Practical advice for first-home buyers

Practical advice for first-home buyers

Major banks have boosted their prime lending rates to 3.2%, following a move by the central bank on September 6 to raise its trendsetting rate for the second time this year.

There is speculation that a third increase may occur before the end of this year due to the strong performance of the economy.

But Birgit Holm, an award-winning mortgage consultant with Mortgage Alliance, has been busy reassuring her clients who’re worried about the Bank of Canada’s interest rate hikes.

Holm has been a broker for 13 years and understands the positive underlying reason why interest rates are going up after having stayed at historic lows for so many years.

“The economy is improving. So I tell my clients the fact that rates are going up is a good sign,” she told the Georgia Straight in a phone interview.

“When I started, rates were in the five-percent range,” Holm said. “Now they’re a lot lower, and they’re creeping up again and people think, ‘Oh no. They’re so high,’ and I say, ‘No, they’re not high. It’s still really low.’”

For those looking to purchase their first home, Holm suggests building a long-term relationship with a reputable and experienced mortgage broker who can guide them through such things as paying down mortgage debt and improving credit.

The best way to avoid trouble with mortgage payments would be to plan for the long term.

“Work with an experienced mortgage broker who will help you plan for the long- term. Maybe set you up in a mortgage with a 30-year amortization, but pay as though it is at 25 years. If you come into tough times, you can always go back to the smaller payments,” she said.

Holm stressed the importance of having a budget in place. “Plan to make extra payments annually that will go directly towards your principal. Know in advance what the possible penalty could be for breaking the mortgage. Sometimes those ‘low-rate specials’ have extra costs in the fine print, such as hefty penalties. Lowest rate is often not the best choice.”

She also advises first-home borrowers to take advantage of prepayment options. “Set your payments to the highest amount comfortable for you. Make at least two extra lump-sum payments per year. Make use of those prepayment options. Ask your broker what the prepayment allowance is.”

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