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Mortgage myth busters to boost your financial IQ

Congratulations. You’re finally able to afford that mortgage for the house of your dreams, and you’re ready to start your search for the perfect home and the right mortgage to match. But mortgages aren’t necessarily simple, and there is more than enough contradictory information out there about financing your home.

It can get confusing, so we’ve rounded up some of the most common mortgage myths to debunk for you. Along the way, you’ll learn a few smart tricks for getting in that new home sooner.

Myth #1 – Paying down your mortgage should always be your primary financial goal.

  • If you have credit cards, lines of credit or other personal debt that is carrying a higher interest rate than your mortgage, that is where the money should be going first. Ultimately, being free of a mortgage makes sense for everyone, but it really depends on individual circumstances and what else is on the financial burner. If you aren’t sure how to prioritize, talk to your financial planner.

Myth #2 – Paying the penalty to get out of your mortgage is too expensive to be of benefit.

  • Often people think that if there is a penalty to get out of their term (and there almost always is), that they should, or need, to wait until it matures to do so.
  • It’s all in the math. Often, in the long run, it’s actually going to be cheaper to pay the penalty and take a new, lower rate. The money you’ll save by decreasing your mortgage rate is greater than the penalty that you pay to get out of your current terms.
  • While this isn’t applicable for everyone, it’s certainly something you’ll want to talk to your financial planner about to assess whether paying the penalty would be something that could work to your advantage.

Myth #3 – To get a lower rate I have to pay to get out of my current terms.

  • Technically to take on a whole new rate, you do have to pay a penalty. But you can take advantage of a lower rate without having to pay the penalty by doing something called ‘blend and extend’. This allows you to blend your existing rate with the current lower rate, which leaves you with a lower rate and no penalty.

Myth #4 – If you don’t have 25% down, don’t bother.

  • With a high-ratio mortgage you actually only need 5%. Those mortgages do require insurance, and that comes with a few unavoidable expenses. But as long as you have the 5% for the down payment, you should be good to get things going.
  • Our circumstances change, and that poor decision you made in university doesn’t necessarily tell your lender anything about you and your current set of circumstances. Generally speaking, you need a year and a half of sound credit in advance of being approved for financing.
  • If you find that you are having trouble building good credit, consider applying for an RRSP loan. It is easier to get than other loans (like a car loan) and will help you in the future when you’re able to borrow from that RRSP to buy your first home.
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Coast Capital Savings Federal Credit Union provides advice and service related to deposit, loan and mortgage products.  Only deposits held in Canadian currency, having a term of five years or less and payable in Canada are eligible to be insured under the Canada Deposit Insurance Corporation Act.  Coast Capital Wealth Management Ltd provides investment and financial planning services. Coast Capital Financial Management Ltd. provides advice and service related to segregated funds, annuities and life insurance products. Worldsource Financial Management Inc. provides advice and service relating to mutual funds. Mutual fund values change frequently and past performance may not be repeated. Commissions, trailing commissions, management fees and expenses may all be related with mutual fund investments. Important information about mutual funds is contained in the relevant fund facts and simplified prospectus. Please read the fund facts carefully before investing.