Mortgage Info & Links

Mortgage Info & Links
Mortgage Info & Links 2017-01-04T01:45:22+00:00

 

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Some useful information and links about mortgages, buying a home, selling a home and owning a home. If you need further assitance, by all means feel free to contact us.
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Affordability

Mortgages

Down Payment & Finances

Buying a Home

Selling a Home

Helpful Links


How much can I afford?

Debt can become a huge burden if you’re not careful. So it’s important to keep your total debt load in balance, not just your mortgage payments. Simply, when purchasing a home, you need to focus on your entire financial well being.

There are two simple rules, mortgage professionals use when reviewing your mortgage application and how much you can afford:

  • Gross Debt Service Ratio (GDSR): Your monthly housing costs shouldn’t exceed 32% of your gross monthly income. Monthly housing costs include but are not limited to: your mortgage payments, property taxes, heating, and 50% of condominium or strata fees.
  • Total Debt Service Ratio (TDSR): Your entire monthly costs shouldn’t exceed 40% of your gross monthly income. Those expenses include but are not limited to: your housing costs and other debt such as: car loans/lease, credit card payments, personal loans and line of credit payments.

Try our Maximum Mortgage Calculator How much can you afford? Use our online Maximum Mortgage Calculator to calculate the maximum mortgage amount you qualify for based on your income.

Buying a home is one of the biggest financial decisions you will make. It’s important that you are making an educated decision with someone looking out for your best interest.

 


What are the monthly costs of owning a home?

Needless to say, you’ll have financial responsibilities as a home owner. 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 home buyers, 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 home owner, you’ll 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.


Document Checklist

Documentation and paperwork that could be required when applying for a mortgage

INCOME

  • Letter of employment
  • Recent Paystub
  • T-4’s (last 2 years)
  • Notice Of Assessment (last 2 years) from Revenue Canada
  • Separation or Divorce Agreement
  • Child tax credit confirmation with ages of children
  • Pension – 3 months statements
  • Business License (2 years)
  • HST Return (2 years)
  • T1 Generals (2 years)
  • Lease Agreements

REFINANCE

  • Proof of debts paid
  • Appraisal
  • Bankruptcy documents – ALL
  • Property Tax Statement
  • Mortgage statement, most recent
  • Void cheque
  • Water Test
  • Lawyer information

PURCHASE

  • Purchase and Sale Agreement
  • MLS Listing or Feature Sheet
  • Property Tax Confirmation
  • Appraisal if required
  • Sale of Existing home (Accepted Purchase & Sale Agreement)
  • Mortgage statement, most recent
  • Void cheque
  • Lawyer information
  • Realtor information

DOWNPAYMENT

  • Bank Statements (3 Months) and/or RRSP Statements
  • Sale of home (firm Purchase and Sale Agreement)
  • Mortgage statement (Existing)
  • Gift Letter

OTHER(For Lawyer)

  • Proof of house insurance
  • Driver’s License
  • Birth Certificate

 


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 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.

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. However, it is important to remember this is more of a “rate hold” than confirmation you will be approved for a mortgage. A good mortgage broker will want to review all of your income and down payment confirmation before advising you have been “pre-approved”.


Do I need a mortgage Pre-aproval?

Know exactly how much home you can afford before you begin house hunting. Pre-approved mortgage financing saves you time and gives you real negotiating power when it comes time to writing an offer.

Getting pre-approved means completing a mortgage application before you go house hunting. With a pre-approval on a mortgage:

  • You can confidently shop for a home
  • You know how much you can spend
  • You know the interest rate
  • You know how much your monthly payments will be
  • You could be protected against interest rate fluctuations since your interest rate may be guaranteed for up to 120 days – if rates go down within these 120 days, your rate will automatically be lowered
  • You become a more attractive buyer and real estate client – the Realtor and seller know you’re serious and it may put you in a better position against other homebuyers who are not preapproved.

If you are looking for a pre-approved mortgage, it’s important that you are making an educated decision with someone looking out for your best interest.


Short Term or Long Term, Fixed or Variable?

Choosing between a short or long term and fixed rate or variable rate depends on:

  • The level of interest rate risk you can take
  • Your flexibility
  • The level of security you need.

Generally, you get lower interest rates with a shorter term (i.e. 1 year) and higher interest rates with a longer term (i.e. 5 year).

Consider a short term mortgage when:

  • You are willing to follow interest rates closely and risk a higher rate when your term is up for renewal
  • You think the current interest rate is high and expect interest rates to fall in the short term.

 

Consider a long term mortgage when:

  • You prefer stability so that you are guaranteed the same payments for a longer duration.
  • You think interest rates are likely to go up during your mortgage term.

In addition to choosing the length of your mortgage term, your mortgage interest rate can be fixed or variable.


Fixed Rate

A fixed rate is a guaranteed rate for the length of your mortgage term.

Consider a fixed rate mortgage when:

  • You prefer stability so that you are guaranteed the same payments
  • You have a tight monthly budget
  • You are a first-time home buyer.

Variable Rate

A variable rate fluctuates with the market prime interest rate.

Consider a variable rate mortgage when:

  • You can tolerate interest rate fluctuations in order to take advantage of possible lower interest rates.
  • You are a seasoned home buyer.
  • You have job stability.

Buying a home is one of the biggest financial decisions you will make. It’s important that you are making an educated decision with someone looking out for your best interest.

 


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.

 


What should the length of my mortgage term be?

The length of mortgage terms varies widely – from six months right up to 25 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:

  • 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.
  • Do you believe that interest rates have bottomed out and are not likely to drop more? If that’s 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.
  • Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
  • Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that’s the case, a short mortgage term may best suit your needs.

