FAQ’s

Q. Why use a mortgage consultant as opposed to a bank?
Q. Are there any fees involved with a mortgage consultant?
Q. Is a pre-approval a good idea?
Q. Should I wait for my mortgage to mature?
Q. Variable Rate versus Fixed Rate mortgages?
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 borrow to towards the purchase of a home?
Q. How does bankruptcy affect my ability to qualify for a mortgage?
Q. What documentation do I need to provide?

Q. Why use a mortgage consultant as opposed to a bank?

A. When dealing with a bank, you are limited to their specific products, guidelines, and rates. Lender’s rates vary on certain products at varying times. The question is, does your lender have a competitive rate and the best product to fit your needs when you need it? What if you don’t qualify under their guidelines, what if their rates aren’t that good, will they tell you which lender is the best fit? Is the person you are dealing with a mortgage expert or are they just a bank employee who does mortgages sprinkled in with the rest of their duties such as credit card applications, RRSP contributions, and other paperwork?

I’m not saying this is the case all the time, but a lot of my clients find this to be a common occurrence and this is why they sought out my services. It’s the bank employee’s job to sell you their employer’s product regardless of what they know the other lenders are offering or if their product is really the best fit for you.

When dealing with mortgage consultants like us, it’s much different – we are licensed mortgage experts and we work for you! All we do are mortgages and we can set you up with whichever lender has the best rate and product to fit your needs. We will provide you with a wide range of lenders and mortgages designed to fit your needs. Our large volume of business ensures you get the best rate all the time and our experience and expertise ensures you get the right product and everything goes smoothly from start to finish. All your questions get addressed in a timely manner and you know you can rest assured that we will be fully looking out for your best interest, at all times. You can expect the highest level of customer service from us, as a result of our long experience in the financial industry and resulting relationships.

Q. Are there any fees involved with a mortgage consultant?

A. In most instances, there are no fees paid by our clients. Mortgage consultants receive a commission from the lending institution that funded your mortgage application. The reason they can do this is we do all the work for them which saves them time and money. If you do not qualify normally due to poor credit, job instability or other unseen factors, there may be a brokerage fee, but it will be disclosed to you prior to proceeding so there are no hidden surprises.

Q. Is a pre-approval a good idea?

A. A pre-approval is a very good idea; if it is done properly it will give you a solid foundation to work from and a good idea of what you can afford to buy. It also provides a rate hold for up to 120 days, so even if rates climb you are guaranteed the pre-approval rate as long as you complete a property purchase within the time allotted. When getting a pre-approval, supply your mortgage broker with all the documentation up front and have a credit check done to ensure there are no surprises. More than a few times, I have dealt with clients that thought they were pre-approved by the bank or another mortgage broker only to find out they never looked at all the information and now the lender won’t do the mortgage. They come to me looking for a solution so they won’t lose the home they have spent a lot of time searching for.

Q. Should I wait for my mortgage to mature?

A. No, you shouldn’t. Allow us to begin shopping around for an interest rate at least 120 days before your mortgage matures. Lenders will often guarantee to hold an interest rate for as long 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 in most cases. This means a rate guaranteed well in advance of your maturity date, which eliminates any worries about higher rates. If rates drop before the actual maturity date, the lender will adjust your interest rate as well.

Q. Variable Rate versus Fixed Rate mortgages?

1. This is a very complex question and your mortgage broker can give you up-to-date advice. It all depends on the current market as well as your situation as to which one is best suited for you. No one can predict the future, no matter how much they claim they can.

Fixed rate mortgages guarantee you a set rate for the duration of the contract. This provides long term security in case rates go up. If you can’t afford higher payments, a fixed rate mortgage will ensure your payment remains the same each month. Lenders are able to provide this guaranteed rate by selling the mortgage to investors behind the scene. The only thing you have to watch is if you want to pay out this type of mortgage early, the penalty can be higher than a variable rate mortgage if interest rates have declined from the contract rate of your mortgage. The lender has guaranteed an investor a certain return so they will charge you an interest rate differential to cover the shortfall between what they now can re-lend the funds at and what rate your contract states. This is called an interest rate differential penalty. If rates are the same or higher, then for early payout the penalty is 3 months interest.

