Mortgages

1. How much can I afford to pay for a home?
If you are looking for a home, you're probably thinking "what can I afford?" To determine 'affordability' your mortgage broker will first need to know your Taxable Income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, your mortgage broker will then calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

Second, your mortgage broker will calculate 40% of your Taxable Income and deduct all of your monthly debt payments, including car loans, credit cards, and lines of credit. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can reasonably afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries.

To determine how much of a mortgage for which you qualify, contact a mortgage broker. He or she can offer expert advice on the mortgage strategy that fits your goals.

2. Should I have a home inspection done?
A home is arguably life's largest and most important purchase. If you are looking for a home, consider getting a pre-purchase inspection of the property you intend to buy.

A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection. If there are outstanding issues, a good inspector will provide the potential purchaser with a schedule outlining the estimated cost of repairs and when they will need to be done.

A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.

Note that a home inspection differs from an appraisal, which allows the lending institution to determine if the land and building in question are suitable as security for a mortgage. A mortgage broker can provide further advice about how home inspections and appraisals can help you make a wise purchase.

3. What is the minimum down payment needed to buy a home?
In Canada, mortgages with less than 20% down must have Mortgage Loan Insurance provided by insurers such as the Canadian Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada.

While most Canadian homebuyers save for a down payment, with selected lenders the minimum five per cent of the purchase price can come from sources other than your own resources. These lending arrangements are subject to certain restrictions based on income level and credit score.
The 5% down payment can come from borrowed funds (from a line of credit or family member, for example). Keep in mind that the amount borrowed for a down payment is factored into debt service ratios (which determine how much you are eligible to borrow).

The 5% down payment can come from a cash back feature of the mortgage. Keep in mind that in this case, the posted rate (that is, an undiscounted rate) will be required by the lending institution.
In addition to the down payment, according to CMHC and Genworth rules you must have 1.5% of the purchase price available to cover the applicable closing costs (including, but not limited to, legal fees and disbursements, appraisal fees and a survey certificate, where applicable). If you are looking to buy a home, get in touch with a mortgage broker, who can provide you with further details on your home finance options.

4. What is mortgage loan insurance?
Mortgage Loan Insurance is default insurance provided by insurers such as the Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth Financial Canada, a private corporation. This type of insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, typically ranging from .50% to 2.90%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as Mortgage Life Insurance, which offers borrowers life insurance and in some cases critical illness and disability protection. A mortgage broker will have more information on the different types of insurance available to borrowers, and their features.

5. Do I need mortgage insurance?
The purchase of a home is a major financial commitment, and how best to safeguard your investment and your family's interests is something you have to consider.

Mortgage Life Insurance pays off your outstanding mortgage balance in the event of your death.
Mortgage Critical Illness Insurance also pays off your outstanding mortgage balance in the event you are diagnosed with severe illnesses such as heart attack, stroke or life threatening cancer.
Mortgage Disability Insurance pays your mortgage payments should you become disabled and are prevented from performing the normal duties of your job.

Your financial picture changes significantly when you get a new mortgage. Let a mortgage broker help you protect your family's financial future with mortgage insurance. Some conditions may apply.

6. What is a high-ratio mortgage?
With a high-ratio mortgage, the amount to be borrowed by way of a mortgage is greater than 80% of the purchase price, or the appraised value, whichever is less. High-ratio mortgages generally require Mortgage Loan Insurance provided by insurers such as the Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth Financial Canada, a private corporation.
The mortgage loan insurance premium is paid to CMHC or Genworth and protects the lender in the event the mortgage is not repaid and the bank has to take back the property. The benefit to the borrower is that it allows them to purchase a home with less than 20% down payment. The insurance premium is paid by the borrower and can be added directly onto the mortgage.

This is not the same as Mortgage Life Insurance, which offers borrowers life insurance and in some cases critical illness and disability protection. A mortgage broker will have more information on the different types of insurance available to borrowers, and their features.

