Posts

Verifying Your Down Payment When Purchasing

 

Saving for a down payment is one of the biggest challenges facing people wanting to buy their first home. Verifying the down payment when purchasing a home via supporting documentation is required by alllenders. Doing so also protects against fraud and confirms that you are not borrowing your down payment, which could changes debt servicing ratios and your overall mortgage approval.

DOCUMENTATION REQUIRED BY THE LENDER TO VERIFY YOUR DOWN PAYMENT

There are STRICT Federal Government (AML) Anti-Money Laundering requirements and this also protects the lender against fraud.

1. Personal Savings/Investments: Your lender needs to see a minimum of 3 months’ history of where the money for your down payment is coming from including your: savings, Tax Free Savings Account (TFSA) or investment money.

Regularly deposit all your cash in the bank, don’t squirrel your money away at home. Lenders cannot verify the $10,000 cash that has been sitting under your mattress. Your bank statements will must be clear to show your name and your account number.
Any large deposits outside of “normal” will need to be explained (i.e. tax return, bonus from work, sale of a large ticket item). If you have transferred money from once account to another you will need to show a record of the money leaving one account and arriving in the other. Lenders want to see a paper trail of where your down payment is coming from and how it got into your account.

2. Gifted Down Payment: In some expensive real estate markets like Metro Vancouver & Toronto, the bank of Mom & Dad help 20% of first time home buyers. You can use these gifted funds for your down payment if you have a signed gift letter from your family member that states the down payment is a true gift and no repayment is required. The Gift Letter is a key piece in verifying your down payment when purchasing your home.

Gifted down payments are only acceptable from immediate family members: parents, grandparents & siblings.
We will need to show the gifted funds have been deposited in your account 15 days prior to closing. The lender may want to see a transaction record. i.e. $30,000 from Bank of Mom & Dad’s account transferred to yours and a record of the $30,000 landing in your account. We will provide the applicable Gift Letter template for your use at application time.

3. Using your RRSP: If you’re a First Time Home Buyer, you may qualify to use up to $35,000 from your Registered Retirement Savings Plan (RRSP) for your down payment.

Home Buyers Plan (HBP): Qualifying home buyers can withdraw up to $35,000 from their RRSPs to assist with the purchase of a home. The funds are not required to be used only for the down payment. These funds can be used for other purposes to assist in the purchase of a home.
If you buy a qualifying home together with your spouse or other individuals, each of you can withdraw up to $35,000.
You must repay all withdrawals to your RRSP’s 15 years. Generally, you will have to repay an amount to your RRSP each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year (i.e. $35,000/15 years = $2,333.33 per year), it will be added to your income for that year.
Verifying your down payment from your RRSP, you will need to prove the funds show a 3-month RRSP history via your account statements which need to include your name and account number. Funds must be sitting in your account for 90 days to use them for HBP.

4. Proceeds from Selling Your Existing Home: If your down payment is coming from the proceeds of selling your currently home, then you will need to show your lender an accepted offer of Purchase and Sale (with all subjects removed) between you and the buyer of your current home.

If you have an existing mortgage on your current home, you will need to provide an up-to-date mortgage statement. This will also count towards verifying your down payment when purchasing the next home.

5. Money from Outside Canada: Using funds from outside of Canada is acceptable, but you need to have the money on deposit in a Canadian financial institution at least 30 days before your closing date. Most lenders will also want to see that you have enough funds to cover Property Transfer Tax (in BC) PLUS 1.5% of the purchase price available in your account to cover your closing costs (i.e. legal fees & taxes, etc.).

Property Transfer Tax (PTT) All buyers pay Property Transfer Tax (except first-time buyers purchasing under $500,000 and New Builds under $750,000). This is a cash expense, in addition to your down payment. The Property Transfer Tax (PTT) cannot be financed into the mortgage. Being prepared with the right documentation for your down payment and closing costs can make the process much easier. Courtesy of K.Hudson @DLC

canadian cash in hand

How Payment Frequency Can Save Money

One of the decisions you will need to make before your new mortgage is set up, is what kind of payment frequency you would like to have. For many, sticking to a monthly payment is the default, however, other payment frequency choices can save you money in interest costs over time.

