Pro Tips: Mortgage Myth Busting

A home is one of the most expensive purchases most of us will make in our lives. Combine that knowledge with Yorkton’s rising real estate prices, the need to save for a down payment, and the legwork of finding the lowest mortgage rate out there - buying a home can easily become the most stressful purchase of our lives.

This is why it’s important to not lose sleep worrying about things that aren’t true. Considering all of the long-standing myths and recent misinformation (or sensationalized information) surounding real estate, we’re here to debunk some of the most common mortgage myths:

Myth 1: 20% Down Payment

Survey data from the National Assocation of Realtors (NAR) show that 35% of people still believe a down payment of 16%-20% is needed to purchase a home *. In reality, the typical down payment is much lower. For first-time home buyers, the average down payment (over the last three years) has ranged 6%-7%. The typical downpayment for repeat buyers was 17% last year, since these homeowners use the equity from their previous home to purchase their next home. Additionally, these smaller percentages have been the trend since the late ‘80s:

Myth 2: Max Amortization Time is 25 Years

25 years is the maximum amortization time for an insured mortgage in Canada. An insured mortgage means you’ve made a down payment of 20% or higher. An uninsured mortgage (down payment of less than 20%) can have an amortization on the mortgage for up to 30 years. A longer mortgage reduces your monthly payment which will help with your cash flow, but it also increases the amount of interest you will pay over the life of your mortgage.

Myth 3: Being Pre-Approved Guarantees You a Mortgage

A pre-approval is only one step in the process of securing a mortgage. During a pre-approval, a bank looks closely at your finances to decide the maximum size of a mortgage you qualify for, and at what interest rate. It’ll also estimate your monthly mortgage payment. But, being pre-approved doesn’t guarantee you’ll receive that maximum amount. The value of the home you intend to purchase and the amount of your down payment are other factors a lender will look at when deciding how much to lend you.

Myth 4: It’s Best to Wait Until Spring to Purchase

There is a rise in market activity when the snow melts, but it isn’t because that’s when mortgage rates are the lowest...it’s when the weather warms and people become active outside again. It’s easier to move when there’s no snow on the ground. Also, we want to mention the recent rise in mortgage rates. If you’re waiting for them to go down, you may be waiting a while. While the pandemic certainly reduced rates, it wasn’t the only contributing factor. There are many factors that affect mortgage rates, and so it’s better to view rates in their full context - historically (See ^Fig 2). The best time to make your move is the time that works best for you, regardless of season and rate trends.

* Sourced from the NAR 2021 survey, Profile of Home Buyers and Sellers, including Fig 1. ^Fig 2 sourced from ratehub.ca, 5 Year Fixed Mortgage Rate History.