Variable rate mortgages have rates that are based on the bank prime lending rate and they fluctuate as the bank prime rate fluctuates. Some lenders will alter your payments up or down every time the prime rate changes and some lenders don’t unless rates have gone up so much you are in a negative position. The Bank of Canada meets about 8 times per year to review their prime lending and will adjust the rate according to how they want to affect the economy. If they want to stimulate the economy, they lower the rate; if they want to slow down the economy and inflation, they raise the rate. Every time they change the rate, your bank will adjust its prime lending rate accordingly. To pay off a variable rate mortgage early, the penalty is typically 3 months interest unless it is an open mortgage. Most mortgages aren’t open as lenders charge a higher rate for the option. Unless you plan to pay off the mortgage early, most people don’t pay the higher interest rate for that privilege.

Q. What is mortgage loan insurance?

A. Mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC) which is a crown corporation, and Genworth Financial which is an approved private mortgage insurer. This insurance is required by law to protect lenders against defaults on mortgages where there is less than 20% equity in the property, commonly called a high-ratio mortgage. The insurance premiums charged are the same regardless of company used and range from 1% to 3.15% of the mortgage amount. They are paid for by the borrower and are added directly into the mortgage. Sometimes a lender may require you to insure a mortgage even though you have over 20% equity in a property and in those situations your mortgage broker will calculate the associated costs to find the best option available. Mortgage loan insurance is not the same as mortgage life insurance.

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 or a loan is for 80% or less of the property value. This type of mortgage financing normally does not require mortgage loan insurance.

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 of the property. High-ratio mortgages generally require mortgage loan insurance provided by either CMHC or Genworth.

The mortgage loan insurance premium paid to CMHC or Genworth protects the lender in case of default in the event the mortgage is not repaid, and the bank 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.

Q. What can I use for a down payment?

A. In most cases these sources are allowed but it can depend on the lender and program:

• Gift from immediate family
• Accumulated savings
• Sale of existing home
• Equity in a property
• Registered Retirement Savings Plans (RRSP’s) may be used as a down payment. If you qualify you can use up to a maximum of $25,000 and it is not subject to income tax if repaid within 15 years at an amount of 1/15 per year

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.  There are a few lenders that will actually give you the 5% down payment as well but the interest rate on the mortgage will be higher as a result.  Qualifying for this type of mortgage is a bit tougher and your credit must be clean and in good standing. You still must be able to supply the 5% down payment and closing costs, but will receive the 5% cah back shortly after the mortgage closes.

If you are buying a piece of land without a home on it you will likely have to put down somewhere between 25% and 50% depending on where it is located, the size, and if it is serviced or not. This is typically harder to secure financing and the rates are higher.

Q. How much can I borrow to towards the purchase of a home?

A. The banks typically determine the maximum they can lend you as follows.

You will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Line 150 on your Notice of Assessment from Canada Revenue shows this amount.

Firstly, calculate 32% of your income for use toward a mortgage payment, property taxes and $100 per month in heating costs. If applicable, the monthly condominium maintenance fees will also have to be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments above plus including car loans, credit cards, and 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.

If you have good credit there are lenders that have guidelines that will allow you to qualify for a larger mortgage. If you have at least 20% equity in your home there are lenders who will let you qualify for a higher mortgage. If you are self employed you will likely have extra options as well. If you have rental revenue that will open up more options. That’s a lot of ifs and these are all good reasons why you want to see a professional mortgage broker to give you more options.

Q. How does bankruptcy affect my ability to qualify for a mortgage?

A. Depending on the circumstances, if a mortgage was not involved in the bankruptcy some lenders will consider providing mortgage financing. Typically the bankruptcy will need to have been discharged a minimum of 2 years and you will need at least 1 year of reestablished credit.

Q. What documentation do I need to provide?

A. Lenders will want confirmation of several things in order to secure a mortgage and it can vary from lender to lender. By having access to more lenders a mortgage broker can supply more options can help in qualifying:

Income confirmation: a job letter and pay stub if you are employed and if you work overtime they will consider that income as well if you can provide a 2 year average. If you are self employed they will typically want two years proof of income in the form of notice of assessments and/or T1 generals. They will also want confirmation your taxes are up to date. In some situations you can “state” you income and less documentation is required and you can sign a declaration stating your annual income and that you owe no taxes.

Proof of Funds: you will need to provide proof of the down payment source as well as funds to cover the closing costs (they typically want to see you have 1.5% of the purchase price to cover closing costs). Government regulations require proof of where the funds come from unless you can prove they have been in your bank account for a minimum of 3 months.

Confirmation of House Value: The lender will lend on the lesser of the purchase price of the house or the appraised value. If the mortgage is insured then the insurer looks after the appraisal and if the mortgage is not insured you will be required to have an appraisal done on the property. Your mortgage broker will set up the appraisal for you if required and it normally takes a few days to get done.