Mortgage Canada

Mortgage FAQs

About imortgagescanada:

1. What is the cost of using a Mortgage Professional?

2. Is there any other reason, other than getting the lowest interest rates, for using a Mortgage Professional?

3. Why do you have such a large selection of mortgage programs?

4. How quickly can someone get back to me?

5. Can you do mortgage across Canada?

6. Will anyone else see my personal information?

7. What happens if I am not satisfied with a mortgage offer from imortgagescanada?

Advice:

• Can I still qualify for a mortgage if I have declared bankruptcy, OPD, or a Consumer Proposal?

• How does child support affect qualification for a mortgage?

• Should I wait for my mortgage to mature before looking at my options?

• How can I pay off my mortgage sooner?

• What should the length of my mortgage term be?

• Is there ever a good time to break my closed mortgage and incur a prepayment penalty?

• Are there penalties when I switch my mortgage to another lender?

• If I see or anticipate a dramatic increase in interest rates should I lock-in my variable mortgage rate?

• Is it possible to negotiate a mortgage interest rate?

• Can I get a mortgage if I am self employed?

Downpayment:

• What is a downpayment?
• How much do I need for a downpayment?
• What is the minimum downpayment needed to buy a home?
• Can I use gifted funds as my downpayment?
• How can I use my RRSP to help me buy my home?

Affordability:

• How much can I afford to pay for a home?
• How much can I afford?
• What are the costs associated with buying a home?

• What are the monthly costs or owning a home?

• How can a co-signer affect my qualification for a mortgage?

Pre-approvals:

• What is a pre-approval

• Should I get a pre-approval?

• Why should I consider a pre-approval?

• What is the difference between a pre-qualification, a pre-approval, and a mortgage commitment?

• What documents do I need for a pre-approval?

Mortgage Terminology:

• What is mortgage loan insurance?

• What is a Mortgage Professional?

• What are closing costs?

• What is a home inspection?

• What is the difference between term and amortization?

What is the documentation required to obtain a mortgage?

                                                                                                                                                                                                                                                        

What is the cost of using a Mortgage Professional?

For the vast majority of residential mortgages there is no fee paid by you. Instead the lender pays a finders fee to us. This finders fee is pretty much the same from all of our lenders so there is no reason why we would choose one lender over another except in your best interest. If it is the case that extra work needs to be done or we need to use a lender who specializes in alternative mortgages for people such as the credit impaired there may be a fee charged. However, you can be certain that you will be made aware of any fee being charged at the very beginning of our discussion.                                                                                                                                                                                                                      

 Is there any other reason, other than getting the lowest interest rates, for using a Mortgage Professional?

• Of course! Your Mortgage Professional has the knowledge and experience to identify the best mortgage program for you based on your needs and goals. Then, they will source among dozens of lenders to find the one who offers the lowest rate. Imagine doing that for yourself; going to every bank and keeping track of all their rates. Your Mortgage Professional will only run a credit check once and use it to shop for you to all of the lenders. If you did that yourself each bank would have to pull your credit thereby reducing your credit score.

• After your mortgage closes, your Mortgage Professional will continue to work for you. If they identify a way you can save money on your mortgage they’ll be sure to let you know! They’ll also be there when your mortgage matures to see if your situation has changed.

• There’s a reason why most people have a regular doctor versus going to the clinic whenever they are ill. A regular doctor knows you and your health history. Similarly, a Mortgage Professional will come to understand your financial health and be able to anticipate your needs as time progresses.

Why do you have such a large selection of mortgage programs?

• If you walk into your bank, they will have one set of interest rates and one set of mortgage programs. We have access to dozens of banks and, therefore, dozens of mortgage programs and interest rates. Some of our lenders like to specialize in a particular type of mortgage so they’ll offer lower rates for that type. Other lenders may have some “interest rate specials” going on and you may qualify for them. When it comes to mortgages, the more options you have the better because it will allow us to find the mortgage program that best fits your needs.