Monthly Payments

Monthly payments are exactly as they sound, one payment every month until the maturity date of you mortgage at the end of your term. Took a 3-year term? You will make 36 payments (12 payments a year) and then you will need to renegotiate your interest rate. 5-year term? You will make 60 payments.

$500,000 mortgage

3% interest rate

5-year term

$2,366.23 monthly payment

 

$427,372.90 remaining over 20 years

$69,346.70 paid to interest

$72,627.01 paid to principal

 

Semi Monthly

Semi-monthly is not bi-weekly. Semi monthly is your monthly payment divided by two. That means, you are making 24 payments every year, but each payment is slightly less than half of what the monthly payment would of been.

$500,000 mortgage

3% interest rate

5-year term

$1,182.38 semi monthly payment

 

$427,372.99 remaining over 20 years

$69,258.59 paid to interest

$72,627.01 paid to principal

 

Bi-Weekly

Bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly (2 months a year you make 3 bi-weekly payments). The interest paid and balance owing are slightly less than the others, but mere cents. You will still need to make payments for another 20 years.

$500,000 mortgage

3% interest rate

5-year term

$1,091.38 bi-weekly payment

 

$427,372.36 remaining over 20 years

$69,251.76 paid to interest

$72,627.64 paid to principal

 

Accelerated Bi-Weekly

Just like regular bi-weekly, you are not making 2 payments every month. With 52 weeks in a year, you are actually making 26 payments, 2 more than semi-monthly. However because this is accelerated, the payment amount is higher.

$500,000 mortgage

3% interest rate

5-year term

$1,183.11 accelerated bi-weekly payment

 

$414,521.40 remaining over 17 years 4 months

$68,325.70 paid to interest

Payment frequency date makes a difference with your mortgage savings.

Mortgage Payment Frequency Options

$85,478.60 paid to principal

 

You have increased your yearly payment amount by $2,384.98, $11,924.90 over 5-years. That extra $11,924.90 has decreased your outstanding balance at the end of your mortgage term by $12,850.96 because more of your payments went to principal and less went to interest. Also, you will now have your mortgage paid off more than 2.5 years earlier.

The same option is available for accelerated weekly payments which will shave another month off of time required to pay back the whole loan as well. If you can afford to go accelerated, your best option is to do so! Especially in the early years where a larger portion of your payments are going towards interest, not paying down your principal.

If you have any more questions on how choosing the right Payment Frequency can save money, please do not hesitate to reach out to us at Prime Mortgage Works. Information Courtesy of Ryan O. DLC

First Time Homebuyers DON’T Tips

First time homebuyers tips help you to be prepared before closing but as importantly, AFTER you are pre-approved for a mortgage. In fact, buyers ruin their chances of closing by making simple mistakes once they hear the word “approval” from the mortgage broker. These are some of the most common mistakes people make and most importantly explain what NOT to do as the best First Time Homebuyers Mortgage Tips.

Do Not Start a New Job (please!)

While it is not the most important item for getting a pre-approval, job history and length of time at your present employer is vital to getting approved as a First Time Homebuyer.

If you have been at your current job for more than 2 years, wait until the mortgage is closed before choosing to switch to another company.

Do NOT Purchase a New(er) Car (I beg you!!)

It is so easy to understand the temptation to buy a vehicle after getting a mortgage pre-approval. Most people are a bit nervous and are filled with excitement when they learn they are pre-approved.  If their credit and income are good enough to buy a house, then surely it is good enough to get a great deal on a car, right?

The pre-approval issued by the lender was determined by the current level of debt and income at the moment the person applied for the home loan.

It is best to wait until the loan has closed before trading up on your vehicle.

Do NOT Make a Late Payment on ANY Existing Debt

As previously stated, the pre-approval is determined by a snapshot of your credit at a particular point in time. The track record that you have is documented by the credit report used for your approval. The majority of lenders will request a new credit report for you approximately one or two days before the loan closing. Any late payment that shows up could be a red flag to the lender and cause them to turn down the loan.

