When you are looking to purchase a home, you have the option of going straight to a lender or using a mortgage broker to act on your behalf. A mortgage broker is someone who acts as an intermediary between you, the borrower, and a lender. There are several advantages to using a broker, some of which include:
Not all brokers operate the same. If you want to learn more about our approach and how our team works together to benefit you, take a look at the Innovative Difference.
While the mortgage qualification process is unique to every financial situation, there are common factors that all lenders look at when determining your eligibility for a mortgage:
Your current credit score and a detailed examination of your credit history are key components that are reviewed during the mortgage approval process. Typically, Lenders prefer to see credit scores of 640 or higher. However, in some cases, a client may have an excellent credit score but their credit history shows flaws and raises too many risks for the Lender. Conversely, individuals with a lower credit score may still be approved for a mortgage through an alternative Lender. If you are worried about your credit, contact our office today to discuss how you can qualify for a mortgage and whether alternative lending is an option for you.
There are two ratios that Lenders use to determine if a client is pre-approved; and if so, for how much. The allowable ratios that Lenders are looking for are dependent upon factors such as your credit score, and are subject to change at the discretion of the Lender.
Ratio 1: Gross Debt Service
This ratio determines how much of your Gross Annual Income can be used to cover payments associated with housing. These payments include mortgage principal & interest, property taxes, heating, condominium fees and occasionally, secondary financing.
Ratio 2: Total Debt Service
This ratio determines the percentage of Gross Annual Income required to cover payments associated with housing as well as any other outstanding debts. These items can include car loans, credit cards and unsecured lines of credit. Most Lenders use a figure no higher than 40 percent of your annual income to factor into their decision.
For help calculating your ratios to determine your eligibility for mortgage financing, contact us today!
To calculate how much you could potentially qualify for, check out our mortgage affordability calculator.
Please be advised that all mortgage applications depend solely on the applicant’s information upon the lenders review. Each lender has guidelines and requirements that are specific to them.
Before you start house hunting, we recommend obtaining a mortgage pre-approval, which will tell you exactly how much you qualify for and lock in a rate for you for up to 120 days. This is especially helpful in an increasing rate environment, where you can lock in at a lower rate now to avoid upcoming rate hikes.
We are committed to providing in depth pre-approvals. By meeting with you on a one-to-one basis, we are able to examine your individual financial position and goals and review all of the preliminary mortgage options and details. We collect documentation up front, and we have the ability to pull your credit information and review it directly with you at our initial meeting.
Because we take the time to do our homework up front, we are able to get your mortgage approved and completed faster and easier once you find that perfect home.
Through our comprehensive process, you will find out exactly how much a Lender is willing to lend to you. With this information, your Broker can help you look at different payment schedules and scenarios to determine how much your payments will be and how long it will take to pay off your mortgage.
Your Realtor will also be better equipped to locate homes in your price range when they know the amount you have been pre-approved for. And of course, you can feel comfortable knowing that an excellent interest rate will be locked in place for up to 120 days.
Your ability to afford a home is dependent upon the following two ratios:
Ratio 1: Gross Debt Service
This ratio determines how much of your Gross Annual Income can be used to cover payments associated with housing. These payments include mortgage principal & interest, property taxes, heating, condominium fees and occasionally, secondary financing.
Ratio 2: Total Debt Service
This ratio determines the percentage of Gross Annual Income required to cover payments associated with housing as well as any other outstanding debts. These items can include car loans, credit cards and unsecured lines of credit. Most Lenders use a figure no higher than 40 percent of your annual income to factor into their decision.
For help calculating your ratios to determine your eligibility for mortgage financing, contact us today!
Visit our mortgage affordability calculator for a general idea of what you may qualify for.
Aside from your down payment and mortgage payments (whether those are weekly, bi-weekly or monthly), there are additional costs associated with purchasing a home that can be easy to overlook.
Our clients are given access to special resources to help them ensure they are fully prepared for the total cost of moving - not just the cost of their down payment and subsequent mortgage payments. Contact our office today to discuss budgeting ahead for your future home.
