10 Mistakes Canadians Make With Their Mortgage
Getting a mortgage can be stressful—especially if it’s your first time. Before you get started with shopping for a mortgage, it’s crucial to understand the common mistakes Canadians make with their mortgage.
This will help you avoid making your mortgage more expensive than it has to be, and it will save you money and time.
According to a report by Mortgage Professionals Canada, 1 in 3 Canadians pays more than they should on their mortgage.
Let’s look at 10 of the most common mortgage mistakes that Canadians make.
- Not shopping around with different lenders for a lower interest rate
Nearly half of Canadians don't shop around for a mortgage due to a lack of knowledge. A majority of Canadian homebuyers who don’t shop around for mortgage options are likely to pay more than they have to.
A survey conducted by Mortgage Intelligence shows that only 50 percent of Canadian homebuyers shopped around for the best mortgage rate.
It’s advisable to take your time and shop around with mortgage brokers, credit unions, conventional lenders, and even online lenders. Comparison shopping will help you get the right home loan for your needs and save you from paying more than you have to.
- Not saving enough for a down payment
Another mistake that Canadians make with their mortgage is not saving up enough for a down payment on a home. Some first-time homebuyers in Canada put down as low as 5% on a home. So they end up getting a smaller mortgage and higher monthly payments.
The National Bank of Canada has noted that saving for a down payment among Canadians has never been worse.
Typically, putting down a smaller down payment for a home means you’ll pay a higher interest rate over the life of the loan. Ideally, you should put down at least 20% on a home and earn a lower mortgage interest rate.
- Ignoring credit score
A good number of homebuyers in Canada don’t bother to check their credit history and score before applying for a mortgage. This is a mistake because mortgage lenders use your credit history to determine your creditworthiness.
A poor credit score means either your mortgage application will be rejected, or you'll pay a high interest rate over the life of the loan.
Anything above 713 is considered a good credit score in Canada.
- Adding too much debt
Another common mortgage mistake Canadian homebuyers make when buying a home is adding a bunch of extra debt. Buying a home when you’re in debt can mess your debt-to-income ratio, which can lead to being denied a mortgage.
- Rushing into a mortgage
Some homebuyers rush into a mortgage for the fear of losing out on “great” home deals and they end up making costly mistakes. It’s never a good idea to rush into a mortgage because you are more likely to skip important details that can make your home loan more expensive.
- Underestimating the true cost of homeownership
First-time homebuyers tend to focus on the price of the home, ignoring other costs associated with homeownership such as property taxes, home insurance, maintenance & repair costs, utilities, and title search fees. Not budgeting for all homeownership costs often leads to unpleasant surprises down the road.
- Assuming all mortgages are the same
Most Canadian homebuyers assume that all mortgages are identical, which is far from the truth. There's a wide range of mortgage products that lenders offer, and each of them has different terms and rates.
It’s a good idea to ask potential lenders the type of mortgages they offer so that you can make comparisons and choose what’s best for you.
- Obsessing about interest rates
While interest rates are a valid consideration, there are other important factors such as lenders' mortgage insurance and front establishment fees that Canadian homebuyers fail to consider when evaluating mortgage products.
- Omitting information on a mortgage application
One of the reasons some mortgage applications are denied is omitting the required information or misrepresenting items. For example, not including information like alimony payments or child support can lead to a mortgage application being denied.
- Not obtaining a mortgage preapproval
Some homebuyers end up being denied a mortgage after spending a lot of time going through the various processes of application, something they could have avoided if they obtained a mortgage pre-approval.
Luckily, you can use a mortgage calculator to get a general idea of how your finances stack up.
The Bottom Line
If you're thinking about getting a mortgage, these are the common mortgage mistakes you'll want to avoid. Making any of these mistakes can impact your ability to get a mortgage, make your mortgage expensive than it has to be and cost you the opportunity to buy your dream home.
Take your time to shop around and make comparisons before making a choice. In the meantime, you can use the Canadian Mortgage Payment Calculator to figure out monthly payments on a Canadian home loan so that you’ll be able to make an informed choice.