In order to obtain a conventional mortgage, home buyers are required to provide a down payment of at least 20% of the purchase price. If you do not have the full 20% down payment, it may be possible to obtain a high-ratio mortgage that will require a down payment of at least 5% and the purchase of default insurance.
Be sure to visit at least two or three lenders before making a decision.
TYPES OF MORTGAGES
Fixed Rate Mortgage: Your interest rate is locked in for a specified period called a term. Your payments remain the same for the term of the mortgage and will not change if interest rates increase during that period.
Variable Rate Mortgage: The rate of interest you pay may change if rates go up or down.
Conventional Mortgage: Requires a down payment of 20% or more of the property’s value.
Closed Mortgage: The mortgage cannot be paid off early without paying a prepayment charge.
Open Mortgage: A mortgage that can be paid off at any time during the term, without having to pay a penalty charge. The interest rate for an open mortgage may be higher than for a closed mortgage with the same term.
➤ Helpful Hint: By switching from monthly payments to accelerated weekly or biweekly payments, you can pay off your mortgage faster.
Portable Mortgages: If you sell your home, you can transfer your mortgage to your new property while keeping the existing interest rate. You may be able to avoid prepayment charges by porting the mortgage.
Prepayment Privileges: You can make lump sum prepayments or increase your monthly payment without having to pay a penalty charge. This can help you pay off your mortgage faster and save on interest charges.
Purchase Plus Improvements Program: Qualified home buyers can make their new home just right with a Purchase Plus Mortgage which allows for improvement loans immediately after taking possession of the property.
For more information on Purchase Plus Programs, visit: GENWORTH CANADA
DETERMINING MORTGAGE ELIGIBILITY
Mortgage lenders use two calculations to help determine your eligibility for a mortgage: the Gross Debt Service (GDS) ratio, and the Total Debt Service (TDS) ratio.
Gross Debt Service: The percentage of your gross monthly income that will be used for your mortgage payment, taxes, and heating costs (or if you are buying a condominium - half the monthly maintenance fees). As a general rule, your GDS ratio should not be more than 32% of your gross monthly income.
Total Debt Service: The percentage of your gross monthly income required to cover monthly housing costs, plus all other debt payments such as car loans or leases, credit card payments, lines of credit payments, and any other debt. Generally, your TDS ratio should not exceed 40% of your gross monthly income.
Required Documentation for Obtaining a Mortgage:
Accepted Agreement of Purchase and Sale
Feature Sheet/Listing Information with exterior photograph
Notice of Assessment from previous taxation year
Letter of Employment confirming annual income and length of employment
Proof of down payment
Other documents required by Mortgage Broker or Financial Institution
OTHER POTENTIAL COSTS
Ask your mortgage lender in advance about any extra potential costs so that you are prepared for closing:
The lender may deduct a mortgage processing fee (usually $250)
If the lender is paying your property taxes, they may deduct an amount off the top to create a tax account for you (could be an additional $1,000)
If you require mortgage insurance, then not only will the premium be deducted from the principal amount of your mortgage, but an additional 8% PST will also be deducted on closing
A good rule of thumb is to budget at least 2% of the property’s value for closing costs
Your Credit Report: Before applying for a mortgage, it is an excellent idea to order a copy of your credit report to ensure it does not contain any errors. A credit report is a summary of your financial history and indicates whether or not you have had any problems paying off debts in the past. The Financial Consumer Agency of Canada, a federal government agency, has tips on how to order your credit report for free and how to improve your credit rating.
For more information, visit the Financial Consumer Agency of Canada’s website: FCAC
THE STRESS TEST
Since January 2017, a “stress test” was introduced that requires financial institutions to screen your mortgage application by using a minimum qualifying rate equal to the greater of: (a) the Bank of Canada’s five-year benchmark rate; or (b) the financial institution’s contractual rate plus 2 percent points. Industry experts claim that this new test will reduce the buyer’s purchasing power by, on average, $31,000.00.
For more information, visit the Financial Consumer Agency of Canada: