There are many common misconceptions about mortgages when moving. Here are 5 common mortgage myths along with the true reality of it:
1. Myth : To get a mortgage, your credit score must be perfect.
Reality: High credit scores are certainly beneficial, but a perfect credit score is not required to qualify for a mortgage. A lender may take into account a variety of factors, including income, employment stability, and debt-to-income ratio. Even with a less-than-perfect credit score, you may still be able to secure a mortgage, although you may face higher interest rates or stricter terms.
2. Myth: You must have a large down payment to buy a home.
Reality: It is true that a larger down payment can provide advantages, such as lower monthly mortgage payments and avoiding private mortgage insurance (PMI). However, there are mortgage options available that require a lower down payment. These options include Canadian Mortgage and Housing Corporation (CMHC) insured mortgages or programs specifically designed for first-time homebuyers. It's critical to explore different options and consult with mortgage professionals to find the best solution for your situation.
3. Myth: You can't qualify for a mortgage if you're self-employed.
Reality: Self-employment can make qualifying for a mortgage more difficult, but it is still possible. Self-employed individuals typically need to provide additional documentation, such as tax returns, financial statements, and proof of income. Working with a mortgage broker who specializes in self-employed individuals who can help navigate the process and find suitable lenders.
4. Myth: You should always choose the mortgage with the lowest interest rate.
Reality: While the interest rate is an important factor, it shouldn't be the sole determining factor when choosing a mortgage. Other aspects to consider include the type of mortgage (fixed-rate vs. adjustable-rate), loan term, prepayment penalties, and overall fees. It's crucial to evaluate the entire mortgage package and consider your long-term financial goals before making a decision.
5. Myth: Switching lenders will always save you money.
Reality: While switching lenders can potentially save you money by obtaining a lower interest rate or more favourable terms, it's critical to consider the costs associated with refinancing. There may be penalties for breaking your existing mortgage contract, as well as legal fees, appraisal costs, and other expenses. It's suggested doing a thorough cost-benefit analysis and consult with a mortgage professional to determine if switching lenders is financially better in your given situation.