Mortgage Choices
You’ll be glad to know there are different options available to you depending on how much of a down payment you can afford:
-Conventional mortgage (20% down payment)
-Low down payment mortgage (minimum 5% down)
Low down payment mortgages require mortgage default insurance. The premium can either be paid up front or added to the amount you borrow.
Getting Qualified
Your income, assets, debts and other financial obligations will help your mortgage broker or lender determine how much money you can borrow. Decide for yourself how much debt you are comfortable with and bear in mind the risk of potentially higher interest rates in the future and the impact when it’s time to renew.
Both you and your home must qualify for financing. Your lender may request an appraisal to confirm that the property merits the amount of mortgage requested.
Financing Pre-Approval
The smartest strategy for home hunting is getting pre-approval for a mortgage. Pre-approval gives you the edge. You’ll present yourself as a serious buyer to vendors. You will know exactly how much you can afford, making your search more efficient. And you will rest easy knowing that your interest rate will be protected. Once your offer is accepted, the final mortgage approval can typically be completed within a few short days or sooner.
First-Time Home Buyers
Under the federal government’s Home Buyer’s Plan, first-time homebuyers are eligible to use up to $35,000 in RRSP savings per person ($75,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as you repay it within a 15 year period. To qualify, the RRSP funds you plan to use must have been in your RRSP for at least 90 days. For more details consult the Canada Revenue Agency website. (https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/rrsps-related-plans/what-home-buyers-plan/participate-homebuyers-plan.html)
First-time homebuyers may also be eligible for a land transfer tax refund up to $4000. Find out how by visiting the Ontario Ministry of Finance Land Transfer Tax Refund for First-Time Home Buyers. (http://www.fin.gov.on.ca/en/bulletins/ltt/1_2008.html)
Benefits of a Mortgage Broker
Mortgage brokers can often provide clients with a wider range of financing options, more competitive rates, and solutions beyond regular banks. Your credit rating will also benefit as mortgage brokers need only pull a credit check with the credit bureau once (as opposed to when you do the mortgage shopping yourself with several banks). Frequent credit checks can negatively impact your credit score.
Credit Rating
A credit rating is a record of your credit history and current financial situation, which typically translates into a credit rating score. Lenders can use your credit rating to verify your repayment history.
A good credit rating can improve your ability to get loans and mortgages.
If our credit rating needs improvement to help you qualify for a mortgage, you can improve it by always making at least the minimum payments on your credit cards, loans or utility bills on time.
You can check your credit rating by simply asking for a copy from either www.equifax.ca or www.tuc.ca.
Mortgage Payment Options and Privileges
Lenders offer a wide variety of payment options and privileges. It pays to review your needs carefully and consider the future flexibilities you desire in the mortgage product you choose. Mortgages can be fixed or variable or both, open and closed, with a variety of terms and amortizations. Payment frequencies can be selected to match your budget, with additional payments, prepayments and shorter amortization periods offered with some packages. Some mortgages are portable (can be transferred to another home if you move). You may also qualify for bridge financing if your closing date for your new home precedes the closing date for the home you have sold. And a cash back feature might interest you as it provides you with cash at closing to take care of some of the expenses that come with purchasing a home.
Mortgage Loan Insurance
Because of the risk to lenders, they will insist on mortgage insurance that will compensate the lender for potential losses in the event of default. Mortgage loan insurance is available through either CMHC or Genworth Canada, the largest private residential mortgage insurer in Canada.
Mortgage insurance is calculated as a percent of the loan and is based on the size of the down payment. The greater the percentage of the amount that you borrow, the higher percentage you will pay in insurance premiums. Premiums can vary depending on your financial standing and employment and are added to the loan amount.
For more information on how to calculate mortgage loan insurance amounts consult the following websites:
CMHC http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_010.cfm
Genworth http://genworth.ca/en/about-us/mortgage-default-insurance.aspx
