Mortgage Information

There are as many types of mortgages to choose from as there are types of houses to buy.  Your mortgage is going to make a lot of money for a lender, and it's going to cost you a lot of interest. You'll want to make sure you get the right . The following outlines the basic components to consider when looking for a mortgage.

DOWNPAYMENT

You'll need a combination of a downpayment and closing costs for your initial investment in your new home.

Downpayment
The money that you pay up front for a house is the downpayment. These payments typically range from 5 to 25% of the total value of the home.  The obvious source of money for your downpayment is either your savings or the proceeds from the sale of a home you already own.  Another source may be a gift from family (may require gift letter) or selling of an asset.

While it is possible to buy a home with as little as 5% down, the amount of your downpayment will determine whether you will have a conventional mortgage or an insured, high-ratio mortgage.

What's the difference?

• Conventional mortgage: Your downpayment is at least 25% of the purchase price.

• High-ratio mortgage: Your downpayment is less than 25% of the purchase price and must be insured by CMHC or GEMI.  An insurance premium will apply.

Closing Costs
For high-ratio or insured mortgages, the mortgage provider requires the borrower to demonstrate his or her ability to cover closing costs in the amount of 1.5% of the value of the property.  Closing costs can be as high as 3% of the value of the property being purchased and can vary widely depending on:

• The property being purchased

• Services required

• Taxes

• Applicable insurances

• Whether the home is new or old

• Closing dates affecting interest adjustments

• The balances of any prepaid expenses

CREDIT

It is a good practice for you to request the details of your credit rating from the credit agencies periodically. This will help you to understand your rating and ensure the credit agencies have the correct information.

To obtain a copy of your credit bureau report, you may contact the credit bureau agencies directly:

Equifax Canada
1-800-465-7166
consumer.relations@equifax.ca

Trans-Union Canada
1-877-713-3393 (Quebec only)
1-800-663-9980 (All other provinces)
marketing@tuc.ca

FINANCIAL RATIOS

Generally, lenders calculate that the homebuyer shouldn't pay more than 30 to 32% of gross income for principal, interest, taxes, and insurance (PITI), or 40 to 42% for both PITI and monthly debts combined.

The easiest way to make a quick estimate of the mortgage amount you may qualify for requires applying the two basic formulas used by lenders for loan application. Keep in mind that the loan balance will vary over the term of the loan, although the monthly payment remains the same.

Two lender formulas:

HOW MUCH CAN YOU AFFORD?

Knowing your affordable price range will bring your house hunting into focus and help you stay on track.  How much house you can afford depends on two things: how much you can afford for the monthly mortgage payment, and how much you can invest in the down payment. Monthly payments include the principal and interest on the mortgage loan and property taxes and home insurance. These four costs are often abbreviated PITI.

The key items are the size of the down payment, the amount of the mortgage and the term – or length – of the loan.  To calculate how much you can afford please check out our Mortgage Calculator. 

GETTING PRE-APPROVED

Having a pre-approved mortgage gives you the confidence of knowing exactly what you can spend on a home before you start looking. You will also be protected against interest rate increases while you look for your new home.  Not to mention, if the home of your dreams comes up on the market, and you aren't prepared to make an offer you may lose a property to another buyer who is ready to make an offer.

Please don't hesitate to contact us for a referral to Mortgage Specialist to assist you with financing on your new home.  Connect me to a Mortgage Specialist.