What’s the best mortgage for first-time home buyers?
Know how long it will take to pay off your mortgage
Your mortgage term is not your amortization period. The amortization period is the total length of time that it takes you to pay off your mortgage.
Major lenders in Canada typically will offer amortization periods of five to 25 years, with the maximum being 30 years when you have a down payment of at least 20%. The shorter your amortization period, the higher your regularly-scheduled mortgage payments will be, but the trade-off is that you’ll end up paying less in interest fees over time.
Should I go with the maximum I can afford?
As a first-time home buyer, it’s also important to think about the size of the mortgage you can realistically afford. When searching for your home, despite the size of the loan you can afford at the time, there are some real-world considerations to keep in mind.
Foremost among these is the fact that the Bank of Canada is almost certain to raise interest rates in 2022, perhaps even as early as April, which will mean that variable rates will climb. Fixed rates, which have been on an upward trend, will also likely continue to rise.
Even without the rising rates, you’ll also want to keep in mind saving for retirement—many experts recommend you put aside at least 10% of your gross salary towards that goal (and some even recommend as much 30%). Borrowing the maximum amount you can theoretically afford today could lead to financial difficulty down the road.
If you have any doubt about what you can afford, it may help to use a mortgage affordability calculator. These calculators are designed to give you an estimate, so it’s always good to confirm the results with a broker who understands the complexity of your financial situation.
Should I choose flexibility or predictability?
Ultimately, these options—fixed versus variable rate, term, amortization period and the total size of your mortgage—all boil down to whether you prefer flexibility or predictability, and what your appetite for risk is.
Be realistic when thinking about what you can afford and what you will be comfortable with. And, luckily, when searching for the best mortgage for first-time home buyers, you don’t have to do it all alone. When you’re ready to start looking, a mortgage broker can answer any questions you might have and use their access to multiple lenders and mortgage rates to find the best deal for you as a first-time buyer.