How quickly can someone get back to me?

• You’ll hear back from a live Mortgage Professional within 4 business hours or the next business day if you contact us after hours. It’s important that you give us your full contact information so that we can get back to you.

Can you do mortgage across Canada?

• We’ve done mortgages from Victoria, British Columbia to Herring Cove, Nova Scotia if that answers your question.

Will anyone else see my personal information?

• We will not sell one’s information under any circumstances. Furthermore, due to the personal nature of the information that we receive, only one of the Mortgage Professionals will see it.

What happens if I am not satisfied with a mortgage offer from imortgagescanada?

We will strive to offer you the best mortgage program available to you given your current needs and current situation. However, if you are still not satisfied then simply don’t accept it. You have no obligation to accept any of the offers that are made to you by imortgagescanada.ca or any of our affiliated lenders.

Can I still qualify for a mortgage if I have declared bankruptcy, OPD, or a Consumer Proposal?

• 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 insolvency. Certain measures can be taken by the prospective borrowers to improve their credit rating. These situations are highly specific to the individual so you’ll want to speak to a Mortgage Professional to get more detailed answers.

How does child support affect qualification for a mortgage?

• If you are paying child support and/or 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, however some lenders will simply work it in to your Total Debt Service Ratio (TDS)

• If you are receiving child support and/or alimony from another person, the amount paid to you may be added to your total income before determining the mortgage that you will qualify for. For such income, unless it is clearly indicated by way of a Court Order, you will be required to produce at minimum a 90 day track record that demonstrates the income is constant. It is possible it may not be admissible.

Should I wait for my mortgage to mature before looking at my options?

• 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 investigate the possibility of a lower interest rate with the lender or another lender. Or contact a Mortgage Professional. If you do not you may end up paying a much higher interest rate on your renewing mortgage than you need to.

• In addition, because mortgage interest rates are always fluctuating, it may be worthwhile for you to break your existing mortgage (even with a prepayment) penalty).

How can I pay off my mortgage sooner?

- There are ways to reduce the number of years to pay down your mortgage. You’ll enjoy significant savings by:

• electing a non-monthly or accelerated payment schedule

• Increasing your payment frequency schedule

• Making principal prepayments

• Making Double-Up Payments

• Selecting a shorter amortization at renewal

What should the length of my mortgage term be?

- The length of mortgage terms varies widely – from six months right up to 10 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate.

While four or five year mortgages are what most home buyers typically choose, 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.

Before selecting your mortgage term, we suggest you answer the following questions

1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.

2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that is the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.

3. Are you looking for security as a first-time homebuyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.

4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that is the case, a short mortgage term may best suit your needs.

Depending on how you answer these questions, a Mortgage Professional will be able to determine what terms are the best for your needs.

Is there ever a good time to break my closed mortgage and incur a prepayment penalty?

• Absolutely. A good rule of thumb is whenever making a change will result in a 2% – 3% interest rate saving. The interest rate drop will absorb any prepayment penalty over the next 5 years in any switch when the spread between the old rate and the new mortgage rate is great enough. Additionally, if you switch and keep your mortgage loan amount the same there are usually no legal fees involved – just a simple ‘no fee’ switch with the new lender.

 

Are there penalties when I switch my mortgage to another lender?

• If you switch from one lender to another at your renewal date there will not be any penalties whatsoever. If you switch before your maturity or renewal date there may be a penalty. If you have an open mortgage there probably will not be any charge. If you have a closed mortgage you will most likely have a cost.

• Our Mortgage Professionals can offer strategies to reduce any penalties that may be incurred. Remember, even if there is a penalty, your potential savings could surpass it by a wide margin. It’s worth it to double check if you can benefit from switching your mortgage.

If I see or anticipate a dramatic increase in interest rates should I lock-in my variable mortgage rate?

-Where are you getting your information from? Your neighbour or your newspaper? It’s important to speak to a Mortgage Professional before making this decision because we have direct and informed knowledge of the mortgage market. Mortgages are all we do so you can be sure that our advice is backed by our experience in the industry.

