First mortgage mistakes (we avoided). A dialogue.
Allegra and Cody, a young couple from Calgary share their story of buying their first house and the lessons they learned as they applied for their first mortgage. (We’ve changed the names to cooler sounding names).
“Buying our first home together is something we have been working toward for years, but no one ever dreams of their first mortgage.”
C: I’m Cody. I’m 34 and my girlfriend Allegra and I have been together for 6 years. I was working as a high school teacher and Allegra was just finishing her doctorate in Psychology. She had come to speak to my students and that’s how we met. We hit it off quickly and after about a year, she moved into my apartment. Eventually, we decided to take the next step and started looking seriously into buying a home together.
A: I was a bit nervous about making such a big financial decision. In some ways, buying a house feels like a bigger commitment than marriage. I mean, taking on a huge debt and we’re both responsible for it - I must really love this guy!
C: Yet she still won’t let me put a ring on her finger;)
A: Haha, let’s leave that discussion for later. But really, I don’t see marriage as anything more than just a piece of paper. I’m more focused on having a life partner who has the same views as me when it comes to the big money matters.
C: To be honest, I wasn’t sure if we should even buy a house. We like living close to downtown and the house prices in Calgary are expensive. A lot of our friends that have bought homes recently are complaining about rising property taxes and maintenance costs. We can’t really afford a brand new house in this area, so we would be buying something older and renovating it. I don’t know how much confidence I have in my handyman skills.
A: We love renting, we have great landlords and there are so many great places available in our area. We really thought hard about continuing to rent, and investing our down payment money in our RRSP instead. It wasn’t until we found an amazing house on our street that we changed our tune. It has so much potential. We couldn’t pass up our dream house.
C: If we hadn’t taken the step of pre-qualifying for our mortgage, we wouldn’t have been able to proceed so quickly with getting together the down payment.
A: We thought we would have to save for a long time to get the down payment together, but we ended up learning about the First Time Home Buyers’ plan as a way to use Cody’s RRSP to get money for the down payment. My RRSP was pretty small, but Cody is a natural saver, so he was able to take out the full $35,000 from his RRSP. Luckily, Cody’s sister informed us that I could take out money from my RRSP too, as it was my first time buying a home. Even though I only had $15,000 available, we withdrew it without penalty and used that money to pay off some of my extra debt. This allowed us to qualify for a larger mortgage than we initially expected when we first played around on the online mortgage calculators. I guess, in hindsight, we could have used that money to help with renovation costs too. Instead, we built the renovation amount we anticipated needing into our overall mortgage amount.
C: That made a big difference - having a qualified mortgage professional to speak to helped us understand that there are lots of different ways to qualify for a mortgage.
A: There are so many realtors and mortgage brokers advertised everywhere, but it’s hard to know who to trust. We were worried they would all try to sell us more house than we could afford.
C: To be honest, I didn’t even understand the role of the mortgage broker - not to mention why you need a lawyer. We ended up using a realtor that Allegra’s mom knew. She was so helpful and her husband was a mortgage broker. They kind of worked together. They taught us a lot about the property buying process. Actually, our realtor is the one that warned us that the Home Buyers’ Plan would only work if I had the money in my RRSP in a cash position and for over 90 days.
A: A cash position means it’s not invested in anything - it’s just in the RRSP account waiting for us to use it. That would protect us from selling the investments at a loss and it also means the process of accessing the funds is a lot smoother. Cody, do you remember what else Andy, the mortgage broker, told us?
C: I really liked how he helped us understand the documents. There were lots of steps we were unaware of - from the mortgage application all the way to the final steps with the lawyer.
A: You’re right. I mean, I had heard of variable and fixed rate mortgages, but Andy actually showed us what each option entailed, and the penalties that would result if we cancelled in either case. That gave me peace of mind, I knew what our exit strategy looked like. If he hadn’t shown this to us, I wouldn’t have known to even ask those questions!
C: Don’t forget, he also explained that we had to have our utilities switched over and our house insurance binder letter all completed prior to closing with the lawyer. I mean, who else would have explained that to us?
A: One thing I was a little confused about was mortgage protection insurance. Andy told us he is required to offer it, but I wasn’t sure if there were other options. I ended up calling my friend Omar, who sold me life insurance in my twenties. He explained that, while mortgage protection insurance can pay out in the event of a disability, critical illness or death, it would only cover the amount of the mortgage. As you pay off the mortgage balance, your insurance payments would remain the same, but the amount of payout would reduce. That’s basically free money for the insurance company! Omar was able to set Cody and I up with additional insurance that we own personally to cover the mortgage.
C: Omar also told us that mortgage protection insurance is underwritten at time of claim. That means they could find reasons to not pay out in the future - a much less secure option in my opinion.
A: Yeah, Cody is more conservative when it comes to financial decision making. He likes knowing his options and avoiding risk. I’m a bit more of a “jump in with both feet” kind of girl - I don’t always think of these details.
A: Very true - my mom and dad would be more focused on setting up our garden than giving us advice on our mortgage. Actually, don’t forget, your mom told us we have to get our wills set up now, to make sure we plan what will happen to the house and our belongings.
C: And the joys of home ownership continue!
Do you have a first time mortgage question or lesson to share? We want to hear from you, comment below!