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The advantage of plannig ahead
Buying a property requires good knowledge of
market conditions, personal finances as well as
the ability to judge what is a good investment. Equally
important is being in a position to negotiate realistically
when you do decide to make an offer. That comes of doing
as much up-front thinking and preparation as you can
before you are actually in the position of preparing a formal
offer to purchase.
Market conditions
Look at the long-range prospects of your borrowing
commitment. For instance, in a period of low interest
rates, you should take into consideration whether or
not prices are expected to increase in the future. In that
case, you may want to seriously consider locking in at a
reasonable rate for the opportunity of considerable gain
in the future.
How Much Can You Afford?
Before you go into the market to look for a house, review
your current spending and loan commitments. A mortgage
lender will use a ration of about 30% of gross income as
the amount of mortgage you can carry. You will have a
good idea of your own capacity if you review your finances
beforehand. Property tax is an additional cost that must be
factored into the equation. Having settled on a price range
for your prospective house purchase, the next step may be
locking in a mortgage interest rate with a pre-approved
mortgage. Knowing that you already have your mortgage
arranged can increase your comfort level at the negotiating
table. To arrange a pre-approved mortgage, you meet with a
lender who will confirm your borrowing capacity, perform the
required credit review and make an agreement to honour a
particular interest rate for a specified time.
Existing Mortgage
If there is an existing mortgage on a property you are
selling or on one you are looking at, there is more to
consider than simply the balance outstanding and the
interest rate. You should know, before you get into negotiations,
whether or not the mortgage is assumable by the purchaser
or is it due upon the sale. If it is assumable, must the new
purchaser qualify in order to take it over and what is involved
in doing that?
Be aware, as well, of any pre-payment terms. If your mortgage
is open, of course, you can repay it at any time without penalty.
However, a mortgager may have "lock-in" clauses. These may
include payment of a bonus or the lender's interest revenue loss
for the balance of the term should you repay early. You should
clarify all this with your lender.
Portability
A very popular feature now is mortgage portability. That means
that you can transfer your existing interest rate, loan balance
and remaining term to a new mortgage without penalty although
there may be some restrictions. Be sure you understand what
they are before you get into negotiations.
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