So, to be safe, make all payments on time while waiting for the lender to finalize your loan.

Avoid Any Unusually Large Deposits

The best First Time Homebuyers Mortgage Tip is that your credit report shows a track record of your payments over time, your bank account also has a track record. The mortgage underwriter will review your checking and savings account to see if there are any larger-than-normal deposits in the months leading up to the purchase. Avoid any large deposits that do not coincide with your normal banking habits.

Do NOT Open a New Bank Account

We previously mentioned that you should not switch jobs or add any new debt. The theme is consistency and this point fits within that theme.

Whether you have used your current bank for 6 months or 6 years, it is best to stick with that bank until the loan closes. Opening up a new account creates questions among mortgage lenders. They wonder if you are trying to hide funds in one account or if you have unrecorded debt obligations that are going to be facilitated with the new account.

Do NOT Spend your for Down Payment or Closing Costs (no Vegas trips…)

Buying a home can be exciting but also stressful. Getting the utilities switched to a new address, changing the address and hiring the movers can all take time and some funds. While you may have saved up a nice nest egg to prepare for the home purchase, don’t spend all of that money.

The estimate provided to you for the closing is just an estimate. Things like property taxes, homeowner’s insurance, and other costs can creep up and cost a bit more than anticipated. 

Do NOT Close Out Any Debt Account (First Time Homebuyer 101 tip)

It is usually a good idea to pay down debt and close the account, whether it is a credit card, furniture account or local store account. Keeping your debt as is until the mortgage closes, is key here.

Closing out a credit card, for example, may lower your credit score. Remember the pre-approval is a snapshot in time. Keep the picture the SAME as at application time.

The bottom line, leave all accounts open for the time being.

Do NOT Agree to Co-Sign on a New Loan

As mentioned in the First Time Homebuyers Mortgage Tips, borrowers should avoid any new debt, especially in the form of buying a new car. This is also true for other new debt such as new credit cards, new furniture accounts or an unsecured loan. This is especially true for being a co-signor on a loan.

If your mortgage broker told you that you were approved for a mortgage, do not co-sign for a friend or relative. Becoming a co-signer makes you 100% responsible for the new debt, regardless of the good intentions of your friend or relative. This one area is a big no-no for potential homebuyers.

Do NOT Ignore Requests from Your Broker ;)

Think of a lender as a person very similar to you, they are merely trying to do their job. In this case, their job is to help you the First Time Homebuyer.

Sometimes a mortgage underwriter will ask for very specific things. It is not uncommon for an underwriter to request documentation supporting a sale of a car, major change in job or explanation for one missed payment from 14-36 months ago!

If your broker contacts you and asks for some type of document or explanation, be prompt and thorough in providing the answer. Your entire loan could hinge upon this one item and you don’t want to get rejected because you could not find the time to respond to the lender’s inquiry.

Summing Up What Not To Do Before Closing on a House a First Time Homebuyers Mortgage
After you have received your mortgage pre-approval, continue on with your life as if nothing has changed. Keep making payments on time, don’t close out any accounts and don’t add any new debt. Along with the other suggestions above, this should keep you prepared and ready for closing day and a master at First Time Homebuyers Mortgage Tips.

Value Add Home Improvements

Read more
various coins as a means for saving the down payment

Getting Over the Down Payment Hump

One of the largest barriers to entry into home ownership is saving enough cash for a down payment. Small every day expenses add up; and depending on the market you live in, rent may also be eating a significant portion of your income each month. You do have options; here are some ways you may be able to obtain the funds to put towards a home:

Save – Simple.

Utilizing a Tax Free Savings Account, determine an amount to save each month that you believe is reasonable yet substantial enough to get you to your down payment goal. Additionally, set up automatic transfer into that accounts that line up with payday and bills will soon find yourself getting over the down payment hump.

Extra Income

Ever consider a side hustle or second job. Put 100% of this cash flow into your down payment.

Home Buyers Plan 

Have money in your RRSP account? Incidentally, the Federal government will allow you to pull up to $35,000 from your RRSP account. Note, you have 15 years to return the funds back into your RRSP account. The easiest option for getting over the down payment hump.

