – Offers lower interest rates and you are limited by how much extra you can pay towards your mortgage each year.

UCU Mortgage Specialists

Our UCU mortgage specialists provide customized solutions and advice – to serve you and all our Members with the highest quality mortgage service available including mortgage pre-approval.

More information about mortgages and mortgage rates can be found on the UCU website.