Frequently Asked Questions
Why do you need a mortgage broker agent?
- A mortgage broker coordinates borrower’s needs and lender’s terms and conditions until closing the mortgage. It is a time-consuming process due to significant background information gathering and verification involved
- Unlike your bank, a mortgage agent works for you, his/her loyalty is to you, not the lenders
- A good mortgage agent will find the best product for you, better than your bank’s products
- A mortgage broker provides mortgages on a wholesale basis from lenders and therefore can offer the best rates available in the market
- You have a lower credit score or other challenges, and a good agent will know which lenders are willing to work with you
What is a Conventional Mortgage?
- A mortgage that does not carry any form of high-ratio (e.g. down payment 20% or more) or lender insurance premium
What is Closed Mortgage
- The interest rate on a closed mortgage is usually lower than on an open mortgage with a comparable term length
- If you break the mortgage contract, a pre-payment penalty will apply
What is Open Mortgage?
- Having the flexibility in making extra payments or paying off your mortgage completely (pre-payment) with no penalties
- The interest rate is usually higher than on a closed mortgage with a comparable term length; this is because it allows more flexibility to put extra money toward your mortgage on top of your regular payments
What is the mortgage default insurance?
- Mortgage default insurance protects lenders in the event a borrower defaults on their mortgage
- If your down payment is less than 20% of the price of your home, you must buy mortgage loan insurance
- Mortgage insurance in Canada can be purchased from Canada Mortgage & Housing Corporation (CMHC), Genworth Financial and Canada Guaranty
How much can I afford to buy a home?
- Lenders look at two ratios when determining the mortgage amount you qualify for, which generally indicate how much you can afford
- These ratios are called the Gross Debt Service (GDS) ratio and Total Debt Service (TDS) ratio; they take into account your income, monthly housing costs, and overall debt load
- Typically max. GDS 39%, and max TDS 44% to qualify; however, some lenders have programs up to TDS 50%
- Calculations require following basic information;
- Your taxable income
- Any outstanding debts
- Property tax
- Condo fee (if applicable)
- Heating cost (typically take as $100)
- Your licensed mortgage agent will do the calculations for you
Can I use gift funds as a down payment?
- Yes, gifts from close family members such as parents, siblings etc. are acceptable
- A gift letter signed by the donor is required
- The gifts must be in the borrower’s bank account prior to the application submission
How much maximum I can withdraw from RRSP for down payment?
- The Home Buyer Plan (HBP) allows you to withdraw up to $35,000, tax–free, from your Registered Retirement Savings Plan (RRSP)
- It can be used only to buy or build a qualifying home
- After the 2 year grace period, you’ll have a maximum of 15 years to repay the full amount back into your RRSP
- This is only for;
- First time home buyers
- Residents or Citizens of Canada
- Owner occupied homes
What is the minimum down payment?
- Purchase Price < $500,000, 5% of the purchase price
- $500,000 < Purchase Price < $999,999, 5% of the first $500,000, 10% for the portion above $500,000
- $999,999 < Purchase Price, 20% of the purchase price
- Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources (ex. Savings, RRSP, TFSA etc.) or a gift from a family member. It cannot be borrowed
Will I even qualify for a mortgage if I have bad credit or bankruptcy?
- If you know you have a low credit score, you should be transparent with the mortgage agent from the start
- Your agent will find mortgage products that are best tailored to your needs
- Depending on the circumstances surrounding your bankruptcy, there are lenders would consider providing mortgage financing