Frequently Asked Questions

How much can I afford to pay for a home?

To find out how much you will be able to pay for your new home, you need to analyze your taxable income along with the amount of debt that you have to pay off through monthly payments. If it is your main residence that you are going to purchase, calculate approximately 35% of your income to make the mortgage payment, property taxes and heating costs.

Next, you need to calculate 42% of your taxable income and from that, deduct all of your other monthly payments such as car loans, credit card bills and other such debts. The lesser of these two calculations will be used to determine how much of your income may be used towards housing related payments, including your mortgage.

Apart from what the ratios tell you, you should make calculations of your own to determine how much you can afford. If the payment amount you are comfortable with is less than 35% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you take all other expenses into consideration too so that you can easily afford the basic luxuries.

What is a Home Inspection? Should I have it done?

A home inspection is a visual examination of a house by a qualified professional to determine the overall condition and value of the home. When conducting a proper inspection, an authorized home inspector should check all the major components of the house such as the roof, ceilings, walls, and floors along with other systems such as the electrical connections, heating, plumbing and drainage and weather proofing. The inspector usually gives the results of the inspection in writing to the homeowner within 24 hours of the inspection.

It is always advisable to get a home inspection done before making a purchase decision? A thorough inspection is likely to clear a majority of the doubts that you might have when purchasing a home. The inspection gives an idea about the quality of the construction and indicates whether any major repair work will be required. This allows you to calculate all the add-on costs before making the final decision. An inspection will definitely give you a more secure feeling about your purchase decision by removing most of your doubts.

What is the minimum down payment that you need to make when purchasing a home on a mortgage?

To borrowers with good credit and that meet the income qualification guidelines, we have several programs available that will allow a down payment as little as 5%. However, you must be able to show that you have the capacity to cover other closing costs such as the legal fees, disbursements and land transfer taxes (if applicable).

As a rule, if you have a down payment, it must be from your own cash resources or a gift from a family member. This cannot be a borrowed amount. Several programs are available in the market that allow some alternate sources of down payment. Certain lenders also accept gift money from a family member as a down payment. However, such a sum needs a signed letter from the donor stating that it is a gift and not a loan.

For any down payment that is less than 20% of the total value, loan insurance from either CMHC, GE or CG is required.

What is Mortgage Loan Insurance?

Mortgage Loan Insurance is an insurance cover provided to a lender against default on mortgage installments, when the down payment amount is less than 20%. Like any other insurance, mortgage loan insurance too requires premium payments. The premium amount can vary between 0.5% to 3.75%, depending on the insurance provider and how much of the purchase price is financed by the mortgage; greater the down payment, lesser will be the premium. Mortgage loan insurance is distinct from Mortgage Life Insurance as the latter guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

What is a Conventional Mortgage?

A conventional mortgage is one in which the down payment amount is equal to more than 20% of the purchase price (or where the loan value is less than 80%). Such a mortgage normally does not require mortgage loan insurance.

What is a High-Ratio Mortgage?

A mortgage, which is greater than 80% of the purchase price or appraisal, whichever is less, is known as a High-Ratio mortgage. A High-Ratio Mortgage requires mortgage loan insurance. Premiums for a mortgage loan insurance can range from 0.5% to 3.75%, depending on the value of the mortgage.

What is a pre-approved mortgage? What is the benefit of getting pre-approved?

A pre-approved mortgage is one that provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 120 days) and for a set amount of money. The pre-approval is calculated on the basis of information provided by the borrower and is subject to certain conditions being fulfilled before the mortgage if finalized. These conditions usually include factors such as a written confirmation of employment and income among other things. Many brokers prefer it when their clients have a pre-approved mortgage as this gives a clear idea of the affordable price range when hunting for a new home.

The benefits of getting a pre-approved mortgage are many. First of all, a pre-approval gives you an idea of what you can afford, making your search for a new home much simpler. It also does away with the tension of trying to find out what your monthly installments are going to be. Probably the greatest advantage of getting a pre-approved loan is that it allows you to lock in a rate. As the lender guarantees a fixed rate when pre-approving the mortgage, the borrower can secure that same rate even when the market prices climb up. In case a situation arises where the interest rates fall below those that were pre-approved, the lenders offer the lower rate.

Can I qualify for a mortgage if I have been declared bankrupt?

Some lenders may consider you eligible for a mortgage even though you have faced bankruptcy. However, this decision may vary from lender to lender and will greatly depend on the circumstances surrounding the bankruptcy. Certain measures can be taken by the prospective borrowers to improve their credit rating. Approach your Mortgage Broker for details.

What is the documentation required to obtain a mortgage?

To make your mortgage application process as simple and lucid as possible, it is advisable that you collect all these documents beforehand so as to avoid any interruptions later.