 


Mortgage Loan Insurance – What is it?

Lenders will require mortgage loan insurance if a borrower has a down payment of less than 20% of the purchase price of the home. By protecting lenders against borrower default, Mortgage Loan Insurance companies, (such as CMHC & Genworth), create and opportunity for Canadians to realize their dreams of homeownership. When you but your home sooner, you grow equity faster. Click here for more information about Mortgage Loan Insurance.

 

Should I wait for my mortgage to mature?

Lenders 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 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.

 


How do I pay off my mortgage faster?

Paying off your home doesn’t have to take a lifetime. By planning ahead and sticking to the plan, you have the opportunity to pay your mortgage off faster. Here are seven ways to pay your mortgage down faster and decrease the amortization and interest costs off your mortgage:

 

  • Choose a mortgage with a prepayment option – A prepayment option gives you the right to prepay specified amounts of your mortgage principal
  • Shorten your amortization period – By shortening your amortization period to less than 25 years you can create huge interest savings
  • Increase your regular mortgage payment – Increasing your regular mortgage payment helps you reduce your mortgage principal faster, which means you save interest
  • Increase your mortgage payment frequency – If you increase the frequency of your mortgage payments from monthly to accelerated bi-weekly, you are making one additional monthly payment every year, which will cut your interest cost over the life of your mortgage
  • Invest your tax refunds and cash windfalls – If you find yourself with more money than you anticipated, you should consider making a lump-sum mortgage payment against the principal. Your mortgage principal will decrease and you won’t have to change your spending habits
  • Invest your pay raises – If you find yourself with a pay raise, increase your mortgage payment amount. Increasing your mortgage payment helps you to reduce your mortgage principal faster
  • Keep your mortgage payments high – When the time comes to renew your mortgage, keep your mortgage payments high even if you’re tempted by lower interest rates and a lower monthly payment. If you stick to your original plan, you’ll pay off your mortgage faster and enjoy huge interest savings over the life of your mortgage.

Buying a home is one of the biggest financial decisions you will make. It’s important that you are making an educated decision with someone looking out for your best interest.


Can I get a mortgage to purchase a home?

Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, Canada Mortgage and Housing Corporation, GE Capital and AIG, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.

Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.

 


What is a down payment?

Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.

The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.

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

 


What is the minimum down payment needed for a home?

Usually the minimum down payment of 5% is required to purchase a home, subject to certain maximum price restrictions, (a purchase price in excess of $250,000 requires a minimum of 10% as a down payment).

In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, where applicable). 1.5% of the purchase price is the recommended savings to cover closing and this must be from your own resources, cannot be borrowed or gifted. See our section called “Forms and Documents” and click on “Closing Costs – Purchase”.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. It cannot be borrowed.

Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in your possession before the application is sent in to CMHC for approval.

Mortgages with less than 20% down must have mortgage loan insurance provided by CMHC, GE or AIG. See our section “Forms and Documents”, then click on “Gift Letter”.


Can I use gift funds as a down payment?

Most lenders 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 GE Capital or AIG this is not a requirement. See ‘what is mortgage loan insurance?’ for further information. See our section “Forms and Documents”, then click on “Gift Letter”.

 


Lease Agreement

Considering renting your current property when you move to your new home? Have a lease agreement signed by yourself and your future tenants.

 


Gift Letter

Mortgage Gift letter is what the donor of the gift writes to the lender stating that he has offered a gift of money to the home buyer. Download Gift Letter here.

 


How does bankruptcy affect qualification for a mortgage?

Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing 2 years after you have been discharged providing you have satisfactory re-established credit.

 

How will child support affect 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. Some lenders will also take into consideration Child Tax Credit as income providing the child or children are 12 years or younger.


I’m Buying a Home – What costs can I expect?

Firstly, you need to come up with the minimum 5% down payment, (some exceptions apply). Over & above the down payment, there are additional “closing costs” associated with purchasing a home. You need to have a minimum amount of 1.5% of the purchase price available, (& provable by bank statements). Depending on the size and value of your home, combined closing costs can range from $1,000 — $3,000 or higher. Your lawyer will be able to provide exact numbers. Closing Costs – Home Buying Considerations

 


Home Buying Guide – CMHC

When buying a home, you have to juggle three important factors your prospective home’s location, style and cost.Here’s a handy worksheet to help you evaluate the details of each individual homes that you view. Home Buying Step by Step – CMHC.

 


Title Insurance

Title insurance protects you against challenges to the ownership of your home and against losses due to undetected or unknown title defects, even if the defects existed before you purchased the home.

What is a home inspection and should I have one done?

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.

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.

How can you use your RRSP to help you buy your first home?

Today, about 50% of first-time home buyers 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 ($50,000 for a couple) 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’re using must be on deposit for at least 90 days. You’ll 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 out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation. See our section “Forms and Documents” for additional information.

 


Home Buyers Plan Guide – RRSP

Use this guide if you want information about the rules that apply to the Home Buyers Plan (HBP).Download the Home Buyers Plan here.

 


Home Buyers Plan – RRSP withdrawal form

Use this form to make a withdrawal from your registered retirement savings plan (RRSP) under the Home Buyers Plan (HBP). Home Buyers Plan – RRSP Withdraw Form.

 


Home Buyer Tax Credit

For 2009 and subsequent years, the HBTC is a new non-refundable tax credit, based on an amount of $5,000, for certain home buyers that acquire a qualifying home after January 27, 2009 (i.e., generally means that the closing is after this date). Home Buyer Tax Credit.

 

 


I’m Selling my Home – What costs can I expect?

Closing Costs – Home Selling Considerations