Understanding the Home Buying Process

Mortgage basics: closing costs

When buying your first home, you'll want to avoid costly, last minute surprises. That's why it's important to understand your closing costs, and plan for them accordingly. Closing costs are all the costs you will have to pay on the day you take possession of your new home. These costs can include:

+ Applicable Provincial and Municipal Land Transfer Taxes Tip: If you're a first-time buyer you may be eligible for a rebate of all or part of the tax payable

+ Legal fees

+ Adjustments to cover property taxes or utilities the seller may have prepaid

+ Moving costs - whether it's renting a truck or hiring movers to do it all

And if you're buying a newly built house or a condo there may be some additional costs to plan for. In general, you can expect that closing costs will be up to 4% of the purchase price of your home. That's something you'll definitely want to plan for, and one great way to get ready is to set up automatic transfers to a dedicated savings account. Even a small amount every week can add up quickly, and then when it's time for closing, you'll be prepared.

While you're planning for your new home costs, it's also a good time to take note of the other things you'll need to pay for right away. For example, do you need window coverings, or a lawn mower? Do you know the condition of your furnace and appliances? And are you planning on pulling up the orange shag carpet from the family room before you move in?

Having dedicated savings earmarked for closing costs, including an emergency fund, is a great way to be prepared. So even if you ARE surprised, you'll be able handle it.

Talk to an RBC mortgage specialist today to learn more.

Protect your mortgage with insurance

Your home. It's where you relax, entertain, build memories and live your everyday life. Have you thought about protecting all you've achieved in case the unexpected happens? Having insurance on your mortgage can provide a financial safety net when you and your family need it most. HomeProtector insurance from RBC Royal Bank let's you choose from three different coverage options. You can combine critical illness coverage with life insurance. Should you suffer a stroke, heart attack, or be diagnosed with a life-threatening cancer critical illness coverage pays a lump sum to the outstanding balance of your mortgage, up to a maximum of $300,000. Or you can chose to combine disability insurance with your life coverage. Disability insurance is designed to help protect your cash flow should you suffer an illness or injury and be unable to work. It can maintain your regular mortgage payments to a maximum of $3000 per month for up to 24 months - so you can concentrate on your recovery, instead of worrying about keeping up with your mortgage payments. You can also opt for life insurance coverage only. Should you pass away, the life coverage pays off or reduces the outstanding balance of your mortgage, up to a maximum of $750,000 - helping to reduce your family's financial burden. Your home is likely the biggest purchase you'll make in your life - and you worked hard to buy it. During what could be a difficult time for you or your family, HomeProtector insurance can protect your home, your family and your lifestyle - allowing you and your family to focus your energies on caring for each other. Applying is fast and easy. Speak with your RBC mortgage specialist today, call us at 1-800-769-2523 or visit a branch near you.

Stephanie - Mobile Mortgage Specialist

Buying a home is one of the biggest investments you'll make in your life. And one of the things that you need to consider is the cost of closing the property. The closing costs are the list of costs that the lawyer presents to you at closing. And it's really important that you know what they are because you don't want to be left with a surprise. The main closing costs when you're closing a home include such things as land transfer tax, the legal fees and also there are taxes on the high ratio insurance premium that you may have to consider if you have put less than 20% down payment. One of the main things that clients will not know up front are the adjustments. These are costs that the vendor has prepaid such as property taxes and the utilities. When purchasing a newly constructed home from a builder, there are other costs to consider such as the new home warranty. And there are other costs built into the offer such as driveway paving or tree planting and these can vary from offer to offer and from builder to builder. It's very important to read the offer carefully so that you're not surprised when you're going to close the home and there are other costs that you haven't put into consideration.

Mortgage Basics: Fixed or Variable

When it comes to mortgage rate types, you have two main choices: fixed rate and variable rate. With a fixed rate mortgage, your interest rate is locked in - or fixed - for the term of your mortgage and your payment amount will stay the same for the entire term. Because the interest rate does not change throughout the term you know in advance the amount of interest you will pay and how much you will owe at the end of your term. With a variable rate mortgage, the interest rate will fluctuate with the prime rate set by your bank. A variable rate will be quoted as prime plus or minus a certain amount. Your payments will still stay the same for the entire term, but if interest rates go down, more of your payment will go towards paying down the principal. If they go up, more of your payment goes to paying interest. Because the interest rate changes throughout the term, it is not possible to know in advance how much interest you will pay and how much principal you will owe at the end of the term. It's also important to be aware that your regular mortgage payment may be adjusted if the amount of your variable payment is not enough to cover the monthly interest on your principal. And you can convert your variable rate closed mortgage to a fixed rate closed mortgage that has a term equal to or longer than the remaining term of your existing mortgage at any time during your term -- without additional cost. For most people, the type of rate selected often depends on their comfort level with risk and their expectation as to whether rates will increase or decrease over their mortgage term. Fixed rate mortgages are a good choice if you expect interest rates to rise during the term and you want to lock in a lower interest rate now. Variable rates are good if you are confident that interest rates will remain stable or that the average of the variable interest rate over your term will be lower than the fixed rate you would have paid. Some people prefer the potential money-saving opportunities that may come with variable rates, while others want the stability of a fixed rate. Talk to your RBC mortgage specialist for personal advice about the best mortgage rate type for you.

