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First Mortgage / Home - Your Best Recommendations
November 25, 2022
6:58 am
Save2Retire@55
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Hello,

So we are finally done with rent increase drama and looking into purchasing our first home. We live in Gatineau (Quebec) and considering the price difference between Gatineau and Ottawa, our first home will be in Gatineau.

I am looking at applying for pre-approval mortgage now. Based on the online calculators on the big 6, I can get $575K or so. However, I am looking to below $500K houses.

Please give me your best recommendations for:

1. Purchasing first home, process, what to consider, etc
2. Mortgage, I am leaning towards fixed 1 year or variable 3 years. Thoughts?

Looking and searching online, seems Home Trust has the best rate. Would you trust them considering they are being sold now? How about other smaller unions?

Thank you so much.

November 25, 2022
8:54 am
Loonie
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Hi there! Welcome back. Long time no see!

This is such a big topic, I hardly know where to start.

Here are a few random thoughts that come to mind...

Talk to your insurer before you buy, to find out if there are any special circumstances with the house you plan to buy. In Toronto, for example, many homes have secret waterways underground which are inflating the cost of full coverage considerably due to increased flooding risk. Insurers know all about these risks but general public does not unless they ask.

Consumer protection laws are much better in Quebec so you may have rights there that the rest of us are not aware of.

Be cautious about home inspections arranged and paid for by seller. Some are not scrupulous, and they know who is paying their bill. A really good realtor can be invaluable in helping you through this. You may need an independent assessment. A good realtor will know the reliability of the inspector. If there are consumer laws that pertain to these inspectors you'd be wise to hire someone based on Gatineau side. A friend of mine once bought a house that had been inspected by vendor's inspector. A couple of months later, he had major expenses due to termites and no recourse.

You can negotiate mortgage rates, and this is probably a buyer's market, so you are in luck. I'm sure you have a great credit rating and you are not over-buying, so negotiate away!

You won't "need" one but you might consider talking to a mortgage broker. You never know!

Make sure everything you are promised orally is in writing.

Be aware that the temptation to pay off the house asap will be strong and that you like to travel. Travel may get short end of stick for some years. Avoid family conflict by talking it through in advance. Houses have a way of eating up all your spare cash!

Beware of "double ending" in the realtor business, wherein one agent acts for both sides. If you are lucky, this will be illegal in QC, but I don't know. It's best to have your own agent rather than hooking up with the one who is acting for the seller. Take some time to find a good agent. A good one is worth it; the rest aren't.

Don't buy mortgage insurance unless you must. Buy life insurance instead - enough to cover the mortgage.

Don't rule out houses that are in "as is where is" condition. They are often just estate sales where the executor or power of attorney can't be responsible for what they doesn't know. Just get a good inspection. These often sell at lower prices.

I tend to favour a longer fixed term for the first term of your mortgage, but I know others will disagree. It might cost you more in the long run, but at least you'll know what you're going to have to pay for the first few years when it's usually most difficult; and, then again, you might be glad if rates continue to climb. There is no perfect answer; it's a matter of risk tolerance.

November 25, 2022
10:04 am
AltaRed
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Not from personal experience which is very old, but a good mortgage broker is worth his/her weight in gold. Our son, as a first time homeowner, used a highly rated mortgage broker on the west coast a few years ago and she worked wonders walking him through everything and finding the best menu of options. The best mortgage is not always the very lowest interest rate. Other features of the mortgage may be of more value, such as portability if there is a chance one might have to sell before mortgage term is up, penalties if having to 'mature' the mortgage, prepayment options, etc.

I know nothing about this website https://trustanalytica.com/ca/qc/best-mortgage-brokers but sometimes googling and following up on some references or interviews is the best place to start. A good mortgage broker will also be fully transparent about their compensation and whether they are incentivized on volume to particular mortgage issuers.

Beyond that, if you can qualify for $575k but are buying at under $500k, it means you have financial capacity for some risk IF you wish to go variable, or a shorter 1-3 year term. I mention this only on the basis that while mortgage rates may go up a bit more near term, it is a reasonably good bet rates will be on the decline in 2024 or 2025. For myself, I would probably want to position myself for the possibility/likelihood of lower rates in 2025 with a 2-3 year term. It is a personal decision though on what risk vs rate is acceptable to you.

