Why Mortgage Planning is Important?
Dmitry and Natasha a middle age couple got their landed papers in June 2010. They are presently renting an apartment for $1450 all inclusive. They had plans to buy a new car within next year or so.
Their good friend Ivan advised them to own home and stop renting since the mortgage rates are record low. Since Canadian real estate is safest in the world and price will go higher they should use equity of their home and buy their car in a year or so.
Dmitry and Natasha liked this idea, consulted their friends and finally decided to go ahead. Both have good jobs and earn $77,400 yearly in total. They don’t have much debt other than a car payment of $270 monthly.
With the help of their realtor friend they found a good condo and bought it for 323,000. Due to their great relationship at their bank home branch, they got the lowest mortgage interest rate with 5 year fixed term with only 5% down.
Dmitry and Natasha are pleased with their decision until after about 20 months in to the purchase, when they went to their bank to get equity out to buy a second car for themselves, as planned.
Was Something Missed During Mortgage Planning?
After paying hefty penalties to break the existing 5 year fix mortgage and refinance the property, there is not enough equity in the property.
Where is the problem?
Irrespective of where the problem lays, its Dmitry and Natasha who pay the price. Approximately $9800 of insurance premium was added to the outstanding principal of $306,850, aka 95% LTV (Loan to Value).
Careful mortgage planning should have saved Dimitry and Natasha the predicament, they ended up in.
CMHC and Genworth 5% down payment high ratio mortgage insurance program makes you a home owner however complementing strategies should be implemented to help you achieve your ultimate goals.
Mortgage planning is part of your financial and retirement planning. Wouldn’t a systematic approach be beneficial more over a random decision?
If you are looking for a mortgage for your first home with lowest possible down payment, you are invited for a Free Mortgage Planning Session
Should Mortgage Pre Approvals be part of a good the mortgage planning?
Depending upon the borrowers commitment and understanding with their mortgage professional, there are 2 ways this process is handled. You are free to choose which ever you like because ultimately mortgage pre approval is meant to be in your best interest as a borrower.
When mortgage pre approval process is followed correctly, it establishes maximum purchase price with the available down payment/ equity, mortgage payments, mortgage rates and mortgage lender who is willing to work with the loan application.