Is it possible to negotiate a mortgage interest rate?

• When your bank quotes you an interest rate it will often be higher than the lowest rate you qualify for. If you don’t try to negotiate the rate you’ll be stuck with a higher rate than what you could have received. Our Mortgage Professionals will always find you the lowest rate you qualify for so you won’t have to negotiate with us.

Can I get a mortgage if I am self employed?

• You can definitely get a mortgage if you are self employed. Lenders have a different set of criteria when lending to someone who is self employed and they will likely need a little more financial information from you. This is because it’s not as easy to confirm employment details when you are self employed. A Mortgage Professional will work with you and make sure you understand what additional information is required and why it is necessary.

What is a downpayment?

• The down payment is the portion of the purchase price that you will be paying yourself. The downpayment is the single most important thing you should determine early on before buying a home.

• The larger the down payment, the less your home costs in the end. With a smaller mortgage, interest costs will be lower and over time, this will add up to significant savings.

• Having said that, a large downpayment is not exactly an easy thing to get and saving up a large down payment may take some time. The time it takes to save up a large downpayment will mean you won’t be enjoying the benefits of owing a home over that time.

• Therefore it is important that you understand the minimum you’ll need as a downpayment in order for you to purchase your home.

How much do I need for a downpayment?

• In accordance with the guidelines of the Canadian Mortgage and Housing Corporation (CMHC), you must have a minimum down payment of at least 5% of the total cost of the prospective property. With a down payment between 5 – 19.99%, your mortgage is deemed “high-ratio”. A high ratio mortgage is subject to a CMHC premium.

• With a down payment of 20% or more, the mortgage is deemed “conventional”. A conventional mortgage is not subject to a CMHC premium. Thus, a larger down payment has a two-fold advantage to the prospective homebuyer. First, you will avoid CMHC premiums with 20% down payment. Secondly, a larger down payment will relate into smaller monthly payments, or a shorter amortization; both of which lead to interest savings over the life of the mortgage.

What is the minimum downpayment needed to buy a home?

• A minimum down payment of 5% is required to purchase a home, subject to certain maximum price restrictions.

• Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. Some lenders will allow you to use borrowed funds as your downpayment but there are certain restriction to this.

• Mortgages with less than 20% down must have mortgage loan insurance provided by CMHC, Genworth, or Canada Guaranty.

Can I use gifted funds as my downpayment?

• Most lenders will accept down payment that are gifted from immediate family. A gift letter signed by the donor is usually required to confirm that the funds are true gift and not a loan.

How can I use my RRSP to help me buy my first home?

• Many first-time homebuyers use their RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can 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.

• To qualify, the RRSP funds you are using must be on deposit for at least 90 days. You will also need a signed agreement to buy a qualifying home.

• Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers’ Plan. For example, if you had already saved $25,000 for a down payment – and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers’ Plan.

• The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.

While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.

How much can I afford to pay for a home?

- To determine your level of ‘affordability’ you will first need to know your gross income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence, you are purchasing; calculate 32% of your income 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, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. 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 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.

How much can I afford:

The amount of a mortgage for which one can qualify is generally founded in what are known as qualification ratios: Gross Debt Service ratio and Total Debt Service ratio, or “GDS” and “TDS”. Lenders evaluate one’s monthly income, as well as their monthly debt obligations, to determine a fair and feasible amount of mortgage available to the prospective borrower. This figure is calculated via their GDS and TDS guidelines. Generally, lenders will have an acceptable Gross Debt Service ratio of 32%. In other words, 32% of your monthly household income can be reasonably set aside for one’s mortgage payment, in the eyes of the lender. Furthermore, most lenders will have an acceptable Total Debt Service ratio of 40%. In other words, 40% of your monthly household income can be reasonably set aside for one’s total debt obligations, including their impending mortgage payment.

• Lenders will often allow leeway on the above calculations provided you pass certain criteria. Please contact us for more details.

