What You Need To Know
So you want to buy a home. Before you actually sit down with a mortgage broker it’s smart to find out what size of mortgage you could get approved for. Here are some of the questions you’ll need answers for in our [pre-approved mortgage application].
When you agree to the terms of this mortgage, it remains that way till the end of the term:
- Mortgage secure for the term
- Remains unchanged for the agreed term
- Penalties assessed if you wish to pay off the mortgage or renegotiate the terms. These can be excessive
- May give option to make extra payments without penalty under “prepayment privilege”
- Rates have tended to be lower than open mortgages in “normal” economic times
The benefit is that you always know what your payments are and can plan accordingly.
A variable rate mortgage may be converted at any time during the term to a fixed rate product. The lender will offer conversion to the closest term to the time remaining on your contract.
For example, if you have 26 months left, then the closest term is 2 years. The lender will offer you their 2 year fixed rate. It’s important to know that there are differences in how payout penalties are calculated for fixed rates vs variable rates – see the next section for details.
This mortgage gives the borrower flexibility. It can be repaid any time without penalty. The borrower can take advantage of lowest interest rates, especially in today’s low interest economy.
- Flexible term
- May be repaid any time
You, the mortgage holder, may be challenged if interest rates take a sharp rise.
Typically this type of mortgage is a short-term option made available by your current mortgage lender when your current mortgage is coming up for renewal.
You may request a convertible mortgage if you want to buy yourself time while trying to decide which mortgage you want to renew into; you are in the process of transferring to another lender; you are selling the property and don’t want to get locked into another contract. These mortgages are typically open, so you won’t have to worry about a payout penalty.
- Secure term as per closed mortgage
- Allows conversion to a longer term without penalty
- Useful option if rates expected to rise
Useful option for seniors who require cash for whatever reason, allowing them to remain in their homes
- For homeowners 55+
- Permits cash withdrawal from home without having to move or sell
- Low interest rate
- Enables homeowner to pay off higher cost debt and other liabilities
When you agree to the terms of this mortgage, it remains that way till the end of the term:
- Rate determined at start of term
- Remains the same throughout the term
- You know exactly how much your payments are
When you know what your payments are, you can plan accordingly. You set aside funds to handle fixed obligations. You know what is available for saving and for regular expenses and for perks like vacations and gifting.
Some borrowers are uncomfortable with variable rates where interest rates change with the state of the economy. It can affect the borrower in a number of ways:
- If mortgage payments are fixed and interest rates rise, you pay more interest with less principal deducted from the mortgage. Pay off the mortgage is slower
- If interest rates fall, then more principal comes off the mortgage. Pay off the mortgage is faster
- Variable rates lower in current challenging economy
The length of time it will take you to pay off your mortgage
Mortgage Terms & Conditions
Here are the basics between borrower and lender:
- Mortgage amount – total from lender
- Amortization – number of years to pay off mortgage
- Term – length of current agreement with lender
- Payments – frequency
- Type of mortgage – fixed, variable and interest rate
What’s your Debt Load?
- The smaller the ratio of debt to income, the better. It shouldn’t be higher than 44%
- What makes up the debt? Auto loans? Credit Cards? School fees?
What’s Your Credit History?
- Know your personal credit rating. Go to www.consumer.equifax.ca or www.members.transunion.ca.
- Your credit history reflects how well you handle regular loan, credit card, and bill payments.
- A credit FICA score of 680 or higher is essential for a mortgage.
- If your credit score is too low we can show you how to improve it.
[May want to show graph Cynthia created]
What’s the property worth?
A mortgage is secured on the value of the property. If anything goes wrong, the lender can recover any indebtedness by selling the property.
What are you planning on doing to it?
If you are planning on performing renovations or other major changes to the new property you will want to provide that info to us. Options for rolling the cost of renovations into your mortgage may be available.
However, there are some possible options to raise the 5% you need. Balance Mortgages can advise you on these:
A gift from a family member.
You can be gifted the down payment provided that:
- It is from a blood relation
- The gifter signs in writing that the gift is not required to be paid back at any time
CMHC Flex Down
Offered by approved lenders:
- Only available on your first mortgage
- Could be personal loan, line of credit
- Indebtedness considered when qualifying for mortgage
- Minimum credit score of 650 required
- You have RRSPs saved
- Under the Home Buyers Plan of the Canadian Government you can access up to $25,000 tax free
- The RRSP funds must be on deposit for 90 days before you can access them
- Must be repaid over 15 years
Mortgages By The Numbers:
Three Important Facts to Know
What Do I Need to Apply For a Mortgage?
