Is it finally time to invest in property? You should know that buying a house often involves obtaining a mortgage loan. This loan commits you to making monthly payments over a long period of time, which is why it is important to take out insurance that will reimburse the loan in the event of an accident or serious illness.
Mortgage life insurance is generally calculated according to the balance of your loan, the amortization period, the interest rate, and the number of people to be covered. So, without further ado, let’s dive into this blog and learn some of the most useful things to know about mortgage life insurance!
1. Calculate your maximum repayment capacity
Any lender will be required by law to advise you. It is surprising that this is a new piece of legislation, as the notion of advice may have seemed obvious… but until now, many credit intermediaries have been unscrupulous in this area. Since April 1, the law has stipulated that lenders must choose the one that best suits the client in terms of type and amount from the range of credits they offer. They could also be held liable if it turns out later that their advice was wrong.
However, to avoid this, it is better to be cautious by calculating how much you will be able to pay back each month. We suggest the following formula: do not exceed 80% of the sum of what your household can save each month and the rent you are currently paying (if it is a purchase for personal use). This will give you a margin of safety in case of a hard blow, a rise in the cost of living, an expansion of the family, etc.
2. Ask for the information sheet
When you first visit the various mortgage companies, ask for a detailed, no-obligation offer. Since April 1, lenders have been obliged to provide what is called the ESIS. This information sheet must include all the essential characteristics of the loan requested, including the annual percentage rate of charge (APR) and the monthly payment.
Moreover, it must have the same appearance everywhere, making it easier to compare the different offers. Even if some banks may delay the delivery of this document (they have until the delivery of the credit offer to give it), it is advisable to insist on receiving it to carry out your investigations… the sooner, the better.
3. Don’t just rely on the APR
With the passage of the legislation, a lender will no longer be able to simply state the mortgage’s interest rate. They will also have to advertise the APR, the annual percentage rate of charge. In addition to the rate of the loan, this also includes all the other costs in the context of this loan: file fees, intermediary’s commission, possible registration fees of the mortgage at the notary, costs for the obligatory additional products to obtain the loan, etc.
The lender will have to convert the different costs into a percentage to obtain the final result. As with the ESIS form, the purpose of the APR is commendable since it allows you to compare offers. However, it is better not to blindly go for the lowest APR, as several elements can contradict this figure or hide certain costs:
- A variable-rate loan will always have a lower APR than a fixed-rate loan, but it may increase after a while.
- A low APR can be explained in some cases by the low price of ancillary products … which should not rhyme with poor quality. It is better to check before committing yourself.
- Non-mandatory additional costs can also explain a low APR. Since this product is not part of the mandatory package, the related fees should not be included in the APR… but a clever salesman may be able to convince you to take them nevertheless.
In the end, a 3% APR could be more interesting than a 2% one if the first one includes interesting insurance while the second one is linked to expensive non-mandatory insurance. It is advisable to be wary and make a series of calculations, including the sum of ALL the expenses and future payments, in dollars this time, to be able to compare the options offered to you.
Looking for help?
Are you in Ontario? Are you looking for experts in mortgages, refinancing, leasing, or loans? Nominated in the Top 75 Broker in Canada 5 years consecutively (2013-2018), DLC Estate Mortgages INC. delivers top-quality services designed to meet the needs of commercial clients and private individuals.
Their services include mortgages, refinances, renewals, leasing, loans, and more. We are committed to facilitating the process quickly, efficiently, and confidentially. They serve throughout Toronto. So, what are you waiting for? Give them a call today and make all your dreams become a reality with the help of their team of experts.
[…] Sound off in the comments section below, and tell us what you want to read next and if you want to read more about real estate loans. […]
[…] speaking, banks offer students relatively advantageous conditions. But here again, the profile is decisive. […]