 What are the costs associated with buying a home?

- Primarily, you have to make sure you have enough money for a down payment – the portion of the purchase price that you furnish yourself.

To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.

Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price).

If you want to have the home inspected by a professional building inspector – which we highly recommend – you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they do not, then ask for one.

You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.

There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax – a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.

Finally, you will be required to have property insurance in place by the closing date. In addition, you will be responsible for the cost of moving.

Remember, there will be all kinds of things you will have to purchase early on – appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.

What are the monthly costs or owning a home?

- You will have financial responsibilities as a homeowner.

Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.

The Mortgage Payment
For most homebuyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.

Property Taxes
Property tax can be paid in two ways – remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.

School Taxes
In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.

Utilities
As a homeowner, you will be responsible for all utility bills including heating, gas, electricity, water, telephone, and cable.

Maintenance and Upkeep
You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home’s market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.

How can a co-signer affect my qualification for a mortgage?

• A co-signer may be able to increase the amount you can afford for a home. There are certain things that this co-signer must be made aware of, however. You shouldn’t simply ask someone to co-sign for your mortgage without speaking to a Mortgage Professional first.

What is a pre-approved mortgage?

• A pre-approved mortgage 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 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.

Should I get pre-approved?

• It makes a lot of sense!

• Once you apply for a pre-approved mortgage, you’ll know how much you can reasonably borrow to buy a home. It tells you what your payments will be, and it defines a realistic price range for your financial situation.

With a pre-approved mortgage, you can lock in at today’s rates. If rates go down before you complete the purchase, you will automatically get the lower rate for the term you selected. This protection could save you a substantial amount of money if interest rates fluctuate while you’re house shopping.

• With a pre-approved mortgage, you’re much better prepared to shop for a home:

• • You’ll have a clear idea of what you can afford in terms of price, down payment, legal fees and other expenses.

  • You’ll be able to make an offer when you find a perfect home.

• A pre-approved mortgage puts you under no obligation and is available to you at no cost.

Why should I consider a pre approval?

• A pre approval is needed in order to ensure you qualify and how much of a loan you are entitled to considering both your credit, and your family income.  Having a pre approved mortgage allows you to shop for you new home more confidently, removes stress, and also protects your approved rates if rates go up.  If they come lower, you will receive the lower rate instead.  Either way, you will benefit, and it is especially recommended for first time buyers and for those people who do not have a good credit rating.

What is the difference between a pre-qualification, a pre-approval, and a mortgage commitment?

- If you are just getting started in the hunt for a new home, it is important to know the difference between pre-qualifying, pre-approval and a loan commitment. It is not enough to simply begin looking for the home of your dreams. It is critical that you determine the price range that you can afford, get qualified for a loan, and understand all of the steps to assist you in securing that perfect property when you find it.

Pre-Qualification

Pre-qualification does not mean that you have been approved for a loan, but it is an important component of the home buying process. You have to know what you can afford before you look. Pre-qualification will save you time and ultimately money.

A Mortgage Professional can help you determine your qualification. You should candidly discuss your financial situation with him or her and not withhold any information. Most likely, your mortgage consultant will want to know your yearly household income as well as your assets and liabilities. If you can discuss your finances openly and determine what you can reasonably qualify for a loan, then no one’s time will be wasted. Otherwise, your agent may end up being a tour guide, showing you beautiful houses that you will never be able to get a mortgage for rather than helping you find an appropriate property to make an offer on. However, pre-qualification does not mean that much to sellers. It is more of a tool to help potential buyers figure out their price range.

Pre-Approval

Pre-approval is a firmer commitment that is based on more information than pre-qualification. A mortgage broker or lender will need to do a thorough credit investigation and it is particularly important that you disclose all financial information that is requested. The amount that you are approved for will be the amount that the lender is committed to loan for the purchase of a house. Getting pre-approval may give you more bargaining power when you are negotiating the price of a home.