I agree with Loonie that getting term life insurance separately for the value of the mortgage is cheaper than having to take the same kind of insurance via the mortgage issuer.

November 25, 2022
10:42 am
Norman1
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Mortgage life insurance offered by the lender is often not a good deal. One is actually paying a fixed price for declining insurance coverage.

The mortgage life insurance will pay off the remaining balance of the mortgage. It doesn't pay out the original mortgage amount and leave some extra for the estate.

Look carefully at the conditions on those mortgage rates from alternative lenders, like Home Trust. I looked into one attractive rate and the rate was only for insured mortgages. It would be a higher rate if one has a 20% down payment or more and one is not willing to pay for optional CMHC mortgage insurance.

November 25, 2022
11:29 am
Save2Retire@55
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Hello Friends (Especially Loonie)!

I missed your wisdom! Great replies. Thank you so much.

I am trying to do some in depth research online before anything. Still have some months left to figure things out and gladly it is a buyer market as you mentioned.

November 25, 2022
1:19 pm
Loonie
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I think that deciding on the term of the mortgage on the basis of projections about future rates is the wrong approach, especially in your first term. Circumstances can change quickly, and NOBODY knows what rates will be in 2 or 3 years. AltaRed believed Bank of Canada when they told us in 2021 that inflation was "temporary". Perhaps he still believes that but I don't.
I believe this decision needs to be made on the basis of personal circumstances rather than projections.
It's good that you haven't maxed yourself out in your budgeted purchase price but I don't think that justifies relying on projections.
At one of the CUs I belong to, I deal with a fellow who is a Certified Financial Planner (at no extra charge). He tells me that he regularly rates applicants for a smaller mortgage than the big banks are willing to give them. They don't like to hear this, of course, but when he goes through their budget and points out that they have little wiggle room with which to enjoy life while paying off the mortgage, they usually agree, set their sights a bit lower, and accept his offer. I think he's right.

Rates were much higher when we bought our house. It took almost ten years before we could see significant improvement in our equity. The timing will be different with lower rates perhaps, but it's wroth looking at. When you have improved your equity significantly, then you can afford to gamble more with rates. At least, that's my philosophy!

Here's another piece of free advice. You say this is your first home. Don't assume you will necessarily move on to another one. Buy something you think you can be comfortable with for the longer term. Let moving up be a real choice, not a necessity.

November 25, 2022
2:32 pm
AltaRed
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I did say "It is a personal decision though on what risk vs rate is acceptable to you" so I am certain the OP will consider and weigh the pros and cons most suitable for the OP.

Variable was the way to go for a good 10+ years when debt was dirt cheap (mortgage interest rate under 2%), and now those folks are hurting, either with most of the payment going to interest, or worse: a) negative amortization as reported in a number of articles, or b) a jump in monthly payments to cover higher interest.

November 25, 2022
5:03 pm
Save2Retire@55
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Loonie, Thank you so much. You are absolutely right. However, I am using around 30% of my investment for the 20% down payment. I never wanted to own a house due to the headache, obligations, and expenses.

Also, the approval was based on 4 months income. I had a good 15% increase this month and I am looking at changing my job which if works out (Government requires top security clearance can take min 6 months), my income can be bumped by another 30-40% but yes nobody knows. I might even lose my job which is the only stable income for this household.

I honestly, want to pay more than 20% but then I don't want to risk too much.

And true. I don't really want to change this house. It is the first but I am not a person who likes swapping. We want to just finally be done with people (owners) controlling our lives and all the stupid stress from it.

Glad you know how we do things. Yes we are travelers. We have been traveling at least 1.5 months a year and yes during that time we kept paying rent sadly.

At least by owning in a good place, we can maybe hope to rent out our house through Airbnb when we are away to make some extra money.

Yes, a house shouldn't make people to not live their lives.

Re Home Trust, it was interesting. They actually want to see the offer and MLS before giving even telling what a person can be approved for. So weird.

I never got this Home Trust and now they are being sold too. Haha

I keep searching and see what happens.