Here are all the different things you need to apply for a mortgage
Salaried or Hourly Wage Employees
- Letter of Employment on company letterhead with name and contact information for party authorized to verify the information; must state minimum guaranteed income/hours, rate, tenure and position. Letters of Employment must be dated within 30 days of application.
- Most recent pay stub: showing year-to- date earnings
- Most recent T4 or ROE* (2 years’ T4’s will be required if using OT / Bonuses / Shift Differential, etc)
- Most recent Notice of Assessment*
*These items may be requested if you are not guaranteed hours or if you have recently changed employment
Additional documents related to your tax returns will be required. Balance Mortgages will help you gather these for your application process.
Don’t know where you put your Tax Documents? No problem! Sign up with the CRA for any-time access to your tax records –
Self-Employed Requirements for Mortgage Application**
- Most recent 2 years’ Notices of Assessment
- Most recent 2 years’ T1 General w/ Statement of Business Activities
- Articles of Incorporation with list of directors and shareholders
- Business Registration
- Most recent 2 years’ Company Financials
**Any two or more items in this category may be requested, depending on the particulars of your business structure
NOTE: if you receive a pension, Child Tax Credit, AISH, Foster Care income, CPP, etc, these incomes may be used – please ask your mortgage broker for more information
Good Credit Makes all the Difference
Your credit is the foundation of a great mortgage deal. The higher your credit, and more stable your income, the better the lenders look at you. We recommend the following to ensure the best “credit rating” for your mortgage:
- Credit Score of 680+
- Credit history with multiple reporting entities. Credit cards, phone bills, vehicle loans, etc.
- A low debt to income ratio – you want to have as much available credit as possible. At least 25% is required.
Poor Credit Will Not Disqualify You
It just limits the options available to you. Rates, specific terms, and unique conditions will vary based on your individual/couples credit score.
If you have, or think you have, poor credit you need to talk to us. We can help you get your credit back on track so that even if you will not qualify today, you’ll be on the way to stellar credit in the future.
5% is Good, 20% is Better
Lenders require you to have at least 5% of the purchase price saved towards the purchase of your new home. While Zero (0%) Down Mortgages were available, stricter regulations in the Canadian Housing Industry have been put into place to protect consumers, lenders and the overall economy.
All mortgages that have less than 20% down are required to carry CMHC insurance on the mortgage. Those that have more than 20% to put down are exempt from this insurance which can save you significantly over the life of your mortgage premium.
Rules for Obtaining Your Down Payment
- You must have 3 months’ account history for the source of the down payment. Make sure the statement has your name and account number showing so that the lender can see you’re the owner of the funds. If any portion of the down payment was recently deposited into the account, then the lender will request documentation to verify the source.
- If you’ve received a gift from family to help with the down payment, then a gift letter (template available upon request) will be required.
- If the down-payment is coming from proceeds of sale for another property, you’ll need to provide the Purchase and Sale Agreement, MLS Listing and Mortgage Statement for the sold property.
- If down payment is borrowed or coming from another source not listed, please let your broker know so we can determine what will be required.
- Purchase and Sale Agreement (including all addenda)
- MLS Listing
- Copy of Deposit Cheque (as this often makes up a portion of the downpayment)
For Refinancing or Transferring
- Recent Mortgage Statement
- Property Tax Assessment
- Fire (House) Insurance Policy
- Legal Description of Property
- Appraisal (check with your mortgage broker)
For Rentals (may not require all items listed – check to confirm what is applicable)
- Lease agreement
- Copy of a recent rent cheque
- Market Rents Assessment (done by appraiser)
- Statement of Real Estate Rentals on T1 General
- ID, such as a Work Permit, Driver’s License, Passport, Permanent Residence Card, Native Status Card, etc…
- Solicitor / Lawyer Contact Information
- VOID Cheque for the account that you would like your mortgage payments to be drawn from (The lender may ask either your lawyer or broker for this)
We had dealt with Cynthia when she worked with another firm and were so impressed with her knowledge and excellent work that when we were in the market again, we looked for her. She always educated us about our options, which was highly valuable to us.
– Tyler and Caitlin
We appreciate all the work you did for us….It’s been a pleasure working with you. Thank you for helping us during this stressful situation. Also thanks for all your help with our friends, Jim and Arizona. We will definitely refer you to others when we hear of anyone needing assistance.
– Justin and Sally
Help For Realtors & Builders
Does your client need help with their first mortgage? Let us help your clients get the right mortgage to suit their needs and existing lifestyle. Our client education will help you find the affordable home for your clients, while ensuring that they will value your own wok.