  • Personal information and identification such as your driver’s license or passport.
  • Job details, including confirmation and proof of income.
  • Your sources of income.
  • Proof of financial assets.
  • Information and details of all your bank accounts, loans and other debts.
  • Source and amount of down payment.
  • Proof of source of funds for the closing costs (usually about 2.5% of purchase price)

For a detailed list of supporting documents, please click on the link below.

Required Supporting Documents (PDF)

How will child support and alimony affect my mortgage qualification?

If you are paying child support and alimony to another person, generally the amount paid out is deducted from your total income before determining the mortgage amount that you would qualify for.

If you are receiving child support and alimony from another person, the amount paid to you will be added to your total income before determining the mortgage that you will qualify for. However, you will be required to produce a regular receipt for the same for a set time period as specified by the lender.

What is the difference between a fixed rate mortgage and a variable rate mortgage?

In a fixed rate mortgage, the interest rate is pre-determined at the beginning of the loan term, which can range from 6 months to 10 years. The advantage of this type of mortgage is that it offers a security of knowing your monthly payments beforehand and allows you to plan accordingly.

In a variable or floating rate mortgage, the interest rates can fluctuate every month depending on the market conditions. If the interest rates drop, more of the payment goes towards reducing the principal; if the rates go up, a larger portion of the monthly payment goes towards covering the interest. The interest rate is based on a predetermined formula which is in-turn based on the prime-lending rate.

Do you charge a fee to arrange my mortgage?

In most cases we do not charge a fee to our client to broker their mortgage. Those deals are typically “A” first mortgage and most “B” deals as well. In special circumstances, hard to place financing or private deals the deal may be subject to a fee. Your broker or agent will discuss this with you upfront before proceeding, we are always upfront and you will NEVER incur a hidden cost from us.

Why would I use a Mortgage Broker and not my bank?

There are many reasons why it is beneficial to the client to work with a Mortgage Broker. For starters, we have access to many more products than a bank does. Picture walking into a certain car dealership and you’re needs suggest you should be driving a 4×4, but this particular dealership doesn’t sell 4x4s, they will try and put you in something that they do offer to keep you with them. A broker will go above and beyond to get you the best terms possible. A banker collects his salary regardless; people will keep coming through the doors of the bank. A brokerage has a reputation to uphold and a business to grow. There are many more reasons a broker can be advantageous to you the client. Check out our article on this for some more details.

My mortgage is expiring with my bank. Do I have to renew with them?

Absolutely not, you as the consumer have the right to shop around to ensure you receive the best terms and mortgage rates available to you. In fact, banks will typically send you a mortgage renewal sheet for you to sign and return and the rate offered is often higher than what they are actually able to offer you. At time of renewal, contact us and we will do an in depth review of your renewal offer. If that is the best option for you, we will advise you to stay where you are. If we can put you in a better position, then we will do so. We will always ensure you have the best product possible.

Do I need a Pre-Approval?

A pre-approval is not mandatory; however it can prove to be very useful for several reasons. When you are pre-approved, you lock in your interest rate for 120 days and therefore are protected against any rises. You will also know exactly how much you qualify for so you can shop in a more specified price range, saving you time and stress. Lastly, you will have a better idea of your qualifications so if you get into a multiple offer situation; you will have the confidence to go in firm if needed. (We do not advise you go in firm prior to discussing with a professional)

What is meant by mortgage term?

Term is the difference between the start and maturity date of the mortgage. You can choose terms of just 6 months, 1, 2, 3, 4, 5, 7, 10 or even a 25-year term. At the end of the term you can either pay off your mortgage, or renew with the same lender or another lender at terms of your choice.

What is better – short-term or longer-term mortgage?

The usual thinking is that you should take a longer-term to lock in low interest rates; when interest rates are higher, you should look to a shorter term – 6 mos. or 1 year. Whenever the interest rate spread between short term and a long-term mortgage rates are significant it is always better to take the shortest term possible. Currently, rates are historically very low, so most people are locking in for terms of 5 or even 10 years.

What is meant by amortization?

The amortization period is the number of years it takes to repay your mortgage in full. Often when you first get a mortgage it is amortized over 25 years. This means that if you maintained those terms and payment periods, your mortgage would be paid off in 25 years. However, in most cases the amortization period changes because different borrowing terms, interest rates and payments against the principal amount at each renewal vary the length of time required to pay off the mortgage. For example, going with a shorter amortization period – say 15 years for example – will result in higher payments per period, but save you money in interest by enabling you to retire your mortgage sooner.

What is the difference between a fixed and variable rate mortgage?

Fixed rate means that the rate of interest charged for the term of your mortgage is a set amount and does not change over the term of your mortgage. A variable rate mortgage is one in which the rate of interest will fluctuate in accordance with a bank trend setting rate. This is typically the bank prime rate. Adjusted on a predetermined basis, usually monthly, the rate can be set below, equal to or above the trend setting rate and will move up and down accordingly with that rate. A drop in interest rates will mean that more of your mortgage payment will go towards reducing your mortgage principle. If interest rates rise then less money will be used for reducing your principle and will instead be taken up in the higher interest costs. If you think interest rates will fall over the next 3 to 5 years then purchasing a variable mortgage would make sense.

