September 28, 2021 Pre-sale Mortgages: What Homebuyers Need to Know

Pre-sale Mortgages: What Homebuyers Need to Know

If you’re new to home buying, you’ll need to arm yourself with basic knowledge of mortgages early on. Besides understanding a major life financial decision, it’s vital to learn about how mortgages work in the home buying short term. This allows you to better deal with your mortgage broker and keep on track throughout the home buying process. And if you’re buying presale as opposed to resale, there are some differences in your mortgage you’ll need to note.

When should I start the mortgage process for a pre-sale home?

With a typical pre-sale process usually taking a few years, you’re likely wondering how and when the mortgage process fits in. A recommended time to establish your mortgage is when you’re arranging with your pre-sale contract. This way you can set your mortgage at the current interest rate, avoiding the mortgage rate potentially climbing as you wait several years for your pre-sale to finish.

How does the mortgage down payment differ between a pre-sale and resale?

It’s commonly known that you need to make a big down payment when getting a mortgage. A lesser-known benefit of buying pre-sale is the alternative of paying smaller, scheduled deposits instead. These set deposits then add up to an agreed down payment over time, opposed to paying a large sum upfront. 

When do I start paying my mortgage for a presale?

For a presale, you only start paying your mortgage when the property is complete.

What are fixed and variable rate mortgages?

Fixed-rate mortgages use a set rate for the whole term or a set amount of years of a mortgage. A variable-rate mortgage will fluctuate over time. With mortgages taking years to decades to complete, these are important considerations. Scott Gingles, Founder and Managing Director of Nest Mortgage, had this to say:

“It’s a question we face a lot of the time, whether to go variable or fixed. If you are an established buyer and can tolerate some risk, variable is typically the way to go. In regard to fixed, it’s about risk tolerance. If you are certain you are going to be in your home for the next five years and you’re not going to be making any changes, fixed might be the way you want to go.”

Are there ways to pay my mortgage faster?

Now that you’re thinking about decades, you may also be wondering how to reduce that amount of time and save yourself money. First, if you can afford it, you can increase the monthly amount of your mortgage. Another way is speeding up your payments while not increasing them, such as paying bi-weekly instead of monthly. This means a total of 24 payments per year instead of 12, meaning the amount you owe will reduce more often, equaling paying less interest over time. You can also consider meeting with your mortgage broker on an annual basis to see what your current mortgage options or opportunities are.

If you’re looking to buy a pre-sale townhome or condo and want to learn more about the process, check out our articles What to Know When Purchasing Presale Homes and Budgeting Tips for Purchasing Presale.

By MLA Contributor Simon Gerard