When buying a home, it's important to be aware of the extra expenses associated with your purchase. However, many Canadians may not be sure how much their total costs will be to settle into their new home.
“Before purchasing a new home, we recommend you take some time to understand and plan for those expenditures that go beyond the purchase price of the home,” explains Tim Bzowey, vice president, Home and Auto, RBC Insurance. “By doing this, you can budget for the move and not be blindsided by additional costs.”
Here are some additional costs to consider when purchasing a home:
• Mortgage loan insurance is required if your down payment is less than 20 per cent of the purchase price.
• Home insurance is often required by your mortgage lender and provides protection against loss or damage of your property and its contents and liability claims.
• Appraisal fees may be payable if the lending institution requires that your property be appraised.
• Legal fees include reviewing the offer, drawing up the title deed, conducting a title search and preparing and registering the mortgage.
• A home inspection could helpevaluate any structural and mechanical problems with the property before you purchase.
• A property survey may be required to verify the location of the property's boundaries, measurements and structures and any registered or visible easements or encroachments on the property.
Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.
Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.
When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company`s decreases as the down payment increases. When you finance your property at 95%, a premium of 3.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 20%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.
As mentioned above, when you put a 20% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate.
The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision.
Condos can be an affordable and low maintenance way to live. You don't have to shovel the snow, mend a leaky roof or mow the lawn. Paying for convenience may be within your budget, but what if you're also unexpectedly hit with a bill for your share of major building repairs?
As a condo owner, you are responsible for the cost of maintaining the building you live in. Your Realtor can help you to look beyond the four walls of your condo and give you the whole story on your new home before you commit.
“Realtors serve as the liaison between the buyer and the property manager, asking the right questions to make sure there are no surprises once you've settled in your new home,” says Barbara Sukkau, president of the Ontario Real Estate Association.
These surprises can come in the form of skyrocketing maintenance fees or, if your building's property manager has not kept up with both major and minor repairs, you might receive an unbudgeted surprise bill.
“Your Realtor can help you find a lawyer to review the building's reserve fund study,” Sukkau adds. According to the Condominium Act, all properties must complete this report, which provides information on the history of the building, past maintenance fees and the projected fees for the next 5 to 10 years.
Realtors are trained professionals who are regulated by a provincial board and they will make sure you get answers to important questions:
1 What is the history of the building's maintenance fees?
2 Are repairs or construction to major elements of the building such as stairwells, elevators and the front lobby scheduled soon?
3 What planned interruptions are there to major services and amenities for the building?
4 Are there any contracts for building revitalization?
When choosing a new home, your choice involves more than the home itself. Often, homebuyers are so wrapped up in the home that they forget the importance of the surrounding community. Do you dream of a smaller community that is unique and charming? Or, are you willing to sacrifice peace and quiet to be closer to amenities and other conveniences?
Start by making a list of the desired lifestyle factors that are most important to you and your family. Consider location, proximity to work and schools, activities and local attractions in the community.
“There are many factors involved in selecting the right community in which to buy your home,” suggests Sandra Webb, a senior executive at Royal LePage Canada, “Deciding what's important to you and your family is the first step in finding your ideal match.”
Knowing your requirements will help narrow your home search and save time. What are the most important amenities for you? Do you want to be close to parks and forests or restaurants and shops? What sorts of activities are you and your family likely to be involved with? The answers to these questions will help you determine what type of neighbourhood or community is best for you and help you and your real estate agent to locate the perfect home.
Buying a new home is not only exciting, it results in one of the most significant debt obligations most Canadians ever take on. It is also a key life event that requires a thorough review of your personal financial plan, including your insurance needs.
“Buying a new home comes with many additional expenses, so it's easy to lose sight of what is critical and what isn't,” said Tim Bzowey, vice president, Home and Auto, RBC Insurance. “Many new homeowners may not understand the risk of going without mortgage or home insurance for example, but we recommend they account for these costs when reviewing their finances.”
Here are a few tips new homeowners should keep in mind:
• Assess your debts—The purchase of a new home should include a full assessment of your insurance needs. Will there be sufficient income to cover loans, credit card balances and mortgages payments if you or your partner become ill or disabled?
• Protect your home—Mortgage insurance can prevent your family from being burdened by an outstanding mortgage by paying off or reducing your mortgage balance in the event of death or disability.
• Bundle your home and auto insurance policies—Purchasing your home and auto insurance policies from the same insurer may result in additional savings.
• Update your home insurance policy if you decide to renovate—Home renovations can significantly increase the value of your home, so it's important to protect that investment and update your policy to reflect the current value.
Everyone knows to protect the investment one makes in a home with home insurance.
But did you know that another important way to protect that investment is through title insurance?
Title insurance provides coverage for losses suffered from title, survey and other specified issues existing at the time of closing (and in some cases, arising afterwards), even if they are discovered years after becoming the owner. Title insurance is different from other types of insurance: payment for the insurance occurs only once and coverage lasts as long as the insured, their spouses, children or heirs own the home. There are generally no deductibles and no additional annual fees. A policy on a $300,000 home costs about $300 to $400 -- a worthwhile investment when compared to the value of the home.
“Homebuyers put a great deal of time, energy and financial resources into finding their dream home, so it only makes sense to protect it with appropriate insurance,” says TitlePLUS spokesman Ray Leclair, a real estate lawyer and vice-president, Public Affairs (Acting) at LawPRO. “Title insurance is inexpensive to obtain, yet valuable to have.”
Risks covered by title insurance include unpredictable or undetectable issues such as forgery, fraud, missing heirs, unregistered rights-of-way and other issues that can affect rights of ownership.
Ask your real estate lawyer about your title insurance options. While title insurance is available at any point in time for those who already own their homes, it is usually secured when the home is purchased. Obtaining a title insurance policy when a home is purchased is beneficial to (1) get more coverage than a traditional lawyer's opinion would provide, and (2) in many cases, save the purchaser out-of-pocket costs on their overall legal bill as their lawyer may not have to do a number of searches normally required.
If a problem arises with title, survey or other matters that only becomes known after closing, title insurance can often assist the homebuyer with the problem. Your real estate lawyer can explain its other benefits.
A useful resource for people looking to learn more about title insurance is the TitlePLUS Real Simple Real Estate Guide, available for free at www.titleplus.ca.