If the seller knows that you are approved for the loan, already you may have more leverage. In fact, it is a good idea to plan to get pre-approved. Some real estate agents will not waste their time showing homes to potential buyers who do not have a pre-approval, especially in a hot market. However, pre-approval does not necessarily mean that you will ultimately get the loan. The final approval will still depend on verification of the information provided and approval of the home you wish to purchase.

Mortgage Commitment

A loan commitment is a letter that is issued by the lender that states that they will fund your mortgage. This letter may include details of your interest rate and the maximum amount of loan they will offer. This sort of commitment requires that both you and the house be approved. This means that the home will need to be appraised at the sale price or higher and must meet the lender’s guidelines.

Once you are approved, do not make any big changes to your finances. Changing jobs, banks and taking out other loans can lower your credit rating, change your debt-to-income ratio and ultimately keep you from getting the loan. Now is not the time to buy that new car, big screen television or to take an expensive vacation. The mortgage company may make one last credit check even if you have a loan commitment.

What documents do I need for a pre-approval”

• Generally all you need is a completely filled out application.  However if you want a firm pre-approval you should be willing to provide documentation with respect to income confirmation by way of employment letters, T4 slips, tax assessments and proof of your down payment.  This is important because when you do find and purchase the home, it will be required and best if these documents are verified before.

What is mortgage loan insurance?

• Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth and Canada Guaranty, both approved private corporations. 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, ranging from .50% and up depending upon your down payment & amortization, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.

What is a Mortgage Professional?

• A Mortgage Professional is a licensed and regulated individual who works on your behalf to get you the best mortgage rates and terms. Advice from a Mortgage Professional is backed by many years of knowledge and experience in the industry. Unlike a representative at your bank we’re not trying to sell you mutual funds, RRSPs, credit cards, or savings accounts. Mortgages are all we do and we’re good at it.

What are closing costs?

- On the day one actually purchases their new home they are required to pay certain costs associated with this endeavour. In addition to one’s down payment, the prepaid property tax and homeowner’s insurance premiums there will be other fees to consider:

• Survey Charges.

• Land Transfer Taxes.

• Attorney Fees and Disbursements.

• Garbage Disposal Fees.

• Title Insurance.

• Fire Insurance.

Your real estate transaction may be subject to HST! Check with your real estate agent for this.

What is a home inspection?

• A home inspection is an examination of the structure and systems: heating and air conditioning, plumbing and electrical, roof, attic, insulation, walls, floors, ceilings, windows, doors, foundation, and basement. If the inspector finds problems, it does not mean you cannot sell your house, but you can be certain a buyer inspection will find them too. Finding problems before you list your property can avoid accusations of misrepresentation, low offers, and even lawsuits. A home inspection can also help sellers comply with new, tougher disclosure laws enforced in many states.

• You may or may not want to make the repairs and you can always adjust the selling price or contract terms if the problems are major. This information will also help you determine what type of financing will or will not be available for your home. You can find home inspectors under Professional Services section.

What is the difference between Term and Amortization?

• The “term” of the mortgage should not be confused with the “amortization”. The amortization of the mortgage refers to the entire length of time that it will take for the mortgage to be paid and the house to be “free and clear”. The term is the period for which your current payment obligations are valid. In other words, you may choose a five-year term and a 25-year amortization. This would mean that your interest rate, your payments, and your pre-payment options would be the same for the next five years. At the end of these five years, you would re-negotiate the term, and the amortization would now be 20 years.

What is the documentation required to obtain a mortgage?
To make your mortgage application process as simple as possible, it is advisable that you collect the following 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. Usually a letter of employment coupled with a recent pay stub. Depending on the type of income and employment you have, you may be required to provide additional proof of income, your broker will assist you in determining if this is necessary.

• All additional sources of income (pension, superannuation, RIFS, etc.)

• List of assets.

• Information and details of all debts from Banks or other Creditors.

• Source and amount of down payment.

• Proof of source of funds for the closing costs (usually about 1.5% of purchase price)