Frequently Asked Questions
Mortgage Brokers are independently trained professionals licensed to represent and provide you with the best advice for your mortgage and financing needs. Mortgage Broker’s primary expertise is locating funding for mortgage financing. We know which lenders have the best rates and we negotiate with multiple lenders at one time. Brokers are not employees of any lending institution, so we are not limited in the products we can offer you. As your Broker we seek out the best lender package to suit your specific situation, whether it’s with a Chartered Bank, Trust or Lending Institution. Brokers are compensated by the lender, and in most cases, offer services free of charge to clients.
To determine how much you can afford, you will need to know your gross income and the amount of any debts outstanding and their monthly payments. First, calculate 32% of your gross income for use toward a mortgage payment, property taxes and heating costs. Second, calculate 40% of your gross income and deduct all of your monthly debt payments, including car loans, credit cards, and lines of credit payments. The lesser of the first or second calculation will be used to determine how much of your income may be used towards a mortgage payment. These calculations are based on lenders’ usual guidelines in Canada.
A home inspection is a visual examination of the property to determine the overall condition of the home. The inspector will check all major components including roofs, ceilings, walls, floors, foundations, attics, retaining walls, electrical, heating, plumbing, drainage, exterior weather proofing, and more. The results of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.
A minimum down payment of 5% is required to purchase a home. In addition to the down payment, you must also be able to show that you can afford all closing costs such as legal fees and disbursements. There are many new programs available in Canada that help individuals purchase a home sooner than they thought possible. Please contact one of our mortgage professionals to help determine how little you need for down payment.
Mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), Genworth Financial, and AIG United Guaranty. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums range from .50% to 6.00% and are paid by the borrower and can be added directly onto the mortgage amount.
A conventional mortgage is one where the down payment is equal to a minimum 20% of the purchase price, a loan to value of or less than 80%, and does not require mortgage loan insurance.
Lenders will require a bankruptcy to be fully discharged. Many want to see at least 2 years history after discharge along with some sort of re-established credit before they are willing to provide mortgage financing. If you are newly discharged, there could be options available for you with a significant down payment. Remember once you are discharged; start re-establishing your credit ASAP! Secure credit cards are a great way to get started. Contact one of our mortgage professionals to help you get on the right track.
Where child support and alimony are paid by you, the amount paid is deducted from your total income before determining the size of mortgage you qualify for. Where child support and alimony are received by you, the amount paid may be added to your total income before determining the size of mortgage you qualify for. Lenders typically want proof in the form of a court ordered document.
Some of the items you will need to provide include:
- Your personal information, including SIN, birthday, address history, etc…
- Proof of Employment including a job letter
- Proof of Income including T4’s, NOA’s, paystubs, etc…
- Information and details on all bank accounts, loans and other debts
- Source and proof of down payment including statements, gift letter, etc…
- Proof of source of funds for the closing costs approximately 1.5% of purchase price
Most lenders will accept down payment funds that are a gift from immediate family such as parents, grand parents, or siblings as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan.
A pre-approval provides an interest rate guarantee from a lender for a specified period of time, usually 120 days and for a set amount of money. The pre-approval is calculated based on information provided by you and is subject to certain conditions being met before the mortgage is officially approved. Conditions would include things like employment and income confirmation, proof of down payment, property confirmation, and more. Many real estate agents will require you have a mortgage pre-approval in place before they will work with you. This is to ensure that they are showing you properties within your affordable price range.
Most lenders send out their mortgage renewal notices 90 days in advance offering existing clients their posted interest rates. The rate you are being offered is usually not the best one. Always investigate the possibility of a lower interest rate with other lenders. Better yet, have a broker research the market for you to ensure you get the best deal possible. Lenders will guarantee an interest rate to you as much as 120 days before your mortgage matures. If you are not increasing or changing your mortgage in any way, they will cover the costs of transferring your mortgage too. This means the rate is promised well in advance of your maturity date eliminating any worries of higher rates. If rates drop before the actual maturity date, the new lender will always give you the lower rate as well.
There are many ways to pay down your mortgage sooner. You will be able to significantly reduce your mortgage by following these easy tips:
- Select an accelerated bi-weekly or weekly payment schedule
- Make principal lump sum prepayments
- Make double-up payments
- Selecting a shorter amortization at renewal
The “Home Buyers Plan” allows a first time home buyer to use up to $25,000 in RRSP savings to help pay for your down payment on your first home. You then have 15 years to repay your RRSP. Be sure to ask your financial planner whether this strategy makes sense for you.
The length of mortgage terms range from six months up to 25 years. Typically the shorter the term, the lower the interest rate and the longer the term, the higher the rate will be. A five year mortgage is the most popular term chosen by Canadians.
You may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now, or if you plan to sell your home in the near future.
If you have a strict budget and want to manage your monthly expenses, a longer term may suit you better. Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s the case, a long mortgage term may be the right choice for you.
The interest rate on a fixed-rate mortgage is set for a pre-determined period of time, usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.
The interest rate on a variable-rate mortgage will fluctuate with Canada’s prime lending rate as set by the Bank of Canada. As this rate changes, so will your mortgage rate. This product is usually setup as a 5 year term. This allows you to take advantage of falling interest rates but also comes with the risk of an increase in rates which results in a higher mortgage payment.
Title insurance protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of your home, there are instances such as real estate title fraud, when your title can come into question.