Get a free, no obligation personal loan quote with rates as low as 6.99%
Get Started You can apply with no effect to your credit score

Purchasing a home, whether it’s your first or fifth, is always a long and stressful process and it’s not made any easier by all rules and regulations that you need to be aware of. We know from experience that it can be extremely easy to get confused by all the documents and requirements. Making the wrong decision for your financial needs is a lot more common than you would like to think so if you’re currently thinking about applying for a mortgage or want to make a change to your existing mortgage, here are 5 common mortgage mistakes that you need to be aware of.

1) Adjustable Mortgage Rates

The reason adjustable mortgage rates create problems is because they start out low and affordable and then after a few years increase and more often than not become unaffordable. An adjustable mortgage rate allows you to purchase a large house with a mortgage payment you can actually afford; it creates a false sense of stability. Then after 2-5 years your rate is reset, all of a sudden your once affordable house has become too much for you to handle. When this happens homeowners often take the equity out of the home and refinance to a lower rate.

While this is the best case scenario it rarely happens. Housing prices drop and then homeowners no longer have as much home equity as the thought and therefore can’t refinance their mortgages to make up for the increase in their interest rate.

2) No Down Payment

It’s possible to get a no down payment mortgage in Canada, but in reality a down payment is an extremely important and useful financial tool that you should take advantage of when you purchase a house. A down payment typically has two main purposes:

  1. Firstly a down payment increases the amount of equity that you have for your home right from the start. The amount you’ll need to pay off will be lower and so will your monthly mortgage payment.
  2. Second, it makes sure that you’re taking on some of the risk. Because you’re investing a large sum of money into your house you’ll be more likely to work harder to guarantee that you can make your monthly mortgage payments.

While it might seem like a great deal to be able to purchase a home with no down payment it really is a much better idea to wait a few years and save as much as possible and put down a reasonably sized down payment.

3) “Liar Loans”

In Canada we call these types of loans “liar loans” because certain borrowers lie and inflate their income so that they can buy a larger house that they can’t actually afford. The problem only becomes apparent once the mortgage is approved and the borrower is already living in their home. Mortgage payments need to be paid with the money you actually have, not the money you wish you had. Borrowers often start to fall behind on their payments because they don’t make enough money to cover the costs of their home, this often leads to bankruptcy or foreclosure.

4) Reverse Mortgages

A reverse mortgage is a loan generally available to senior citizens; it uses the equity of your home to provide you with a monthly or yearly income source. The available equity is paid out to you in smaller payments over time or in a considerable sum once a year.

However, there are setbacks in choosing the reverse mortgage for your income solution. There are upfront costs, insurance, appraisal fees and lawyer fees that can quickly consume your equity. You could end up losing full ownership of your home. Once all of the equity is gone from your home, the bank or your lender will own your home.

5) Longer Amortization

Today, 35 to 40 year mortgages are rising in popularity. A few years ago this was unheard of and 30 year mortgage were the norm. Mortgages with longer amortization periods allow an individual to buy a larger house with a much lower monthly mortgage payment. A 40-year long mortgage is a better idea for someone people than it is for other. A 20-year old that plans to stay in their home for the next 20 plus years could potentially benefit from a longer amortization period.

The interest rate on a 40-year mortgage will be slightly higher than the interest rate on a 30-year mortgage. This would amount to more interest over a 40-year time period. Borrowers would also have less equity on their homes. The extent of payments for the first 10 to 20 years will primarily pay down interest, marking it nearly impossible for a borrower to move.

Need more information about amortization? Click here.

The Bottom Line

The bottom line is, not all mortgages are created equal. There are countless terms, conditions, issues and situations that need to be considered before you enter into any kind of mortgage contract. You need to make sure you’re working with a bank or lender that you trust, choose a home that you can actually afford and only accept a mortgage that works for you.

Caitlin Wood, BA avatar on Loans Canada
Caitlin Wood, BA

Caitlin Wood is the Editor-in-Chief at Loans Canada and specializes in personal finance. She is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. Caitlin has covered various subjects such as debt, credit, and loans. Her work has been published on Zoocasa, GoDaddy, and deBanked. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security.

More From This Author

Special Offers

More From Our Experts

https://loanscanada.ca/wp-content/uploads/2023/09/GlobeMailTopCompanies2023-1.png
Loans Canada places No. 228 on The Globe and Mail’s fifth-annual ranking of Canada’s Top Growing Companies.

By Caitlin Wood, BA
Published on September 29, 2023

Loans Canada is excited to announce it has made it onto the Globe and Mail’s Top Growing Companies list for the second year in a row.

https://loanscanada.ca/wp-content/uploads/2023/09/Finder-Awards.png
Finder Awards Finalists: Personal Loans Customer Satisfaction Awards 2023

By Priyanka Correia, BComm

Loans Canada is happy to announce it received the finalist award in the Best Personal Loan Search Platform category.

https://loanscanada.ca/wp-content/uploads/2016/12/caution-1.jpg
Beware of Fraudulent Lenders Impersonating Loans Canada

By Caitlin Wood, BA

A note to our clients about fraudulent lending practices and illegal upfront fees.

https://loanscanada.ca/wp-content/uploads/2022/10/How-To-Pay-Your-Taxes-With-A-Credit-Card-Through.png
How To Pay Your Income Taxes With A Credit Card

By Lisa Rennie

If you’d like to pay your taxes using a credit card, you’ll need to use a third-party service provider like Plastiq or PaySimply.

https://loanscanada.ca/wp-content/uploads/2021/08/Climate-Action-Incentive-CAI-1.png
What Is The Canada Carbon Rebate (CCR)?

By Bryan Daly

The Climate Action Incentive Payment (CAIP), or Carbon Tax Rebate, is quarterly benefit paid to eligible Canadians in

https://loanscanada.ca/wp-content/uploads/2021/03/Canada-Workers-Benefit-CWB.png
Can You Claim The Canada Workers Benefit (CWB) In 2024?

By Bryan Daly

The Canada Workers Benefit is a refundable tax credit for individuals earning a low taxable income of $3,000 - $24,112.

https://loanscanada.ca/wp-content/uploads/2020/12/Student-Tax-Credits-and-Deductions.png
Student Tax Credits In Canada

By Chrissy Kapralos

Similar to how there are specific tax credits and deductions for businesses, seniors, and parents, there are student tax credits in Canada.

https://loanscanada.ca/wp-content/uploads/2021/04/Pay-Less-Taxes-Canada.png
How To Pay Fewer Taxes In Canada

By Bryan Daly

People are always trying to figure out how to save money on taxes in Canada. We present the best ways to legally pay less tax in Canada.

Recognized As One Of Canada's Top Growing Companies

Loans Canada, the country's original loan comparison platform, is proud to be recognized as one of Canada's fastest growing companies by The Globe and Mail!

Read More

Why choose Loans Canada?

Apply Once &
Get Multiple Offers
Save Time
And Money
Get Your Free
Credit Score
Free
Service
Expert Tips
And Advice
Exclusive
Offers

Build Credit For Just $10/Month

With KOHO's prepaid card you can build a better credit score for just $10/month.

Koho Prepaid Credit Card