How to shop for a mortgage (and maximize your savings) in an uncertain housing market

·7 min read
Happy black parents having fun while piggybacking their small kids after relocating into new apartment.
Photo via Getty Images

Feeling overwhelmed by the thought of securing a mortgage in today's volatile housing market? Between high interest rates, low inventory, and a steep increase in housing prices in recent years, purchasing a home can seem intimidating—especially if you’re a first-time buyer that’s been impatiently waiting for the market to “stabilize.” But you shouldn’t let uncertainty stop you from pursuing your homeownership goals if you’re ready to make a move.

In partnership with CIBC, we’ve compiled a few tips to help demystify the mortgage process, so you can stop trying to time the market and start feeling more confident about buying a home you can afford.

What’s the difference between pre-qualification and pre-approval?

Multiethnic Couple is Sitting on Couch in Stylish Living Room and Choosing Items to Buy Online with Laptop Computer. Black Man Embracing His Wife with Love and Support. Black Family Business.
Photo via Getty Images

Before you begin house hunting, you’ll need to know how much you can afford to borrow. That's where pre-qualification comes in, which helps you determine how much you can borrow based on your income, debts and other financial factors.

Pre-qualification isn’t the same as pre-approval — which is where you can actually lock-in an interest rate — but it's still a helpful first step in the home buying process. You’ll want to get pre-qualified so you can have a better picture of what you can afford and don’t waste time falling in love with a property that's way out of your budget.

In an uncertain market, pre-qualifying for a mortgage can seem intimidating, but the CIBC mortgage pre-qualification tool can help you take the guesswork out of the process by giving you a personalized estimate in a matter of minutes. After you answer a few short questions, the tool will also connect you with a mortgage advisor who can offer further advice, helping you make sense of current market conditions and how they may affect your mortgage.

Should you go with a fixed or variable-rate mortgage?

a female same sex couple sit on the sofa on the phone to customer services paying their bills
Photo via Getty Images

Once you’ve pre-qualified for a mortgage, you’ll want to consider the types of mortgages available. Two of the most common options are fixed-rate and variable-rate mortgages.

Fixed-rate mortgages have a set interest rate that stays the same for the duration of the term, which is typically up to 5 years. This is a great option for homeowners who don’t like surprises, since your monthly mortgage payments stay consistent. That said, fixed-rate mortgages sometimes have less flexible prepayment options, and there may be prepayment fees associated with it.

In contrast, variable-rate mortgages have interest rates that fluctuate based on changes in the prime lending rate. For some variable-rate mortgages, this means that your monthly payments may change over time, which can make budget planning more difficult. CIBC does things a little differently: with the CIBC Variable Rate Open Mortgage, your monthly payments will always stay the same, but if the CIBC Prime rate rises, more of your payment will go towards paying interest, meaning it will take longer to pay off the principal. If rates go down, however, more will go to the principal, helping you pay it off faster. Variable-rate mortgages also typically offer more flexible prepayment options, and often come with lower interest rates, meaning you could end up paying less interest in the long run.

In a market where interest rates are high, fixed-rate mortgages can be appealing for their stability and protection against rising interest rates, although if rates drop, borrowers may be stuck paying more than those who chose a variable-rate mortgage. On the flip side, in an uncertain market, variable-mortgage borrowers may find themselves riding an emotional rollercoaster, holding their breath waiting for the drop as rates continue to climb.

(Worth noting: CIBC also offers a CIBC Variable Flex mortgage®, which gives homeowners the flexibility to convert to a 3-year or greater fixed-rate closed mortgage, without a prepayment charge, should your needs change.)

So, how do you know which type of mortgage is right for you? It really depends on your personal financial situation and how much of a risk you’re willing to take. Again, this is a great time to access the expertise of a dedicated mortgage advisor, who can walk you through each type of mortgage and give tailored advice based on your unique situation.

Budgeting for your down payment, and beyond

Hispanic woman and man paying their bills and doing their finances together at home
Photo via Getty Images

When faced with soaring home prices, saving for a down payment is no easy feat. But don’t get defeated, get proactive:

  • Take advantage of government programs like the Home Buyers' Plan (HBP) which allows first-time homebuyers to withdraw up to $35,000 from their RRSP to use as a down payment (although this amount must be repaid to the RRSP within a 15-year period). As of this year, there will also be the new First Home Savings Account (FHSA), which allows first-time home buyers to save up to $40,000 towards the purchase of their first home, tax-free.

  • Research your mortgage lender’s special offers to see if you’re eligible for a great deal. CIBC typically offers cash back deals as a sweetener — including ones aimed at first-time homebuyers — which you can use to put toward repairs, or a nice housewarming gift for yourself.

  • Take another look at your monthly budget and see where you can reduce your expenses, which can leave you with more money for both your down payment and monthly mortgage payments. Paying off debts and improving your credit score prior to making a home purchase will also help you, since lenders typically require a lower down payment if you can show them you are financially secure.

  • Don’t have the 20% down payment traditionally needed for a conventional mortgage? You may be able to buy a home for as little as 5% down if you also buy mortgage default insurance. Currently available for homes with a purchase price of under $1 million, a mortgage advisor can help talk you through the process and whether or not it makes sense for you.

  • Remember to factor closing costs into your budget as well. These can include legal fees, home inspection fees, land transfer taxes, and more, and they can add up to a hefty amount. Shop around and research different providers and compare their fees so you’re able to budget accordingly—not just for your down payment, but for everything that comes after as well.

Choose a mortgage lender you can trust

Financial advisor and a young couple shaking hands and laughing during a meeting together at a table in his office
Photo via Getty Images

House hunting can be stressful even at the best of times––and today's buyers face unique obstacles that can make the experience seem even more daunting. It’s important to be realistic about what those challenges are, without letting them prevent you from buying a home you can afford when you’re ready to jump into the market.

With careful planning and the right advice, you can take the first step towards building the future you’ve envisioned. Whether you’re a first-time homebuyer or looking to make a move to a new property or new city, having a knowledgeable mortgage advisor in your corner is key, as they can help answer any questions or concerns you may have about the current market, and how you can prepare for uncertainty without sacrificing your home ownership goals.

Working with CIBC’s dedicated mortgage experts can help give you the confidence you need to navigate the home buying process from start to finish, no matter the current state of the market—both in good times, and uncertain ones.

Having a mortgage lender you trust matters every bit as much as your mortgage rate, especially in an uncertain housing market. Whether you’re looking for your first home or your next one, to renew your mortgage or switch providers, visit CIBC to learn more about how their mortgage specialists can help. Find a mortgage advisor near you or request a call today.