Monthly expenses associated with owning a home include the following:
For a detailed budgeting worksheet, clients can access our first time home buyers guide. If you would like to discuss becoming a client, contact our office today to get started.
The amount you put down on the initial purchase of your home can affect both your short-term monthly budgeting and long-term financial planning. Planning ahead and deciding which down payment option is for you is a key factor to a successful mortgage plan.
In most cases, the minimum required down payment is 5 percent of the property price. On homes over $500,000, additional down payment is required. You should also be prepared to factor in any mortgage default insurance premiums if you are making a down payment of less than 20 percent.
One of our certified Mortgage Brokers can help you evaluate your down payment options and set a plan to reach your future mortgage goals. Contact us today to get started!
Step 1: Pre-Approval
When you decide you are ready to purchase a home, getting pre-approved is always a great idea. Not only does it secure an interest rate for up to 120 days, it also gives you the peace of mind that comes with knowing what you can afford and allows you to shop within your price range.
Step 2: House Hunting
Once you’ve secured your pre-approval, it’s time to meet with your REALTOR®. They will discuss the details of what type of home you are looking for and what your price range is. Bringing along your list of must-haves versus your wants can also help you set realistic expectations and give your REALTOR® the information they need to find properties that meet your criteria.
Step 3: Offer in and Accepted
Once you’ve found that perfect home, you decide what offer to make and your REALTOR® will relay that offer to the sellers Listing Agent on your behalf.
If accepted, the offer will be considered “subject to financing,” meaning that the offer depends on whether or not you are able to obtain mortgage financing from a lender. Your offer may also have other conditions, such as “subject to a satisfactory home inspection.”
Once your offer is accepted, your broker can help you secure what’s called a ‘conditional mortgage approval.’ This means you’re approved for a mortgage as long as you can meet the conditions listed. Your broker will work with you to do this. Take a look at our mortgage process page to gain a better understanding of what these steps will look like.
Step 4: Meeting Conditions
At this stage, you may need to provide some updated documentation to your broker. Your broker team will act as a liaison for you throughout this process, coordinating with your lender, insurer, and appraiser (if necessary) to make sure your mortgage gets fully approved.
Step 5: Lawyer’s Office
Assuming you were able to meet all of the conditions and secure a full mortgage approval, the next step will be an appointment with our lawyer’s office. Your lawyer prepares the documents necessary to transfer the title of the property to your name, and will require your signature and proof of fire insurance for your new home.
Step 6: Move in!
Congratulations! It’s time to move in to your new home. Within the first month of your move-in date, you should receive an information package from your lender outlining your mortgage details.
The documents you will need to provide depend on a number of factors, including
Visit our section on required documentation for more details about what you will need to provide according to your employment status. Contact our office today to discuss your particular employment situation and how it affects your mortgage financing process.
Down payments can come from a variety of sources, including:
It is important to note that if you are paying less than 20 percent down on your mortgage, that means your mortgage is considered ’high ratio’ and will need default mortgage insurance. The three main mortgage insurance providers generally do not allow a down payment to be borrowed.
If you are a first time home buyer, you can also withdraw up to $35,000 per person from your RRSPs for a down payment. Keep in mind that these funds have to be vested in your RRSP account for 90 days or more. Using RRSP contributions without being taxed is something only a first time home buyer can do!
We can help you take a look at your finances to ensure you have explored all of your down payment options. Contact our office today, and one of our certified Mortgage Brokers will be happy to help with a free mortgage consultation!
For a purchase price of $500,000 and less, the minimum down payment is 5 percent.
For homes between $500,000 and $999,999, the minimum down payment is 5 percent on the first $500,000 and 10 percent on the remainder.
For example
If you purchase a home for $600,000, you'll pay:
For homes $1,000,000 and above, a minimum down payment of 20 percent is required.
Consider the following scenario:
If you purchase a home for $300,000, and secure an interest rate of 2.79% over a five year term, there are significant differences in the amount of interest you will pay over the next 5 years.
Increasing your mortgage payment frequency is an excellent means of paying your mortgage off faster and saving yourself money in the long run. For example:
If you had a $350,000 mortgage and made a 10 percent down payment, chose a 25 year amortization and secured an interest rate of 3 percent, you would end up paying $135,390 in interest if you made regular bi-weekly payments. By switching your payments to accelerated bi-weekly for the same mortgage, you would be paying $118,755 in interest and have your mortgage paid off in 22 years.
By increasing the payments from regular bi-weekly to accelerated bi-weekly for this particular mortgage scenario, there is a whopping $16,635 of savings and the ability to be mortgage free almost 3 whole years sooner.
For more details on payment frequency and what your best options are, contact us today.
The amortization period on your mortgage is the total length of time it will take you to pay off your mortgage. The standard amortization period has historically been 25 years, but it can be longer if you are putting down more than 20 percent on your mortgage, and it can be shorter as well. Some people choose a longer amortization period because it lowers their mortgage payments. Simply put, the longer the amortization, the lower the mortgage payments.
By comparison, the mortgage term represents the length of time for which your mortgage agreement with a Lender is valid. Your mortgage term can range from 6 months to 10 years, although the 5 year fixed rate option is by far the most popular option. When your mortgage term ends, you are required to renew your mortgage. At this point, you will need to secure a new interest rate and re-evaluate whether a fixed or variable interest rate works better for you.
An upcoming mortgage renewal is a great time to discuss your options with your Broker, as there may be a product available that is better suited to your needs than your current mortgage.
There are several strategies you can use to reduce your total interest costs over the long run and pay off your mortgage sooner:
Your Mortgage Broker can help you take a look at your current mortgage and discuss your options for becoming mortgage-free sooner. For more information please contact our office today!
A HELOC can be a great option for those wishing to access the equity they have in their home.
A HELOC is a sum of money borrowed by the property owner against the equity in their property. Unlike alternate options, a HELOC is not borrowed in one lump sum. Similar to a credit card, the HELOC can be borrowed in smaller amounts until a previously agreed upon limit is reached and repaid with no penalties. A HELOC is best used for short term borrowing and is often used for “emergencies” such as replacing hot water heaters or furnaces, home renovations and other surprise circumstances.
Many Canadians feel that mortgage default insurance offers more value to Lenders than it does the individuals actually purchasing it. While this is true to an extent, we must acknowledge that without Mortgage Default Insurance providers (such as CMHC, Genworth and Canada Guaranty), home ownership would be out of reach for many. Under the financing programs provided by these integral companies, Canadians have access to Mortgage Loan Insurance products that make Mortgage refinances, renovation loans and most importantly, home purchases possible.
CMHC, Genworth, and Canada Guaranty have all dedicated a significant amount of their resources to educating Canadians on the topic of homeownership in Canada.
We welcome you to contact us for further information on mortgage default insurance and how it can help you become a home owner.
We encourage all first time home buyers to have a professional inspection done on their future home.
Home inspectors can provide a wealth of knowledge and might save you from buying the wrong home. When you choose to have an inspection done, you will receive your inspection report on-site at the time of inspection, as well as a personal consultation with the inspector to discuss what, if anything, needs to be repaired and/or replaced in the home you are looking to purchase.
In some cases, satisfactory home inspections are part of the financing conditions required by your Lender. Contact us today for more detailed information about inspections and other requirements you may need to meet throughout the mortgage process.
With the average credit card company charging 10 to 29 percent in interest, car dealerships charging up to 16 percent, and personal loans charging 6 to 10 percent, it is easy to see how paying off debts can be overwhelming and financially burdensome. Having debt can create barriers in financial planning and make individuals vulnerable to an economic downturn. However, there are options available to you through the equity you have in your home and one valuable option is to refinance your mortgage.