Understanding Amortization

When you apply for a mortgage, you1ll need to decide how long your amortization period will be - this is the number of years it will take you to pay off your mortgage in full. If your down payment is 20% of the purchase price of the property or more, you can choose up to a 30-year amortization. If you are putting down less than 20%, the maximum allowable amortization period drops to 25 years - and you'll also need mortgage default insurance. You can consider a shorter amortization if your goal is to pay off your mortgage faster. With a shorter amortization you'll save money because you'll pay less interest over the life of the mortgage. The trade-off here is that your regular mortgage payment will be higher. On the other hand, with a longer amortization, your payments will be lower, but it will take longer to pay off your mortgage, and your total interest expense will be greater. It really comes down to balancing what you're comfortable with from a payment perspective with what your goal is for the amount of time it will take to pay your mortgage off. Here's an example: A mortgage of $200,000 at an average fixed rate of 5%, and a 30-year amortization, will have a $1,067 monthly payment, and you will pay $184,253 in interest over the 30-year period. If you shrink your amortization period to 25 years, your monthly payment is higher at $1,163, but your total interest expense will shrink to $148,962 - you'll be saving $35,291. You may choose a 25 or 30-year amortization to start with, but it's a good idea to take advantage of prepayment options that allow you to pay off your mortgage faster. Even a few small changes can make a big difference in the amount of time it takes to pay off your mortgage and the amount you pay in interest. A few options to consider are: increasing your regular payment amount, choosing an accelerated payment frequency, or making annual lump sum payments. All of the extra funds will go towards reducing your principal so you'll be mortgage free faster. Every bit helps - because let's face it, nobody wants to be paying a mortgage forever. To find the best solution for you, talk to an RBC Mortgage Specialist today.

Final summary points � (no VO)

* Things to remember about amortization:
* Longer amortization = a lower regular payment
* Shorter amortization = a higher regular payment but less interest expense over the life of your mortgage
* Increasing your payment amount or payment frequency, or making lump sum payments are great ways to shorten your amortization period, whichever choice you initially make.

Jennifer - Branch Manager

When it comes to mortgage interest rates, it's not always easy to know what to do. Rates are currently at, or near, historic lows - so what does that mean? Do you choose a fixed rate mortgage or variable rate mortgage? To figure it out, it's good to understand the benefits of both.

With a fixed rate, your interest rate will not increase during the term you have selected. But remember, you won't be able to take advantage of any decline in rates that may occur until the end of your fixed rate term.

A variable rate mortgage fluctuates with the prime rate. The advantage of a variable rate is that it is usually one of the lowest mortgage rates offered - meaning you may save money now and if the Prime Rate falls. Keep in mind though that, if prime rate rises then your interest rate will also rise -which could increase your interest costs over the life of your mortgage and lengthen the amortization of your mortgage. Some good news - in most circumstances you can lock your variable rate mortgage into a fixed rate mortgage at any time within your mortgage term. Still can't decide? Fixed? Variable?

A third option is the RBC Homeline Plan - a home equity product which allows you to choose both fixed and variable rates. Similar to diversifying your investment portfolio, you can benefit in any interest rate environment. When interest rates are on the rise, the fixed rate portion of your plan will provide savings and stability. When interest rates are decreasing, the variable interest rate portion of your mortgage will decrease, saving you interest. And the percentage that you split between fixed and variable is up to you. Talk with one of our mortgage specialists today to discuss the benefits of fixed, variable or how the RBC Homeline Plan can help you benefit in any interest rate environment.

Mortgage Basics: All About Rates

When you're buying your first home, you're likely focused on the price of the property and getting the biggest down payment together. But your mortgage rate is another factor that can have a big impact on your monthly mortgage costs. Rates will vary depending on the length of your mortgage term and the type of mortgage you select.

The term is the length of time you agree to a specific interest rate and payment amount. Mortgage terms range from 6 months to 25 years, and generally move up or down in relation to the term length chosen. A 1-year term will typically have a lower interest rate than a 5 or 10-year term, so you need to think about the rate and term combination that you're most comfortable with.

The mortgage type is the other important factor to consider - specifically, whether you want a fixed rate or a variable rate? With a fixed rate, your interest rate is locked in for the term of your mortgage -- and you will know exactly how much of your payment is going to principal and to interest. With a variable rate the interest will change with the prime rate set by your bank but your regular payment will stay the same during the term -- it won't be possible to know in advance how much interest you will pay and the principal amount you will owe at the end of the term.

No matter which mortgage type you choose, it's important to remember that rates can go up, and even a percentage or two can make a difference to your payments. For example, say you have a $200,000 mortgage, a 25-year amortization period and a fixed-rate, 5-year term. At 5%, your monthly mortgage payment will be $1,163. But say after the 5 years is up, the going rate is 6% - that takes your mortgage payment to $1,261. If it climbs to 7%, your payment becomes $1,362. It's a good idea to consider how this might impact your overall budget.

Your RBC Mortgage Specialist can help you decide which mortgage option best fits your needs.

Mortgage Basics: Open or closed? What's best for you as a first-time buyer?

A decision you'll need to make is whether to go with an open or a closed mortgage term? This decision comes down to weighing your need for flexibility against possible cost considerations.

If you are planning to stay in your home for several years, a closed term mortgage may be a great choice. Interest rates are generally lower than with open term mortgages - helping you to save on interest costs and pay off your mortgage faster. If you choose a closed mortgage, and decide to pay off the outstanding balance that you owe before you reach the end of the term - you will pay what's called a "prepayment charge". A prepayment charge is also charged if you decide you want to pay off more than your closed term mortgage allows in a given year.

An open mortgage can be paid off in part or full at any time without any prepayment charge. As well, an open mortgage can be converted to another interest term at any time without incurring added costs. Because of this added flexibility, interest rates on open mortgages tend to be higher than closed mortgages of the same term and type.

It really comes down to what's important for you - the complete flexibility that comes with an open mortgage, or the lower interest rate that may come with a closed mortgage.

Talk to your RBC mortgage specialist to learn more and to find out what option best meets your unique situation.