Sell an Asset

If you have a valuable asset your willing to give up, sell it! Just make sure to establish a clear paper trail; get a receipt or signed bill of sale to legitimize the source of funds.

The Bank of Mom and Dad

This may or may not be possible. Parent may have built up some equity in their home they can access with a secured line of credit. If this is a gift, a signed gift letter stating so will be needed. If it is to be replayed, the payment must be included in your debt ratios used to qualify.

How Mortgage Brokers Get Paid

Firstly, how do mortgage brokers get paid here at Prime Mortgage Works? We do not charge any retainer or upfront fee for our services. Actually, you don’t pay any fee directly to us for our services, ever! Yes, 100% free, no pressures advise! We are licensed professionals and are governed by provincial bodies, who have you, the clients, best interest in mind.

Who Pays the Broker?

The lender pays us, once your purchase or refinance has completed and you have received your mortgage funds. How do we choose which lender? We take into account many features of a mortgage and your specific needs and wants to advise on the BEST option for you. Underlining why it’s important to understand how mortgage brokers get paid. Lenders typically pay anywhere between .8 to 1% of the final approved mortgage amount directly to the lender. This means for you the borrower, there is no out-of-pocket expense due at closing. Rather, lenders pay the mortgage broker directly from the interest they earn from the mortgage you have secured with them.

The Broker’s Incentive

But, rest assured that it is our mission to guide you through the entire financing process. As we are not paid until after closing, this ensures that we have your best interest in mind at all times. We are always happy to answer any questions, anytime, whether you have just completed financing, or are three years into your term and considering accessing some of the equity in your home.

Utilizing the Equity in Your Home

How Utilizing the Equity in Your Home can work to your advantage

Having been in your home for some time, steadily paying off your mortgage, you are setup to be utilizing the equity in your home. To access it, begins with refinancing. This is likely more accessible and at a lower cost than obtaining a loan not secured by your valuable asset – your home. For the most part, home equity loans and lines of credit hold lower interest rates. You will be able to access up to 80% the appraised value of your home.

What can be done with these Funds?

You can then utilize these funds to make investment with higher returns. You may plan to use the funds to make improvements on your home, increasing the resale price potential. Or you may plan to consolidate excising debt charging you a high interest rate, decreasing your debt load faster and increasing your monthly cash flow. Or you may want to pursue a business opportunity that will increase your future earning potential. The opportunities are plenty when you are utilizing the equity in your home.

How to get started?

We will take a simple application from you and gather the necessary documentation from you directly. We will then package the application and present to the lenders that we are working with on a regular basis. Allowing us to handle all aspects of the mortgage refinance, you can ensure you will enjoy a smooth process. From start to finish we will take care of all of the details when utilizing the equity in your home.

canadian cash and coins

Insured and Uninsurable Mortgages?

Mortgage rate pricing is based much on insurance:

Insured and uninsurable mortgages will determine the rate that a lender will offer for your mortgage. This will depend heavily upon the lender’s ability to finance their own operation in the background. It’s important to understand the key aspects when your mortgage broker will discuss uninsurable and insurable mortgage products.

What is an Insured Mortgage?

Insured mortgages are covered by mortgage default insurance through one of three insurers – CMHC, Genworth or Canada Guaranty. A premium is added to the mortgage amount. The amount is a percentage of the loan based on the loan to value ratio with a down payment of less than 20%. These mortgages are most favored by the banks and are reflected by the best rate offers. The maximum amortization allowed for an insured mortgage is presently 25 years.

What is an Insurable Mortgage?

Insurable mortgages do not necessarily require an insurance premium when you are providing a down payment larger than 20%. However, if the insurers rules allow, the lender has the option to obtain insurance themselves. As a result, the borrower rarely knows if and when their mortgage is officially insurable. The maximum amortization will be limited to 25 years, similar as an insured mortgage would be.