So back to the rates, do you think a 3 year fixed term is a good decision? I think 5 years is just too much to lock. I still have GICs for 3.75% maturing in 2024. We thought we got a great deal at the time but that GIC rate is now over 5%.

I don't want to repeat the same mistake but it is confusing. What do you think?

Thanks.

November 25, 2022
5:42 pm
AltaRed
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Save2Retire@55 said
I don't want to repeat the same mistake but it is confusing. What do you think?

Thanks.  

You already have 2 opinions. Loonie says "go longer" which I could interpret as ~5 year fixed while I would go 2-3 years fixed. As Loonie says, no one knows so you have to decide what is best for you.

November 25, 2022
7:52 pm
Loonie
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I hear some real anxiety and uncertainty now, and I empathize. Buying a house and taking a mortgage is scary, no question! But, then, putting up with landlords forever is also a pain and you are now finding it unacceptable.

What to do??

I don't want to give facile answers. Correct me if I'm wrong, but I think what you are looking for is safe answers, or as safe as possible? Given that you never really wanted to buy or be bothered with the nuisances of ownership, but feel you have no choice now, it seems to me you should be looking for the answers with the least risk and also the least fuss. Is that correct?
I'll wait for your answer on that before I go any further because I am still processing what I think might be best for you.

One thing that occurs to me to ask though: do you have Disability insurance apart from what the employer provides, or do you think what they provide is enough? Very important if you are the breadwinner, with or without home ownership.

I wouldn't feel badly about your existing GICs which are now sub-par. They were above par until this year, so you have made good money on them and it averages out. They will come due soon enough, and who knows what the rates will be then?

I wouldn't put too much faith in Airbnb unless you have someone local to be your troubleshooter when you're away. For someone who doesn't want the fuss of home ownership, be forewarned that renting out can create a lot of unwanted "fuss". Every so often you might get a bad tenant and wish you'd never done it. If you're going to do it, take the risks seriously and then decide. The mortgage payments you make while you're away will still count towards your house, unlike when you pay rent.

A good realtor or mortgage broker should be able to tell you how much you're "worth" in terms of mortgage and property tax payments. Yes, a lender may want more particulars now than they once did. They want to know they aren't investing in a dud - either you or the house! They weren't so fussy when we bought, several decades ago.

November 26, 2022
1:32 pm
Save2Retire@55
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" it seems to me you should be looking for the answers with the least risk and also the least fuss. Is that correct?" Yes. Exactly correct.

BUT, my wife really wants a place that we can rent a piece of it like a whole basement or Duplex kind of setup. Yes, more sudden headache but maybe it reduce the stress of mortgage payments a bit?

No, I don't have any extra insurance at all. Just what I get from work, life insurance which is 2x my annual salary and it is capped so won't cover the mortgage in case something happens to me.

I think I do need to find a realtor soon.

I hope we'll have enough money to keep traveling. You brought good points earlier and we hope we won't have to stop living to live!

November 26, 2022
9:18 pm
Pirithous
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Hi there. New to the site, but saw this topic and thought I'd add my 2-cents, for what they may be worth. I'll also admit right from the start that I skimmed through the previous posts, so if I re-litigate something, apologies.

First things first though, congrats on being able and willing to dive into the market!

1. For the mortgage term, I'll agree that it really comes down to personal preference and comfort. For our first purchase, we went 5-yr. fixed. It made it predictable for us and fit our personalities (our families also advised nothing different as that's all they'd ever done). When renewal came up I'd learned a bit more and was ready to consider variable, but personal and market circumstances changed so we went back to a 5-yr. fixed term.

2. Independent mortgage broker! For us, that was the best decision we ever made. Got a recommendation from someone at work, had a meet-and-greet to get a feel for the individual, and never looked back. Got the type of service, advice, and help we never would have gotten at any financial institution. Would highly recommend considering finding a reputable one that you'd be comfortable with.

3. We did 20% down and avoided CMHC the first time around. Didn't do the 20% the second time around as that made sense given our circumstances at the time, otherwise would have done 20% again, hands-down.

4. Tying in to #3: Both had mandatory life insurance through work. But I had both of us sign up for additional life and accident/disability coverage through a third-party provider offered through work, but independent of my employment status with that employer. It was cheap to boot too. Find something affordable, but I wouldn't skip this.

