Buying a home in Canada – terms to know

As you begin the process of buying your first home, you’ll probably come across a number of new terms and phrases. Here are some of the ones you’re most likely to encounter.

Amortization period. The length of time it takes to pay off the entire amount of your mortgage.

Down payment. The amount of your own money that you use to buy your home – it’s often expressed as a percentage of the purchase price.

Interest rate. The rate of return the lender (i.e. your bank) receives for letting you use the mortgage money for a specified term. The interest rate is usually expressed as an annual percentage rate.

Variable rate mortgage. Where the interest rate changes with your lender’s prime rate. Your payment stays fixed for the term, so if interest rates go up, your interest cost will too. But if interest rates go down, so will your interest cost.

Fixed rate mortgage. Where the interest rate is set for the length of the mortgage term. Fixed rates offer security so even if interest rates in general rise, your mortgage rate is locked in for the term.

Mortgage. A loan for the purposes of financing a home purchase where your home functions as security for repayment of the loan.

Mortgage default insurance. This insurance is mandatory for borrowers with a down payment of less than 20%. Mortgage insurance gets automatically added to your mortgage amount if required.

Prepayment charges. Money you need to pay your lender to compensate for the prepayment of a closed mortgage in part or in full before the end of your term.

Principal. The amount of the loan or mortgage you owe to your lender at any specified time, not including interest.

Term. The length of time during which your mortgage agreement is effective. The term can be closed or open.

Closed mortgage is a mortgage agreement that has restrictions on refinancing or prepaying the outstanding amount before the end of the term. Closed mortgages are a better choice if you don’t plan to move in the short term.

Open mortgages can be repaid either in part or in full at any time, without prepayment charges. Interest rates for open mortgages are generally higher than for closed mortgage because of the added prepayment flexibility.

For more information, please visit RBC Advice Centre

Conventional or High Ratio mortgage - which one is right for you?

Victor - Mobile Mortgage Specialist

When buying a home you have two options. You have a conventional, what we call a conventional mortgage, which is when you have 20% down or more. Or a low down payment mortgage with as little as 5% down you can buy your home.

When you have a low down payment mortgage, you are charged a premium on closing which we call a mortgage default insurance premium.

What we'll do is work with you to find out what the ideal down payment amount is for your financial situation and then work through those specific costs for you for closing.

That default insurance premium is also subject to a provincial sales tax and that is all calculated for you so that you have no surprises on closing when you purchase your home.

Buying a home and getting a mortgage is one of the biggest investment decisions you'll make. So making sure that you have had expert advice not only on the mortgage side and the financing side but on the investment side is very important. And at RBC we have all the relationship partners available for you to meet with to get the advice to make you feel comfortable with this purchase.

For more information please visit the RBC Advice Centre!

Understanding Mortgage Amortization

Dian - Account Manager

In its simplest term, amortization is the period of time that it takes you to pay off your mortgage in its entirety. Typically, your average amortization period is 25 years. However, it all depends on your personal goals and objectives.

Choosing a longer amortization period gives you the convenience of having lower monthly payments. However, the longer your amortization, the more you will pay in interest costs.

Alternatively, a shorter amortization gives you the convenience of paying off your mortgage a lot earlier. However, your payments are going to be larger but you will save in interest expenses.

Even if you have to start with a longer amortization period so that it fits into your budget, you have the opportunity of changing your amortization period throughout the lifetime of your mortgage. We recommend that you review your amortization at your renewal time so that you can assess your current financial situation. If your situation has changed such as your salary has increased or your expenses have lessened, then shortening your amortization period may fit into your goals.

Here at RBC we'll help you explore your options and find the best possible solution for you.

For more information please visit the RBC Advice Centre.

Closing costs can add up - Find out what you'll need to save for

Stephanie - Mobile Mortgage Specialist

Buying a home is one of the biggest investments you'll make in your life. And one of the things that you need to consider is the cost of closing the property. The closing costs are the list of costs that the lawyer presents to you at closing.

And it's really important that you know what they are because you don't want to be left with a surprise.

The main closing costs when you're closing a home include such things as land transfer tax, the legal fees and also there are taxes on the high ratio insurance premium that you may have to consider if you have put less than 20% down payment.

One of the main things that clients will not know up front are the adjustments. These are costs that the vendor has prepaid such as property taxes and the utilities.

When purchasing a newly constructed home from a builder, there are other costs to consider such as the new home warranty. And there are other costs built into the offer such as driveway paving or tree planting and these can vary from offer to offer and from builder to builder. It's very important to read the offer carefully so that you're not surprised when you're going to close the home and there are other costs that you haven't put into consideration

For more information, please visit the RBC Advice Centre.

Why get a mortgage preapproval?

Gina - Account Manager

If you're serious about purchasing a home, getting a pre-approval that actually puts your mind at ease because then you know exactly what you're working with. A lot of us, when you're looking to buy a house, have an idea of that ideal home, the white picket fence, the big backyard, the swimming pool potentially. But can we actually afford that home?

Getting pre-approved will set your benchmark or your price range, so you're not wasting your time and you're not getting disappointed down the road when you see the house of your dreams and find out after the fact that you can't afford it.

Sitting with an RBC mobile mortgage specialist will give you that peace of mind and the confidence when going in to purchasing a home, you'll know exactly what the process is and exactly what's expected of you so that you end up with the house of your dreams and the mortgage to finance it.

They can help you walk through the entire process from the down payment to all the other expenses that come up with home buying like land transfer tax, lawyer fees if there's real estate commission, to the mortgage payments, whether they're monthly, biweekly, the benefits of picking a certain payment schedule and then once you've signed that purchase agreement what the next step is.

Coming in to get a pre-approval is a no-cost, no-obligation process. What it does do is provide you with information and ease your mind so that you have confidence when you're looking to buy that home.

For more information, please visit the RBC Advice Centre