Understand Mortgages

Understanding Mortgages

As a mortgage professional, there are certain questions that come up regularly. We're here to answer all those pressing questions!

How much can I borrow?

This one is dependent on your situation.

● The bank will look at your employment income carefully. If you receive overtime or

bonuses, that will help but only if you have been receiving it for 2 years. CCB,

pensions, alimony, and child support are all allowable income sources as well.

● The bank also looks carefully at your liabilities. $400 in monthly debt payments will

decrease your purchasing power by $100,000. Lines of credit and credit cards

may have a minimum payment of 1% but in the mortgage space, we have to use a

repayment of 3% - on a $10,000 line of credit, which means we have to include a

payment of $300.

● The banks require all mortgages to be qualified at a higher rate which is based on

the bank of Canada Rate - today that is 4.79%.

How much do I need to put down?

5% is the required down payment. When you put less than 20% down, you will incur the mortgage default insurance premium, which is a percentage of the mortgage. To avoid this you need 20% down.

What are acceptable down payment sources?

Savings, RRSPs, a gift from immediate family, and tax refund are all acceptable sources, as well we can look at borrowed down payment options for a very strong application.

What is the interest rate?

The interest rate is the rate you will pay to borrow the money from the bank.

What is the difference between fixed and variable rates?

Fixed rates are based on the bond rates. Your interest rate will be set for the entire term of the mortgage. A variable rate will fluctuate with the announcements from the Bank of Canada. You will receive an ongoing rate discount or premium from the prime lending rate. For example, the prime lending rate today is 2.45% and we are seeing a discount of 1% which would give you a rate of 1.45%. This can change whenever the Bank of Canada meets.

What are closing costs?

The bank requires you to have an additional 1.5% of the purchase price for the closing costs. These will include legal fees, title insurance, property tax adjustments, and all the other little things that come up during the closing process.

Should I get a pre-approval?

Yes! A pre-approval means that your application has been carefully reviewed and you can house hunt at ease.

What paperwork will I need?

● Employment Verification

● Down Payment Verification

● Separation Agreements

● Bankruptcy Documents

● Miscellaneous Documents (the bank may require a few other documents

depending on your financial situation)

How long does the process take?

The clock on your mortgage approval starts when your mortgage professional has all of the paperwork. From there, anticipate more time than you think. Up to 10 business days from the day the bank gets the offer and your paperwork, to offer 100% approval. The banks require 10 business days from that day to funding the new mortgage. This is grounds for them to reassess your application.

If you are starting the process of buying your first home, feel free to contact us with any other questions you may have; we would love to help make your dreams a reality!