5. As mentioned, avoid having the selling realtor also be your realtor. When we were purchasing the second time around, a lot of the listings we were interested in were being represented by an agent that had been recommended to us. We decided to get a different agent, though they were from the same brokerage.

6. I'd personally avoid the headache of Airbnb and/or of being a landlord. I have family members and friends who have been or currently are landlords, and their experiences have put me off the idea for life. But, as all decisions are, it's entirely a personal one.

Best,

Pirithous

"Sometimes I do what I want to do. The rest of the time, I do what I have to."

November 26, 2022
10:02 pm
Loonie
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Well, there's no question that buying a house is stressful - and here you are!

You simply MUST: get some disability insurance NOW. I know you won't want the expense but it's just too risky not to have it. The odds of experiencing a disability (temporary or permanent) are much higher than of premature death, and you know your family is vulnerable. It's one of those things people tend to put off, I know, but you gotta do it!

You need to add the cost of disability insurance and more life insurance to your monthly expense estimate with mortgage.

The idea of buying a house with rentable quarters is, in principle at least, a good one in my view. I grew up in a 2BR bungalow with very limited space and my parents always rented out the basement. We were lucky; we always had good tenants. But you need to take a hard look at who is going to mange these tenants and any complaints they have and what you will do if they don't pay etc. You may have seen stories on the TV news lately about bad tenants in Ontario who have paid a month or two then refuse to either pay or move and it takes a year to get them out through channels available. Tenants may have rights in Quebec that they don't have here as well. If it fits your budget, perhaps you could find a house that has rental potential but you would only use it for that if you had to? - a kind of back-up plan in case something nasty happened. Or perhaps you could rent through AirBnB only at times when you are home to supervise rather than when you aren't home. If you don't have to or choose not to rent out, then it's a space you can use for the family or guests.

Yes, it's time to work on finding a realtor. Finding a good realtor can be as important as finding the right house! Ask friends an co-workers. Look for someone fluently bilingual. If an agent asks you to sign up to work exclusively with them, make sure you feel confident in them before doing so.

You will have to see what you can get for the amount you can afford to spend - including the insurances.

I may have mentioned this before (can't remember) but there is often an urge, when you buy a house to pay it off as soon as possible and to sacrifice other things in order to do this. Normally, I suggest to people that they try to do this, to get that debt out of the way. But, in your case, since travel is so important to you, maybe this should not be the goal. Rather, get something affordable. If you can rent out a basement without driving yourself crazy, fine, but maybe just have it as a back-up. Take a five year term on the mortgage so you know it isn't going to increase for at least five years - although utilities and taxes will. If you must, make compromises on what you buy or on how much you travel. I'm thinking that these first five years are the most critical and possibly most difficult. Maybe cut back on travel for just five years. In five years your children will be old enough or almost old enough that they could be left alone after school if need be if my memory is correct; and your wife could then get a more regular job or have more time to increase her income. In five years, re-evaluate.
But maybe you won't have to cut any corners. I think we don't know yet.

Another way around this, which you probably won't like, is to buy a 3BR condo. You can usually find these in older buildings somewhere. I know you want a house, but, if you can't live with the other compromises, then it might be a solution. The cost should be significantly cheaper. You will not have to worry about mowing the lawn or shovelling the snow etc while you're away. And you won't have to worry about tenants, good or bad. You'll pay it off faster. Then you can think about whether you still want to move up to a house. That said, older condos CAN be a nightmare of deferred maintenance costs, so look at it very carefully. You're going to need a lawyer. Try to find one with solid reputation in this area.
If not a condo, what about a townhouse? They too have maintenance people for common elements but I'm not sure how much they do. One advantage is lower heating costs as the units are attached. Look for an end unit to be more sure of quiet but not facing the North wind! Some townhouse complexes are full of rentals, so beware. You want to be in an area of owners.

For condos and I think townhouses, you have to add in fixed maintenance costs, but they may not be much different from the costs of maintaining your own house..

I feel sure that energy costs will continue to rise faster than inflation.

Anyway, these are some things to consider. I hope some of it is useful and that you can find a way to do it where the house doesn't own you!