Finally, Uninsurable Mortgages

Uninsurable mortgages do not meet the insurers rules; such as refinances and mortgages with amortization longer than 25 years. This is arguably the biggest difference between insured and uninsurable mortgages. As a result, no premium is paid by either the borrower of the lender to obtain default insurance. The risk with this type of mortgage is passed onto the borrower via higher interest rates. Having said that, uninsurable mortgages are often far more flexible in terms of borrowing guidelines. We are happy to discuss the distinct differences in those borrowing guidelines.

Canada Mortgage Calculator

Don’t Forget About Closing Costs

You saved enough for a down payment, found your perfect home, negotiated the purchase price and made an offer subject to financing, and have now gotten approved! You’re all set, the hard part is done, right? Not in reality, there are quite few other fees that need to be considered – closing costs.

Closing costs are often hidden and often overlooked one time expenses due on the completion date. A rule of thumb is to budget 1.5% to 4% of the purchase price to cover closing costs. However, other factor such as taxes, the type of home, or if it’s a new build can impact the amount you need to account.

Some fees that you are fairly guarantee to face:
  • Legal Fees  Your lawyer will explain all of the paperwork. They will make sure what you are signing is binding, legitimate, and all items agreed to have been met. In addition, you are liable to repay the lawyer for any searches, registrations, and incidentals due on closing day.
  • Title Insurance: Lenders will require title insurance as a condition to their mortgage. This will protect from fraud, identity theft and forgery, municipal work orders, zoning violations and other property defects.
  • Fire/Home Insurance: Lenders also require fire/home insurance in place by the time of purchase completion, which covers replacement cost of the home.
  • Adjustments: When possession takes place mid month, and the seller has already paid fees such as taxes, utilities, and strata. So, the amount you owe is based on the portion of that month you will have possession and prorated on the date of completion.
  • Property Transfer Tax: First time home buyers are exempt if purchasing property under $500,000. All home buyers are exempt if they are purchasing new property under $750,000. Property Transfer Tax is calculated as 1% on the first $200,000, 2% over $200,000 and 3% on any value over $2,000,000.
  • GST: Is not charged if someone has previously lived in the home, but charged on all new home purchases.

The list is not extensive, as each purchase has its own set of costs. As your broker, I make sure to explain each one and assure you are fiscally prepared an that you Don’t Forget About Closing Costs

 

 

Couple hugging with keys in hand

First Time Home Buyers’ Guide

So, you’ve finally decided to fulfill a lifelong dream and buy your own home… how exciting! You are ready to fulfill your dream of having a place to call your own as First Time Home Buyers.

Buying a home is one of the biggest emotional and financial decisions you’ll ever make. Prepare by learning about the process of homebuying and the responsibilities of homeownership. The differences between renting and buying a home are vast, and there’s a long list of pros and cons for both options. And, remember — there is no one best decision for everyone. Before moving forward, though, here are some questions to consider.

Do you have the necessary financial management skills?
How financially stable are you?
Are you ready to take on the responsibility of all the costs involved in homeownership, including mortgage payments, repairs, and maintenance?
Are you able to devote the time required for home maintenance?

 

Home Renting vs. First Time Home Buyers

There are pros and cons for both renting and buying a home. Everyone must make his or her own best decision. Buying a home is not for everyone. Take a moment to think through the advantages and disadvantages of both owning and renting, and make a list. Use our home renting vs. buying calculator to help you.

Read over your completed worksheet and then think carefully. Are the advantages of owning your home really bigger than the advantages of renting? Are the disadvantages of owning your own home really smaller than the disadvantages of renting?

If homeownership is for you, you must be both financially and emotionally ready. Buying a home isn’t only about money. You should listen to your heart… and take an honest look at your lifestyle.

Are You Financially Ready To Own A Home?
How can you know if you are financially ready to become a homeowner?

Start figuring out your financial readiness by evaluating your present household budget. How much are you spending each month? Knowing exactly how much, will give you a better idea about whether you can afford to become a homeowner.

Do you know how much debt you are carrying? You need this information to figure out whether you are financially ready for homeownership. If you decide to buy a home, mortgage lenders will ask for this information.

 

How Much Can You Afford?

