When it comes to mortgages, myths and misconceptions abound. It's essential to separate fact from fiction, especially when making one of the most significant financial decisions of your life. As an experienced mortgage broker with over two decades in the industry, I'm here to help set the record straight. Here are some common mortgage myths debunked:
Myth: You need a perfect credit score to qualify for a mortgage.
Truth: While a good credit score is certainly beneficial, perfection is not a prerequisite. In Canada, lenders take into account a variety of factors such as credit history, income, employment stability, and your debt-to-income ratio. For those with lower credit scores, there are still mortgage options available, although they might come with conditions like higher interest rates or a heftier down payment.
Myth: You must have a 20% down payment to buy a home.
Truth: Contrary to popular belief, a 20% down payment isn't mandatory in Canada. Though it can help you sidestep mortgage default insurance, there are mortgage programs that accept smaller down payments. Programs from institutions like the CMHC enable first-time homebuyers or those with limited savings to step into the housing market with a reduced down payment.
Myth: Switching mortgage lenders will result in a penalty.
Truth: This myth is a common misconception. While changing mortgage lenders during your term might incur certain costs, such as discharge or legal fees, it doesn't automatically equate to a hefty penalty. Always read your mortgage agreement thoroughly and have a chat with your lender to understand any potential expenses before making any decisions.
Myth: A mortgage pre-approval guarantees you will get a mortgage.
Truth: A mortgage pre-approval gives you an idea of the maximum amount you might be able to borrow based on your current financial snapshot. However, it's not set in stone. Your financial situation can evolve, and lenders will still want to inspect the property you're aiming to purchase before giving the final nod on your mortgage.
Myth: You should always opt for the mortgage with the lowest interest rate.
Truth: While a low interest rate might seem tempting, it shouldn't be the only factor on your radar. Look at the bigger picture, including term lengths, payment schedules, prepayment options, and potential penalties. It's also wise to weigh up your personal financial objectives and requirements. In some cases, a mortgage with a slightly higher interest rate might offer more leeway or be a better fit for your long-term financial goals.
Navigating the world of mortgages can be a daunting task. However, with the right information and guidance, it becomes much simpler. By busting these myths, I hope to make your homeownership journey smoother and more informed. And remember, when in doubt, always consult with a trusted mortgage professional – like me, Katy Mackenzie – to ensure you're on the right path!