November 30, 2022
9:53 am
Save2Retire@55
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@Pirithous - Thank you so much.

1. For Mortgage, I am going with online / digital brokers like Wiseday and Nesto. I am an IT guy so I like online things. Also, all my bank accounts are online (Simplii, Oaken, Meridian, Tangerine).

2. Yes, paying 20% min down payment but might go up to 35% if interest drops significantly by that much more down payment. Also considering min 2 year fixed or 3 year. Depends on the rate we get.

3. Yes, found a great broker recommended by my community FB group. He has been amazing in the past 2-3 days we started working together. Really no pushy sale trying to just sell and make $. He even discouraged us from 2 places so far.

4. My wife is so keen on having the rental income. She says NO immediately when there is no income and I like the idea of at least trying. But we might regret it or not who knows.

Will see how it goes. Thanks.

November 30, 2022
10:02 am
Save2Retire@55
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@Loonie - I already have that through work and based on current expenses it should be enough for at least 5 years to cover my family expenses in case I can't make money anymore but I will revisit once we settle & know what is what.

Renting: I'll take my time and screen the tenants properly. I think with the prices I am looking at, I can comfortably pay the mortgage myself but I LOVE to have the extra income (and my wife is saying a hard NO to anything without a potential income revenue) to cover / pay the mortgage even faster.

We are crazy savers and if I can keep my current income for 5 years and no really nasty things happen, might even be able to have a fully paid house within 5 years or like the idea of being a landlord and get another one. Who knows. We are dreaming for now LOL

Realtor is found and he is so amazing, punctual, and on top of things. No pushy or anything. He is the one saying see more until you find something. I didn't feel he wants to sell ASAP to make his commission.

You are right. We don't like the idea of "owning" but still not owning "condo fees, etc". Then have to be at the mercy of the management and how much they want to increase. Snow and grass sucks but it is part of the deal I assume.

Also, here 3 BR condos aren't cheaper than houses it seems. The newer ones are even more expensive but yes less headache more money. We are looking for Duplex or houses with basement with separate entrance, etc.

I totally appreciate every point you mentioned and YES very much helpful. I take the recommendations here seriously and also discuss with my realtor.

November 30, 2022
1:10 pm
Loonie
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Congratulations on finding a real estate broker you think you can work with! That's a significant step. It sounds like you have someone who is in the business for the long haul and will appreciate referrals from satisfied customers later.

I must have misunderstood our post above #11. I thought you had said you only had life insurance, not disability. Sorry.

I think it's the "unexpected" that can be so scary on buying a home, especially a first one. But it sounds like you have money squirrelled away for that if needed. I think you're about as well prepared as one can be.

I'm surprised the condos are as pricey as the houses, but every market is different.

I think a duplex will be a lot easier to rent out than a basement apartment, if it is financially possible. Most people dislike living in basements. But the rental market is tight right now, at least around here.
I think buying something with rental potential makes sense, but I would suggest you live in the house a little while first and see if that's what you really want if you don't "have" to. See how much of your time the house takes up and how you will mange the rental. When you have a house, there is always something in it that needs your attention!
If you buy a duplex, that pretty much commits you to renting.

I don't have anything more to add right now. Let us know how you get on.

December 1, 2022
4:28 am
Nirvana7734
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Here's another piece of free advice. You say this is your first home. Don't assume you will necessarily move on to another one. Buy something you think you can be comfortable with for the longer term. Let moving up be a real choice, not a necessity.  

I was going to say something similar to this. There is plenty of debate upon whether your first home purchase should be a starter home versus going straight to what you would consider to be your "forever home." Given that most of the proponents of the starter home approach are real estate agents makes me extremely skeptical, but, as always, it comes down to one's personal situation.

December 1, 2022
5:23 am
savemoresaveoften
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If one can afford a "forever home" from the get go, I dont see any reason to have a "starter home". That only makes the real estate agents, lawyers, home inspectors rich...

December 1, 2022
6:59 am
Bill
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That's a good point, if you can just buy one home in your life that helps financially. Our first principal residence was our only one and we've been mortgage-free since our late 20s, that helped a lot. (Come to think of it same thing for starter marriages, or starter anything for that matter, changing things up in big ways as you go through adult life costs a lot usually.)

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