Five mortgage myths debunked
With so much misinformation floating around about mortgages, it’s time to set the record straight
A home is the most expensive purchase most of us will ever make. Combine that with the city’s rising real estate prices, the need to save for a down payment, and all the work involved in finding the lowest mortgage rate, and buying a home can also become one of the most stressful purchases we’ll ever make.
“That’s why it’s important not to lose sleep over worrying about things that aren’t even true,” says Barry Gollom, Senior Vice-President of Products and Customer Experience at HSBC Bank Canada. Considering all of the misinformation floating around about buying a home, we asked HSBC to help us debunk some of the most common mortgage myths.
Myth No. 1: You need to make a down payment of at least 20% to secure a mortgage.
“A 20% down payment is required on homes valued at more than $1 million, but the lower the sale price the lower the down payment you’ll need,” says Barry Gollom. The minimum down payment for a house priced from $500,000 to $999,999 requires a 5% down payment on the first $500,000 and then 10% based on the remaining amount. A house priced less than $500,000 requires as little as a 5% down payment.
Myth No. 2: The maximum amortization time for a mortgage is 25 years.
While it’s true that 25 years is the maximum amortization time for an insured mortgage in Canada, uninsured homebuyers—those who make a minimum down payment of at least 20%—can have an amortization on their mortgage for up to 30 years. A longer mortgage reduces your monthly payment which will help with your cash flow, but it also increases the amount of interest you will pay over the life of the mortgage.
Myth No. 3: Pre-qualification and pre-approval are the same thing.
Mortgage pre-qualification is a preliminary step in buying a home that comes before pre-approval. “Pre-qualification at HSBC is a simple process that involves supplying us with your income, debt, and asset information” Barry Gollom says. “This allows us to talk to you about what interest rates to expect so you can estimate what your monthly mortgage payments might be.” The pre-approval stage involves a more detailed look into your finances. During this time, your lender will decide the maximum size of a mortgage you qualify for and at what interest rate. While pre-qualification can be done over the phone, pre-approval is a formal process that requires more official documentation, such as your credit rating.
Myth No. 4: Being pre-approved guarantees you’ll get a mortgage.
A pre-approval is only one step in the process of securing a mortgage. As mentioned above, during a pre-approval, a bank will look closely at your finances to decide the maximum size of a mortgage you qualify for and at what interest rate. It will also estimate your monthly mortgage payment. But being pre-approved doesn’t guarantee you’ll receive that maximum amount. The value of the home you intend to purchase and the amount of your down payment are other factors a lender will look at when deciding how much, if anything, to lend you.
Myth No. 5: It’s always best to wait until the spring to purchase a home.
“It’s true, we generally do see a bump in mortgage activity starting in March and continuing throughout the summer,” says Barry Gollom. “But that’s not because that’s when rates are the lowest; that’s when the weather’s warmest. It’s easier to look for a home or put a home up for sale in May than it is in January.”
“While the busiest time is during our spring and summer seasons, the best time to move is the time that’s best for you, regardless of the season” Barry Gollom says. “When you’re ready, you’ll find us ready to offer you some of the lowest rates in Canada.” HSBC even gives you the time you need to look around and compare rates by offering a mortgage rate guarantee for 120 days.
Buying a home is definitely stressful. So it’s good to know we can reduce some of that stress—especially when it comes to taking out a mortgage—with help from a partner like HSBC.
To find out more about how HSBC can help you mortgage a home, visit hsbc.ca/mortgages.