 Mortgage
FAQs
Q. Why
use a mortgage consultant?
Q. Are there
any fees involved with a mortgage consultant?
Q. Should I
wait for my mortgage to mature?
Q. What is
mortgage loan insurance?
Q. What is
a conventional mortgage?
Q. What is
a high-ratio mortgage?
Q. What can
I use for a down payment?
Q. What is
the minimum down payment needed to buy a home?
Q. How much
can I afford to pay for a home?
Q. How does
bankruptcy affect my ability to qualify for a mortgage?
Q, What do
I need to bring to my initial consultation?
Q. What paperwork
do I need to provide for approval of my application?
Q.
Why use a mortgage consultant?
A.
By
approaching one or two financial institutions and choosing from their in-house
mortgage products, many consumers miss out on a wide array of mortgage
options that could suit their needs better and save them a lot of money
over the long term. There are literally hundreds of mortgage options
available to Canadians today from a variety of lenders: chartered banks,
credit unions, and trust companies, as well as other sources of funds such
as life insurance companies and pension funds.
While
consumers are spoiled for choice, comparing different mortgage types and
interest rates on your own is a time consuming and rather intimidating
task. And if you deal with a financial institution directly and your
application is declined, you must start over from scratch with another
institution.
An independent
mortgage consultant has access to the full range of mortgage lenders and
can guide you to the mortgage that suits your individual needs, at a very
competitive rate.
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Q.
Are there any fees involved with a mortgage consultant?
A.
In most instances, there are no fees involved. Mortgage consultants receive
a commission from the lending institution that receives and funds your
mortgage application. If you do not qualify normally due to bad credit,
job instability or other unseen factors there may be a brokerage fee, but
it will be disclosed to you prior to proceeding.
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Q.
Should I wait for my mortgage to mature?
A.
No. Allow me to begin shopping around for an interest rate at least 120
days before your mortgage comes up for renewal. Lenders will often guarantee
you an interest rate as much as 120 days before your mortgage matures.
As long as you are not increasing your mortgage, they will cover the costs
of transferring your mortgage as well. This means a rate promised well
in advance of your maturity date, which eliminates any worries about higher
rates and if rates drop before the actual maturity date, the lender will
adjust your interest rate to the lowest it has been during the 120 days
since
the application was submitted.
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Q.
What is mortgage loan insurance?
A.
Mortgage loan insurance is provided by Canada Mortgage and Housing Corporation
(CMHC), a crown corporation, as well as Genworth Financial and AIG United
Guaranty, approved private corporations. This insurance is required by
law to ensure lenders against defaults on mortgages with a loan to value
ration of more than 80%. The insurance premiums, typically ranging from
.50% to 2.75% (higher for special situations) are paid by the borrower
and can be added directly into the mortgage amount. This is not the same
as mortgage life insurance.
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Q.
What is a conventional mortgage?
A.
A conventional mortgage is usually one where the down payment is equal
to 20% or more of the purchase price (which means a loan to value of less
than 80%), and does not normally require mortgage
insurance.
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Q.
What is a high-ratio mortgage?
A.
A high-ratio mortgage is one where the amount to be borrowed is greater
than 80% of the purchase price or appraised value. High-ratio mortgages
generally require mortgage loan insurance provided by either CMHC, a crown
corporation, or Genworth Financial or AIG United Guaranty, private insurers.
The mortgage
loan insurance premium paid to CMHC, Genworth or AIG protects the lender
in case of default in the event the mortgage is not repaid, and the lender
has to take back the property. The benefit to the borrower is that they
can purchase a home with less than 20% down, to as low as 5% down. The
insurance premium is paid by the borrower and can be added directly to
the mortgage amount. This is not the same as mortgage life insurance.
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Q.
What can I use for a down payment?
A.
In most cases:
-
Registered
Retirement Savings Plans (RRSP's) may be used as a down payment up to a
maximum of $25,000 and is not subject to income tax if repaid within 15
years.
-
Gift from
immediate family
-
Accumulated
savings
-
Sale of existing
home
-
Equity
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Q.
What is the minimum down payment needed to buy a home?
A.
A minimum down payment of 5% is usually required to purchase a home, but
there are exceptions. For instance we have relationships with lenders
that offer mortgages involving lower down payments or “cashback” arrangements.
However to qualify for this financing your credit must be clean and in
good standing. Regardless of the down payment chosen you must be
able to show that you can cover the applicable closing costs (such as legal
fees, appraisal fees and a survey certificate when appropriate).
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Q.
How much can I afford to pay for a home?
A.
To determine 'affordability' you will first need to know your taxable income
along with the amount of any debt outstanding and the monthly payments.
Assuming it is your principal residence you are purchasing, calculate 32%
of your income for use toward a mortgage payment, property taxes and heating
costs. If applicable, half the monthly condominium maintenance fees will
also be included in this calculation.
Second,
calculate 40% of your taxable income and deduct all of your monthly debt
payments, including car loans, credit cards, lines of credit payments.
Both of these two calculations will be used to help determine how much
of your income will be used towards housing payments, including your mortgage
payment. The calculations are based on lenders' usual guidelines.
In addition
to considering what the ratios say you can afford, make sure you calculate
how much you think you can afford. If the payment amount you are comfortable
with is less than 32% of your income you may want to settle for the lower
amount than stretch yourself financially. Make sure you don't leave yourself
house poor. Structure your payments so you can still afford simple luxuries.
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Q.
How does bankruptcy affect my ability to qualify for a mortgage?
A.
Depending on the circumstances surrounding your bankruptcy, generally some
lenders will consider providing mortgage financing.
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Q.
What do I need to bring to my initial consultation?
A.
Employment and income documents proving income such as a recent paystub
or a letter of employment. For self employed, commissioned or seasonal
workers (such as oilfield, construction, truck driving, etc.), you will
need to provide 2-3 years of Revenue
Canada Notice of Assessments.
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Q.
What paperwork do I need to provide for approval of my application?
A. While
documentation requirements can vary depending on your circumstances and
the lender who will be doing the financing, the following lists the most
commonly requested documents:
-
Employment
Income Documents:
-
Letter of
employment
-
Recent paystub
-
OR 2-3 years
Revenue Canada Notice of Assessments for self employed, commissioned or
seasonal workers
-
(if purchasing)
Confirmation of Downpayment & Closing Costs:
From Own
Resources
-
90 days Bank
Transaction History and current balance (must show name & account number)
-
Confirmation
of source of any large deposits (ie. Paystubs)
-
RRSP statements
if using RRSP funds
Gifted
Funds
-
Gift letter
signed by Giftor & Giftee stating funds are a gift and non-repayable
From Sale
of existing home (or other asset)
-
Contract
of Sale
-
Current mortgage
statement showing balance to be paid out
If purchasing:
-
Copy of Contract
to purchase & listing sheet
For refinance/equity
take out transations:
-
Copy of Current
mortgage statement showing balance & payment information
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