Usually fixed rate mortgages will cost you more since the lender is unprotected from the possibility of future interest rate increases. You generally pay less for a variable rate mortgage because it is you that is taking the risk of uncertainty as to how interest rates will move – up or down.

What if I have variable interest rate mortgage and interest rates start to rise?

Most variable mortgages give you the right to switch to a fixed rate at any time, with no charge. If you think the interest rate rise is a long-term trend then you would exercise the option and switch to a fixed rate.

It is possible to negotiate a better mortgage rate?

Often it is possible to get an additional ½ to 1% off the lender’s posted ‘best available’ rate, if you know how to go about it. Using a Mortgage Broker allows you to effectively ‘shop around’ for the best rate among competing lenders. Often mortgagees will bid against each other when a buyer is represented by a consultancy service.

What is a high ratio mortgage?

A mortgage for more than 80% of the property value. Whenever you need a mortgage loan that is greater than 81% to 95% of the current market appraised value of your home it is considered a high ratio or insured mortgage. The insurance company insures the lender in case you default on your loan. You must pay for this insurance premium which is usually tacked on top of your loan. If the lender feels that you are still a risk for default even though you have paid more than 20% down the lender can insist that you insure the mortgage anyway. However, in this situation a Mortgage Broker would probably shop this mortgage to a lender that didn’t insist on insuring. The fees for insurance can be as high as 3.75% of the mortgage principal but is often not noticed by a borrower because of being added to your mortgage principal. Rates for a high ratio loan vary widely between lenders so it is best to use a Mortgage Broker to explore the best options for you.

What is the advantage of a pre-approved mortgage?

The purpose of a pre-approval is to confirm in writing the maximum amount of money that you can rely on for mortgage purposes. When interest rates are fluctuating, it’s an advantage to know what your borrowing limit is before you start house hunting. With a pre-approval, a lender will guarantee you for a specific mortgage amount for a period of time. If the mortgage interest rate drops before the lender advances the funds for a mortgage, you are given the lower rate. If the rates rise, you are given the rate at the time you had the mortgage pre-approved.

What sort of lenders do Mortgage Brokers usually deal with?

Mortgage Brokers typically do business with the leading lenders, including the chartered banks and major financial institutions.

I have my own question, how do I contact you directly?

We are very easily accessible and welcome any and all inquiries. You can either fill out one of our many contact forms on our site, or you can call/email us directly. Either way, we will make sure to get back to you as quickly as possible and answer all your questions. We also encourage you to post your questions on our forums for other home owners to see. All of our readers are very responsive and usually happy to help any way they can. Use the tools we have provided.

Call 905-265-0246 or email mortgages@thefinancialforum.ca for more information.

What Are Blended Mortgage Rates?

A blend and increase allows you to increase your existing mortgage. The new funds you will receive will be at current prevailing mortgage rates. This rate will be blended with your current rate proportionally.

This can be an effective method of refinancing if there are limitations with your existing mortgage such as a large pre-payment penalty.

For example, your home is currently valued at $400,000 and your mortgage is $200,000 at a 3.5% fixed interest rate with 2 years remaining until expiry. You want to add an additional $50,000 to your mortgage to renovate and consolidate some debt. Current interest rates for a 2 year term are now at 3%. You will still pay 3.5% on the remaining $200,000 balance for the remaining two years, but will be 3% on the “new money”. Your rate will be averaged to reflect this blended rate.

We evaluate all options for you and will recommend what will work best. Call us at (905) 265-0246 or email us at mortgages@thefinancialforum.ca

Can I Break My Existing Mortgage?

When mortgage rates are low, most start to look at breaking their existing mortgage and if it’s wise to do so to take advantage of the lower rates. However, in most cases, you will have a closed mortgage and will incur some type of a pre-payment penalty or charge. Bottom line is that your existing lender has committed to you for a specified period of time. If you pay them out early, they want to re-capture some of the lost revenue and re-investment costs.

If you have an open mortgage, it can be paid off at any time. If you have a closed mortgage, as most do, you should expect a pre-payment penalty of some type, depending on your lender and the terms of your mortgage.

So, is it worth it to pay off your mortgage and capture a lower rate? Simple answer is maybe. It’s math. We must calculate the penalty costs and compare them to the interest rate savings with the lower rate. You must be at even or ahead of the game within the amount of time of your existing term expiry.

Another factor to consider is where interest rates will be at expiry. There is no crystal ball, but if you feel that at expiry you could be faced with much higher renewal rates, then absorbing a pre-payment penalty may also be an option to consider.

Every situation is unique. We would be pleased to go through this with you and analyze the costs against the benefits. If the situation has merit, we can assist you through the process.

Call us at (905) 265-0246 or email us at mortgages@thefinancialforum.ca. Let’s get started.