Refinancing your existing mortgage and consolidating your debt into your mortgage can be beneficial in many ways. With the lower interest rates that the mortgage industry can offer in comparison with other creditors, you can save thousands by utilizing the equity in your home to pay off other high-interest debts. There are also added benefits such as one convenient payment and longer amortization periods to help make your monthly payments more manageable if your monthly debt obligations are too tight for your current budget.
When setting up a mortgage and combining all of your debts, we can also create a structured payment plan making it easy to show what your balance is at every step of the way. Another added bonus is that we can also show you how to accelerate your payments and save even more by using your pre-payment privileges if you wish.
Taking charge and conquering your debts does not have to be difficult. If you are carrying a burden of significant debt and you own a home, one of our Mortgage Brokers will be happy to help you analyze your situation and further discuss your financial options.
There are several options for consolidating your debt using the equity you have built in your home, including:
Visit our section on debt consolidation for more information on each of these options, and contact our office to discuss whether debt consolidation is the right plan for you.
Many of our clients are interested in obtaining a lower rate for their mortgage when they notice a drop in advertised interest rates. While it can be financially beneficial to break your current mortgage in order to rework the arrangements and achieve a lower interest rate, this is completely dependent upon the details of your current mortgage and is unique to each personal situation.
Consider the results of a past mortgage review completed for one of our clients. Based on their $250,000 mortgage with an interest rate of 5.09 percent, these clients came out ahead by over $5000 in interest and $1600 on their principal within three years (even after paying their early payout penalty).
By offering complimentary annual mortgage reviews to our clients, we are able to review your current mortgage arrangements and run calculations to determine whether or not you would benefit from breaking your current mortgage and refinancing.
Contact us today to evaluate whether obtaining a lower interest rate would be beneficial for you.
CMHC plays an important role in the home buying process for many Canadians. A Crown Corporation originally established in 1945, CMHC provides default mortgage insurance that enables homebuyers to purchase property with as little as 5% down. The other two providers of mortgage default insurance in Canada are Genworth and Canada Guaranty.
This type of insurance eliminates the risk to Mortgage Lenders, enabling them to provide financing at lower rates with smaller down payments than would be normally required. Without CMHC Insurance, a full 20% down payment is needed to purchase a home.
CMHC also provides an essential safety net to our financial system, ensuring mortgage funding is available during times of economic downturns and recession.
In order for a mortgage loan to be insured by companies such as CMHC, the borrower must pay a mortgage insurance premium. Any mortgage with less than 20% down requires this type of insurance. Premium rates are subject to change and can be found on the CMHC website.
Your default mortgage insurance premium is generally amortized over the life span of your mortgage and is included in your mortgage payments.
Our mortgage payment calculator can show you what your mortgage payments will look like including CMHC premiums. If you have any further questions about CMHC and your down payment, feel free to contact our office today!
When it comes to mortgage insurance, many home owners are unaware that they do not have to accept the insurance offered by their Lender (keep in mind that this type of insurance differs from mortgage default insurance, which is required for some mortgages).
In fact, it is usually worth it to shop around for the option that best suits your needs.
The primary difference between a life insurance policy and mortgage insurance from your Lender is control. With a life insurance policy, you decide who the beneficiary will be. When it comes to mortgage insurance, however, the financial institution is the beneficiary. This means that instead of your insurance payout going to an individual of your choosing, it is applied directly to your mortgage to pay off the remaining balance.
With life insurance, your beneficiary chooses how to spend the tax free death benefit from your life insurance policy. That could be pay down the mortgage or other debts, use the funds to invest, cover living expenses, or make important purchases. These options do not exist when your mortgage lender controls the proceeds.
Many homeowners do not realize that mortgage insurance is often “decreasing term insurance”. This means that the amount you owe on your mortgage goes down as you make payments on the principal. At the same time, the death benefit (the amount required to pay off your mortgage) goes down by the same amount, but your mortgage insurance premiums stay the same, so you are actually getting less for your money with every mortgage payment.
Between home insurance, mortgage default insurance and general mortgage or life insurance, it can be difficult to understand what type of insurance covers what. We can help clarify this information for you and discuss the options that are in your best interest.
