Mortgage questions for first time home buying.

[Lawrence Ng]

Hi everyone,

Don't know where to really throw this post but I figure this would be a good place. I'm buying my first place soon and am pretty excited. I was wondering what type of a mortgage is the best type of mortgage to get right now?

Also, should I go through a mortgage broker? I hear the banks are brutal.

Finally, should I make monthly mortgage payments or bi-weekly?

Thanks guys,

Lawrence

[midas]

Where are you located?

[Sniper]

[ QUOTE ]
Finally, should I make monthly mortgage payments or bi-weekly?

[/ QUOTE ]

With bi-weekly payments, you will effectively be making 13 (actually 26 half size) rather than 12 payments per year. This will dramatically reduce the total amount of interest you pay on the mortgage over the lifetime of the loan. You will also pay off the mortgage much sooner.

[Lawrence Ng]

[ QUOTE ]
Where are you located?

[/ QUOTE ]

Vancouver BC.

Lawrence

[joda mas]

Unless you plan to stay in the house a long time, you should probably go for an adjustable rate mortgage.

I've always gone with a broker. I got my current mortgage on mortgage.com. I like them because they use the one-fee system so there are no surprises when it comes to the fees. They also come to you for signing. Very easy. Not sure about in Canada, though.

[eastbay]

[ QUOTE ]
[ QUOTE ]
Finally, should I make monthly mortgage payments or bi-weekly?

[/ QUOTE ]

With bi-weekly payments, you will effectively be making 13 (actually 26 half size) rather than 12 payments per year. This will dramatically reduce the total amount of interest you pay on the mortgage over the lifetime of the loan. You will also pay off the mortgage much sooner.

[/ QUOTE ]

Just don't pay for this "service." Make the extra payments yourself if you are interested in pre-paying the loan.

eastbay

[MrMon]

Amen. I had a mortgage once with the company from hell who kept offering the biweekly payment for a $395 set-up fee, plus a $5 processing fee each payment. I think it was a good deal for them.

When I bought my first house 8 years ago, I used a broker and got good results, though the loan was sold a number of times in two years. Next time I went back, broker was good, but the lender from hell was horrible. (Mysteriously, payments sent 10 days in advance were always "late". After tracking the delivery, I finally realized that they were processing the payments in some 3rd world country and counting that processing time against me.) Time to refinance and the broker insisted that was still the best deal. I then had realized it was the best deal for them. Your mileage may vary.

Instead of a broker, if you have really good credit, try a lender who specializes in people with good credit. In the U.S., Coldwell Banker Mortgage/Cendant Mortgage will give great rates to those with perfect credit, they're really hard to beat if they'll take you on. I think the Canadian affiliate is Mortgage Alliance, but look around for similar situations.

A good real estate person can also lead you easy to work with lenders, regardless of your financial situation. (I should know, I'm a real estate agent and direct people all the time. They don't always listen, but I'll give them my best advice.)

Finally, ARM. Definitely. If this is your first house, odds are, you won't be there in 7 years. 5 or 7 year ARM is the most common mortgage with my first time clients right now. Fixed is very, very rare.

[Lawrence Ng]

Thank you for all the great tips guys! /images/graemlins/laugh.gif

Lawrence

[squiffy]

It depends.

In the Book of Five Rings, Miyamoto Musashi says that whether it is better to use a long sword or a short sword, depends on the amount of space available where you are fighting. If you are fighting in a small room a short sword has an advantage, in an open space, the long sword has freedom of movement and a longer reach. Though a sword that is too long and too heavy, might be hard to wield quickly.

In chess, the knight tends to have an advantage in closed locked positions and the bishop tends to be stronger in wide open positions.

With mortgages, as some others have pointed out, your holding period determines which mortgage you should choose. If you will only stay in the home a short time before selling, then an ARM may get you the cheapest interest rate for that period. BUt if you plan to stay in the home for 30-50 years, a fixed mortage might lock in the cheapest rate.

5% and 6% are the cheapest rates in 40 years. Why would you not lock that rate in.

When gas was selling for $1 a gallon, it would have been nice to be able to lock in that price for 30 years.

Given that real estate transactions costs are high, the person who buys a home and stays in it for a long period of time, might tend to do better than one who repeatedly buys and sells the same-sized home.

Remember, every time you sell, you may have to pay a 5% commission, you have to pay moving costs, you incur stress, and you may have to pay taxes, depending on your situation.

Stocks used to be more expensive to trade. So people tried to buy and hold to avoid taxes and trading costs. Now that you can trade shares for pennies per share, you can trade in and out more, over the short term, without paying as high a penalty.

With real estate, the penalty for short-term trading is high. So, in general, you want to buy and sell less frequently, rather than more more frequently.

The higher the trading and taxation costs, the longer your holding period should generally be.

If every time you sell, you lose 10% of your equity. You want to be careful not to buy and sell too much. And remember, you can be wrong about your timing. If you sell at the wrong time and the land goes up in value 30%, you have left money on the table. On the contrary, if you hold and the land drops in value 50% and never recovers, this sucks.