Before you begin shopping for a home, it’s important to know how much you can afford to spend on homeownership. You will want to plan ahead for the various expenses related to homeownership. In addition to purchasing the home, other significant expenses will include heating, property taxes, home maintenance and renovation as required.

Two simple rules can help you figure out how much you can realistically pay for a home. You must understand these rules to understand if you will be able to get a mortgage.

Home Affordability Rule #1
Your monthly housing costs shouldn’t be more than 32% of your gross monthly income. Housing costs include your monthly mortgage payments (principal and interest), property taxes and heating expenses. This is known as PITH for short — Principal, Interest, Taxes, and Heating.

If you are thinking of buying a condominium or leasehold tenure:

For a condominium, PITH also includes half of the monthly condominium fees.

For leasehold tenure, PITH also includes the entire annual site lease.

Lenders add up your housing costs and figure out what percentage they are of your gross monthly income. This figure is called your Gross Debt Service (GDS) ratio. To be considered for a mortgage, your GDS must be 32% or less of your gross household monthly income.

Affordability Rule #2
Additionally, your entire monthly debt load should not be more than 40% of your gross monthly income. Your entire monthly debt load includes your housing costs (PITH) plus all your other debt payments (car loans or leases, credit card payments, lines of credit payments, etc.). You have calculated these on the Monthly Debt Payments form. This figure is called your Total Debt Service (TDS) ratio.

 

Your Maximum House Price

The maximum home price that you can realistically afford depends on a number of factors. The most important factors are your household gross monthly income, your down payment and the mortgage interest rate. For many people, the hardest part of buying a home — especially their first one — is saving the necessary down payment.

Note: For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000, when the loan-to-value ratio is greater than 80%.

 

Calculate Your Maximum House Price

Use the Mortgage Affordability Calculator in the Mortgage Tools section to figure out the maximum home price you can afford, the maximum mortgage amount you can borrow, and your monthly mortgage payments (including principal and interest).

 

Mortgage Loan Insurance

Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.

The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums. The cost for Mortgage Loan Insurance premiums is usually offset by the savings you get from lower interest rates.

Note: The amortization cannot exceed 25 years for mortgage loan-to-value ratios higher than 80%.

Do Your Calculations Look Encouraging?
What is your current financial situation?

You may need to step back and re-evaluate your house goals and dreams. Consider the following which may improve your housing outlook for the long run:

Pay off some loans first.
Save for a larger down payment.
Take another look at your current household budget to see where you can spend less. The money you save can go towards a larger down payment.
Lower your home price — remember that your first home is not necessarily your dream home.
Before approving a mortgage, lenders will want to see how well you have paid your debts and bills in the past. To do this, they consider your credit history (credit report) from a credit bureau. This tells them about your financial past and how you have used credit.

Before looking for a mortgage lender, get a copy of your own credit history. There are two main credit-reporting agencies: Equifax Canada and TransUnion Canada. You can contact either one of them to get a copy of your credit report. There is often a fee for this service.

Once you receive your credit report, examine it to make sure the information is complete and accurate.

 

If You Have No Credit History

If you have no credit history, it is important to start building one by, for example, applying for a standard credit card with good interest rates and terms, making small purchases, and paying them as soon as the bill comes in.

Poor credit? lenders might not be able to give you a mortgage loan. You will need to re-establish a good credit history by making debt payments regularly and on time. Most unfavourable credit information (including bankruptcy) drops off your credit file after seven years.

 

Mortgage Pre-Approval

It’s a very good idea to get a pre-approved mortgage before you start shopping. Many REALTORs® will ask if you’ve been approved. A lender will look at your finances and figure the amount of mortgage you can afford. Then the lender will give you a written confirmation, or certificate, for a fixed interest rate. This confirmation will be good for a specific period of time. A pre-approved mortgage is not a guarantee of being approved for the mortgage loan.

Even if you haven’t found the home you want to buy, having a pre-approved mortgage amount will help keep a good price range in mind.