7. What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require Mortgage Loan Insurance.

8. Why should I use a mortgage broker?
With a wide array of mortgage options now available in Canada, it makes sense to turn to a mortgage broker.

Financial Institutions sell only their own products to the public through their own sales force. As a result, they are not able to provide unbiased advice or selection since by doing so they risk losing your mortgage to a company whose product may provide more value to you. A mortgage broker, on the other hand, can sell a variety of mortgage products and services as they deal with many lenders, not just one. Because of this they are able to search for product from a variety of lenders, including banks, trust companies, insurance companies and credit unions, for the one that offers the best product, rate and terms for your particular needs. Accordingly, a mortgage brokers can be totally objective in their recommendations to you.

A mortgage brokers are also able to negotiate on your behalf, structuring deals to meet the criteria of the lenders, and therefore getting you a mortgage solution that works for you. Remember, a mortgage broker works for you!

To gain market share from mortgage brokerage firms and individual brokers, most lenders pay a finder's fee for referred business. Due to the volume of business done by mortgage brokers, fees are paid by the lender, and a mortgage brokers receive fast approvals in order to gain their business. This allows the a broker to shop among the various Canadian financial institutions for the mortgage rate and product that best suits the needs of the client and, in almost all cases, at no cost to you the client.

When you deal directly with a financial institution and your mortgage is declined, for whatever reason, you must begin the application process all over again with another lender. When you deal with a mortgage broker the application can quickly be redirected to another lender, or several other lenders, for consideration.

9. How much does it cost to use a mortgage broker?
At a, the vast majority of our mortgage clients do not pay a fee for the services of a mortgage broker. To gain a larger market share, the majority of financial institutions pay a finder's fee to mortgage brokers and at the same time offer them their best discounted rates and fast approvals in order to gain their business. This allows the mortgage broker to shop among the various financial institutions for the mortgage rate and product that best suits the needs of the client and, in almost all cases, at no cost to the client.

In situations where traditional lenders will not approve a mortgage because of poor credit, and where the application must be placed with a private or non-traditional lender, a brokerage fee may be charged to the client. This cost must always be disclosed to the client up front and must be authorized in writing by the client before it can be charged.

10. How secure is applying for a mortgage online?
Very secure. Your private personal and financial information is not sent anywhere without your express permission. And all information you provide on line is encrypted for the greatest possible security.

11. Does paying my mortgage bi-weekly really cut years off my mortgage?
Payment frequency is not the major factor in reducing the amortization period of your mortgage – principal reduction is! But what about all the talk of bi-weekly payments taking five years off your amortization period? Although you will save some interest by making your payment bi-weekly, ultimately it is the fact that your total payments each year are higher that results in the significant reduction in amortization. For instance, when a client chooses a bi-weekly payment of $50 over a monthly payment of $1000, in fact they are choosing to pay an extra $1000 annually. In most cases a bi-weekly payment is simply a monthly payment divided by two. That means that instead of paying $12,000 in monthly payments, you are now paying $13,000 in bi-weekly payments. That extra $1000 is what ultimately cuts the years off your mortgage. But you can do close to the same thing by increasing your monthly payment, if a monthly payment frequency would be more convenient for you, or by taking an accelerated semi-monthly payment.

Most people find that a payment frequency tied to how often they earn their income makes the most sense. And where possible, increase your regular payment amount or make periodic lump sum payments as both will help reduce the length of time it will take to repay your mortgage fully. For advice on ways to pay down your mortgage debt faster, contact a mortgage broker.

12. How does bankruptcy affect my ability to qualify for a mortgage?
Many Canadians find themselves bogged down with a bad credit rating for the wrong reason – illness, losing a job, or simply not understanding consumer credit. Sometimes bad financial situations happen to good people and bankruptcy is the only way out. But it's not all doom and gloom – there are a number of strategies for putting one's credit back on track and getting approved for a mortgage, even after bankruptcy.

Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing. If you are a previously discharged bankrupt the best way to determine whether or not you qualify at this time is to discuss your situation with a mortgage broker. A mortgage broker has many lenders to approach based on your circumstances.

13. How will child support and alimony affect my mortgage qualification?
Where child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for.
Where child support and alimony are received by you from another person, generally the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender.

If you find yourself having to make a fresh start in the wake of a separation or divorce, it helps to be aware of the unique challenges you may face in acquiring a mortgage. A mortgage broker can shop the market to pinpoint the mortgage product that best suits your individual needs in changed circumstances.

14. Can I get a mortgage to purchase a home and make improvements?
If you intend to buy a home that needs some immediate upgrades, a "purchase plus improvements" mortgage may be a good alternative to a standard home improvement loan. Even purchasers with 5% down may qualify to buy a home and make improvements to it. This type of mortgage covers the purchase price of the home, plus any renovations that would increase the value of the property, such as finishing a basement or redoing the kitchen. This option eliminates the need to finance the renovations or improvements separately.

For current homeowners in Canada, a "refinance with improvements" option may be available, to enable them to do home renovations.

Interested in learning more about this innovative mortgage option? A mortgage broker can tell you more about this and many other mortgage strategies.

15. Can I use gift funds as a down payment?
Most lenders in Canada will accept down payment funds that are a gift from family 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. Where the mortgage requires Mortgage Loan Insurance, Canada Mortgage and Housing Corporation requires the gift money to be in the purchaser's possession before the application is sent in to them for approval. Where Mortgage Loan Insurance is provided by Genworth this is not a requirement.

Contact a mortgage broker for more information on how to use funds from a gift as part of your down payment. He or she can offer expert advice on financing your home with a mortgage that suits your individual situation.

16. What is a pre-approval and how do I get one?
When searching for a home, it makes sense to get a mortgage pre-approval and line up the necessary documents prior to house hunting.

A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own resources', for example.

With a pre-approval, you'll get a good sense of how much you can afford, and you'll be assured of a particular mortgage rate for a set period of time. With a locked-in rate, there is no risk of interest rate increases while you are house hunting. A mortgage broker may be able to obtain a longer pre-approval rate hold. Another benefit of a pre-approval is that you'll be in a much better position to negotiate with sellers.

The easiest way to get a mortgage pre-approval is by calling a mortgage broker. You will be asked some questions to determine your financial situation and then a mortgage broker will calculate the size of mortgage you qualify for, using this information. With your authorization, they will then proceed with arranging a Pre-approved Mortgage for you if you are planning to buy property in the near future. Most successful Real Estate Professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.

In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process. Contact an a mortgage broker to get a pre-approval for mortgage financing before you start to look for a home – with a little preparation, you'll be in a much stronger position to get the home that's for you.

17. Should I wait for my mortgage to mature?
The short answer is no. Have a mortgage broker begin shopping around for an interest rate at least 90 days before your mortgage matures. Lenders in Canada will often guarantee an interest rate to you as much as 90 days before your mortgage matures. And, as long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage too. This means a rate promised well in advance of your maturity date, thus eliminating any worries of higher rates. And if rates drop before the actual maturity rate, the new lender will usually adjust your interest rate lower as well.

Most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is usually not the best one. Always ask a mortgage broker to investigate the possibility of a lower interest rate with the lender or another lender. If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need to.
When renewing your mortgage, you are most likely in a different financial position than when you first obtained the loan. As our financial and life circumstances change, so does the mortgage that is best for our needs and goals. At renewal time, an a mortgage broker can offer expert advice on a customized mortgage strategy to ensure you are taking full advantage of the many mortgage options on the market in Canada. He or she will also negotiate with lenders on your behalf to make certain that you get an extremely competitive interest rate.

For those who are thinking of switching their current mortgage to another lender to get a better interest rate, most lenders now offer "no cost or low cost switches." This can be a smart way to reduce your interest costs.

Whether it's time to renew your mortgage, or you want to switch lenders, get a mortgage broker working for you today.