The Downtown Toronto condo market has slightly slowed due to the global pandemic. With vaccines around the corner and the approaching end to work from home, some sideline buyers are finding the opportunity to get into the market with favourable conditions. If you have been working diligently to save for a down payment, this may be an ideal time to take a look at what you can afford and the best financing options available. Record low interest rates make it very attractive for buyers and it has also increased the purchasing power in terms of affordability. You may be surprised to learn that not every lender is the same and that there are different products that fit different needs. Finding which mortgage package is the best for you and your goals is an important part of getting started in the condo buying process.
The first dilemma condo buyers face is whether to go with a mortgage broker or a bank (and which one) and how and where to find the best rates. Here are a few tips on how to approach the financial aspect as a Toronto condo buyer.
Shop for a lender like you shop for a condo
As a long-term customer, you may get some loyalty points and privileges if you go with your bank, but this is only great if the bank also offers some of the most competitive mortgage deals for you, which is not always the case. The interest rates, perks, processing fees, etc., vary from bank to bank, so you should visit several banks and compare what they offer until you find the best fit for you. Make sure to check if there are any hidden fees.
Many Downtown Toronto condo buyers also turn to mortgage brokers for a more individual approach and a bigger variety of choice (i.e. offers from 40 or 50 lenders), which comes in pretty handy for condo buyers who want to learn more about the mortgage process. The advantage of using a mortgage broker is that they work with banks and shop around for you. Often they can get a discount for their clients. It is important to use a referred mortgage broker that has a proven track record for customer service.
Which option works better for you depends on your financial situation and your needs, but a good start is to calculate all costs included in the process, not just the mortgage rates (like the broker’s fee, bank’s mortgage processing fees, any perks, etc.) to be 100% sure which deal is best for you.
Get a mortgage pre-approval to understand your eligibility
When it comes to the pre-approval, it may not be mandatory, but it’s certainly helpful, especially when shopping for a condo in Downtown Toronto. For more than a decade, sellers have had the edge in the market. For the first time, buyers now have a chance to negotiate but having a pre-approval gives strength in negotiating power and shows your seriousness and readiness to purchase. It is important to note that the pre-approved amount may not match the subsequent real mortgage amount, but it still gives you a price framework to work with. To avoid any misunderstandings, provide the lender with as accurate information as possible regarding your income, e.g., if you receive any bonuses, commissions or if you expect a promotion, etc.
The loan amount should not stretch you too thin
The lender will offer you the maximum you qualify for, but perhaps, you don’t want to max out the amount. You probably still want to be able to afford vacations or occasional splurges and not stretch your finances too thin. With a lower mortgage or longer amortization, you will be able to maintain your lifestyle. Make sure to precisely calculate how much you will have to give up in favour of the mortgage and if you are 100% OK with the monthly payments.
Rates, terms and amortization
With record low rates, Downtown Toronto condo buyers are now preferring to lock in a low fixed interest rate as they don’t want to take unnecessary risks that are typically associated with the variable interest rate (volatile market conditions). The fixed rate gives a sense of stability, and the ability to forecast future payments.
It is also common that Toronto condo buyers opt for a pretty standard 5-year term for a mortgage. I find that this is a good time frame when planning on life changes. After 5 years, before renewing your mortgage, it is important to reflect on your needs as they may have evolved over the years. It is also possible that another lender is better fit for your existing situation, so it is important to re-evaluate your finances with every mortgage renewal.
Buying a condo requires a solid financial plan that will help you buy a property without breaking the bank. When it comes to the Downtown Toronto real estate market, I have helped many first time buyers and veteran buyers get the property of their dreams. I am always available to help you in every step of the process and even have great mortgage broker referrals to get you started!
If you are looking for a Downtown Toronto condo or want to know more about currently available Toronto listing and prices, contact Reza Afshar here.