Bring these with you the first time you meet with your mortgage broker:

Your personal information, including identification such as your driver’s license.
Details on your job, including confirmation of salary in the form of a letter from your employer.
All your sources of income.
Information and details on all bank accounts, loans and other debts.
Proof of financial assets.
Source and amount of down payment and deposit.
Proof of source of funds to cover the closing costs (these are usually between 1.5% of the purchase price).

 

Make Your Mortgage Work for You

We will offer you several choices to help find you the mortgage that best matches your needs. Here are some of the most common:

 

Mortgage Amortization Period

Amortization refers to the length of time you choose to pay off your mortgage. Mortgages typically come in 25 amortization periods, but can be as short as 15 years. Usually, the longer the amortization, the smaller the monthly payments. However, the longer the amortization, the higher the interest costs. Total interest costs can be reduced by making additional (lump sum) payments when possible.

 

Payment Schedule

You have the option of repaying your mortgage every month, twice a month, every two weeks or every week. You can also choose to accelerate your payments. This usually means one extra monthly payment per year.

 

Mortgage Interest Rate Type

 

You will have to choose between “fixed”, “variable” and “protected (or capped) variable”. A fixed rate will not change for the term of the mortgage. This type carries a slightly higher rate but provides the peace of mind associated with knowing that interest costs will remain the same.

With a variable rate, the interest rate you pay will fluctuate with the rate of the market. Usually, this will not modify the overall amount of your mortgage payment, but rather change the portion of your monthly payment that goes towards interest costs or paying your mortgage (principal repayment). If interest rates go down, you end up repaying your mortgage faster. If they go up, more of the payment will go towards the interest and less towards repaying the mortgage. This option means you may have to be prepared to accept some risk and uncertainty.

A protected (or capped) variable rate is a mortgage with a variable interest rate that has a maximum rate determined in advance. Even if the market rate goes above the determined maximum rate, you will only have to pay up to that maximum.

Use the Mortgage Payment Calculator to find how much and how often your payment will be. Compare options and find one that’s right for you.

 

Mortgage Term

The term of a mortgage is the length of time for which options are chosen and agreed upon, such as the interest rate. It can be as little as six months or as long as five years or more. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.

An open mortgage allows you to pay off your mortgage in part or in full at any time without any penalties. You may also choose, at any time, to renegotiate the mortgage. This option provides more flexibility but comes with a higher interest rate. An open mortgage can be a good choice if you plan to sell your home in the near future or to make large additional payments.

A closed mortgage usually carries a lower interest rate but doesn’t offer the flexibility of an open mortgage. However, most lenders allow homeowners to make additional payments of a determined maximum amount without penalty. Typically, most people will select a closed mortgage.

 

Property Down Payment

 

A down payment is the part of the home price that does not come from the mortgage loan. The down payment comes from your own money. You can buy your home with a minimum down payment of 5%, if you have mortgage loan insurance from CMHC. You need a down payment of at least 20% for a conventional mortgage.

 

Property Deposit

The deposit is paid when you make an Offer to Purchase to show that you are a serious buyer. The deposit will form part of your down payment with the remainder owing at time of closing. If for some reason you back out of the deal without having covered yourself with purchase conditions, such as financing, home inspection, etc., your deposit may not be refundable and you may be sued for damages. The size of the deposit varies. Your realtor or lawyer / notary can help you decide on the amount.

 

Home Inspection Fee

We recommend that you make a home inspection a condition of your Offer to Purchase. A home inspection is done by a qualified home inspector to provide you with information on the condition of the home. It generally costs between $350-$500, depending on the age, size and complexity of the house and the condition that it is in. For example, it may be more costly to inspect a large, older, home, or one in relatively poor condition, or that has many pre-existing problems or concerns.

 

Title Insurance

Your lender, lawyer, or notary may suggest that you get title insurance. This will cover loss caused by defects of title to the property.

 

Land Registration Fees

Land registration fees are sometimes called Land Transfer Tax, Deed Registration Fee, Tariff or Property Purchases Tax. In some provinces and territories, you may have to pay this provincial or municipal charge when you close the sale. The cost is a percentage of the property’s purchase price. Check on the internet or with your lawyer (or notary) or other team member to find out about the current rates. These fees can cost a few thousand dollars.