A conventional mortgage is usually considered one where the borrower has a down payment is equal to or greater than 20 percent of the purchase price. These mortgages typically do not require Mortgage Default Insurance.

Commonly referred to as Mortgage Insurance, allows home buyers to achieve the dream of home ownership with a low down payment.

There are two types of mortgage options:

  • CONVENTIONAL MORTGAGES – on loans with a minimum 20 per cent down payment
  • HIGH-RATIO MORTGAGES – on loans with a less than 20 per cent down payment

In Canada, mortgage insurance is required federally on high-ratio mortgages – that is, mortgages with a down payment of 20 per cent or less. This insurance, which protects the lender in case of borrower default, gives lenders the flexibility to offer borrowers with low down payments the same low interest rates they would offer to home buyers with more equity.

Mortgage insurance premiums are based on the amount of the mortgage and although they can be paid in a lump sum upon closing, they are normally added to the mortgage amount and paid over the length of the mortgage.

This insurance is not to be confused with mortgage life insurance which protects homeowners and their families in the event of death or illness.

If you are in the process of purchasing a property, most real estate professionals will want you to obtain a pre-approval. Pre-approvals are an initial step in the mortgage process which will determine the amount of financing that you will comfortably afford. Pre-approvals are not mandatory but they do provide you with an advantage if you are to submit an offer on a property. Pre-approvals require a credit check and income verification, no documents are sent to the lender as confirmation until you have an accepted offer in place. They are no risk, no obligation and secure you an interest rate for up to 120 days with most lenders. This provides you with the comfort in knowing that you will retain the lower interest rate should interest rates rise within the 120 days. If rates decrease, we will request a rate change for you.

Refinancing refers to the replacement of an existing debt obligation with a debt obligation under different terms. If the replacement of the debt occurs under financial distress, refinancing might be referred to as debt restructuring. Refinancing occurs for many reasons and here are a few options:

  1. Take advantage of a lower interest rate (a reduced monthly payment or a reduced term).
  2. To consolidate other debts into one loan (a potentially longer/shorter term contingent on penalties and fees).
  3. To reduce the monthly repayment amount.
  4. To reduce or alter risk (switching from a variable rate to a fixed rate mortgage).
  5. To free up cash for use at your own leisure (renovations, debt consolidation, additional real estate purchases…).

The Home Buyers Plan is a federal government program that allows home buyers to use $25,000.00 for each purchaser from his/her own RRSP. You must not have owned a principal residence within the last 5 years. You must intend to occupy your home as a principal residence.
Minimum repayment is 15 equal annual installments. This schedule can be accelerated. The funds to be withdrawn must have been invested into the RRSP for a minimum of 90 days prior to withdrawal. You must complete a Form T1036.

The home must be located in Canada and is to be occupied as your principal residence. You have from your own resources a down payment of at least 5% of the purchase price of the home. Your mortgage payment must not exceed 32% of your gross household income. This includes payment of principal + interest + property taxes + heat + condo fees (if applicable). You must be able to cover closing costs equivalent to at least 1.5% of the purchase price. You meet the lender’s eligibility requirements regarding income, employment and credit worthiness.

Closing costs are approximately 1.5% of the Purchase Price. The following are approximate costs:

  1. Appraisal Fee: $350, if required
  2. Survey Certificate or title insurance (if applicable): $250.00
  3. Home Inspection $350.00
  4. Legal Fees (approx): $1,100.00
  5. Tax Adjustment: average ½ of the annual tax bill
  6. Interest Adjustment: (if applicable)
  7. Property Transfer Tax: 0.5% In NB of the purchase price

Mortgages with variable rates or fixed rates under 5 years typically require you to qualify at a higher rate (called the “qualifying rate”). Qualifying rates are used to ensure borrowers can handle their payments should interest rates rise.

A fixed rate is where the interest rate remains the same throughout the entire term of the loan. Interest rates are calculated semi-annually.

A variable rate mortgage (VRM) or adjustable rate mortgage (ARM) is a mortgage loan where the interest rate is periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. Adjustable rates transfer some of the risk from the lender to the borrower.

The term of the mortgage is the period from which your current payment obligations are valid. The amortization of your mortgage refers to the entire length of time that it will take for your loan to be paid off in full. For example, a common term would be 5 years and the standard amortization period is 25 years. After 5 years, we would re-negotiate your mortgage term, provide you with the lowest interest rate on the market that’s available and provide you with the overall lowest total cost of borrowing.

This is a loan in which the lender agrees to lend a maximum amount of money within an agreed period (term) where the collateral is the equity in the borrower’s home. Because a home often is a consumer’s most valuable asset, many homeowners use home equity credit lines only for major items such as home improvements, education and/or medical bills. These credit lines are not usually utilized for everyday spending. Note that new regulations effective July 9th, 2012, most lenders will not consider offering HELOC’s to any borrower without at least 35% of equity in their home. Local Credit Unions may still lend up to 80% Loan to Value (LTV), meaning they will lend up to 80% of the value of their home as opposed to 65%.

A commercial mortgage is a loan made using commercial real estate as collateral to secure repayment. A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, non residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business or limited company. The assessment of the creditworthiness of the business can be more complicated than is the case with residential mortgages. Commercial mortgages are subject to additional broker fees.

A second mortgage typically refers to a secured loan that is subordinate to another loan against the same property. Second mortgages are subordinate because if the loan goes into default, the first mortgage gets paid off prior to the second mortgage. Second mortgages are riskier for lenders and generally come with higher interest rates than first mortgages.

B lenders are large Canadian institutions offering a variety of lending mortgage products. Clients that fall into the B category would be missing one of the major components that the banks and other A lenders require such as income and good credit. Self employed, recently bankrupt, poor credit or lack of viable income options, may place you in the B lending category provided the A lenders decline your file. B lenders often require a minimum of 15% as a down payment on a purchase or have that amount in equity in your current home to refinance. Interest rates are a bit higher than the A side, often 1-2% more. In addition to the higher interest rates, there are also fees attached to the financing in the range of 2-3%. The borrowers do not pay insurance premiums as these lenders are self insured.

With private mortgages you are not borrowing from a bank, you are borrowing from another person or business. Interest rates are higher and there may be additional fees involved depending on the risk of the borrower.

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