Frequently Asked Questions

Recently, Mortgage Insurers have started to offer insurance for mortgages amortized for up to 35 years. In the rising cost environment that home buyers in particular are faced with today for the purchase of an average home, this certainly serves as a tool to assist the home buyer with not only qualifying for a larger mortgage amount, but also allows for payments that are more suitable to their budget.

Please feel free to contact us for some free advice.

Payment frequency is not the major factor in reducing the amortization period of your mortgage. Principal reduction is! But what about all the talk of weekly or bi-weekly payments taking five years off your amortization period. Although you will save some interest making your payment weekly or bi-weekly, ultimately it is the fact that your total payments each year are higher that results in the significant reduction in your amortization. For instance, using a bi-weekly payment example for demonstrative purposes, when a client chooses a bi-weekly payment of $500 over a monthly payment of $1000, in fact they are choosing to pay an extra $1000 annually.

In most cases a bi-weekly payment is simply a monthly payment divided by two. That means that instead of paying $12,000 in monthly payments, you are now paying $13,000 in bi-weekly payments. That extra $1000 is what ultimately cuts the years off your mortgage. But you can do close to the same thing by increasing your monthly payment, if a monthly payment frequency would be more convenient for you, or by taking an accelerated semi-monthly payment. See the numbers below:

Example is based on a $200,000 mortgage at an interest rate of 6.15%.

Monthly Regular Monthly Accelerated Semi-monthly Accelerated Bi-weekly Accelerated Payment $1297.50 $1405.62 $702.81 $648.75 Yearly Payments $15,570.00 $16,867.44 $16,867.44 $16,867.50 Extra funds paid each year compared to monthly regular N/A $1,297.44 $1,297.44 $1,297.50 Actual Amortization Period 25 Years 21 Years 20.964 Years 20.960 Years Total Interest Paid $189,249.57 $154,518.38 $153,615.95 $153,544.91 Interest savings over life of mortgage as a result of increasing mortgage payments N/A $34,731.19 $35,633.62 $35,704.66

Most people find that a payment frequency tied to how often they earn their income makes the most sense. And where possible, increase your regular payment amount or make periodic lump sum payments as both will help reduce the length of time it will take to repay your mortgage fully.

Please feel free to contact us for some free advice.

Our website is very secure. All personal and financial information you provide on line is encrypted for the greatest possible security. Once received, we then deliver the information to the lender selected through a highly secure members only Intra Net System. We treat your information with the greatest care and your privacy first and foremost in mind.

Please feel free to contact us for some free advice.

100% financing is in fact available through several different sources, one of which we addressed earlier in question number 4 under the down payment category, whereby a borrower can receive a cash back should they be eligible, which can be used as a down payment. The cost for this type of financing is typically a slightly higher mortgage insurance premium and posted mortgage rates with no discount.

Borrowed funds bringing the total amount borrowed on a purchase up to 100% are also acceptable as down payments, as long as the required payments under the loan terms are factored in the debt service ratios.

Other sources of 100% financing are through sub-prime lenders who self-insure their portfolio. These types of mortgage loans are financed at slightly higher interest rates and premiums, and are usually utilized to finance the applicant(s) who do not qualify for mortgage loan insurance through CMHC or Genworth Financial. It is important to note that this type of financing is also used when 100% financing is required for re-financing purposes for debt consolidation, and all the equity in the existing home owner’s property is required to accomplish the ultimate goal of improving cash flow.

Please feel free to contact us for some free advice.

As demonstrated in the example just above, a High-Ratio mortgage is one where the amount borrowed is greater than 75% of the purchase price, or the appraised value, whichever is less in the case of a purchase. Again, High-Ratio mortgages generally require mortgage loan insurance provided through Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial, unless a borrower’s mortgage is placed through a lender who self-insures their portfolio. Self-insured mortgage lenders are normally used in the case that a client requires financing under a sub-prime program and does not qualify for insurance through either CMHC or Genworth Financial.

The Mortgage Loan Insurance premium is paid to CMHC or Genworth Financial and protects the Lender in the event the mortgage is not repaid and the bank has to take back the property. The benefit to the borrower is that it allows them to purchase a home with less than 25% down payment. The insurance premium is paid by the borrower and can be added directly onto the mortgage.

As previously mentioned, mortgage loan insurance premiums range from .50% to 7.30% of the mortgage amount, (see High-Ratio Mortgage Insurance Premiums) and are calculated based on the overall loan to value and the type of product selected. For example, borrowers with a 5% down payment, or a loan to value of 95%, would pay a premium of 2.75% while those with a 20% down payment, or a loan to value of 80%, would pay an insurance premium of 1.00%. Self-employed borrowers unable to prove their income could be subject to a premium of up to 7.30%. There are ways to avoid the expensive premium for the self-employed who cannot confirm income.

A conventional mortgage is usually one where the down payment for a purchase of a home or the equity in an existing home owner’s home is equal to 25% or more of the purchase price or value. In this case, a mortgage loan does not normally require mortgage loan insurance. There are cases however with a conventional mortgage, where a lender would require mortgage loan insurance as an exception mainly due to the property condition or property type.

Please feel free to contact us for some free advice.

Mortgage Loan Insurance is insurance currently provided by the Canada Mortgage and Housing Corporation (CMHC), and Genworth Financial. This insurance is required by law in Canada to insure lenders against default on mortgages with less than 25% equity or a loan to value ratio (LTV) of greater than 75%. The insurance premiums, ranging from .50% to 7.30%, are paid by the borrower and can be added directly to the mortgage amount. This is not to be confused with fire insurance coverage or Life Insurance. (Click here for more information on High-Ratio insurance premiums).

Mortgage loan insurance would apply to you if you have less than 25% as a down payment in the case of a purchase, or less than 25% equity in your existing home in the case of a re-finance. For example: on a value of $100,000 you would be borrowing no more than $75,000 on your mortgage for mortgage loan insurance not to apply. Any amount borrowed over $75,000 would have to include a mortgage loan insurance premium. This leads us to the next most frequently asked question.

Please feel free to contact us for some free advice.

While most Canadian homebuyers save for a down payment, there is always the option for purchasers these days to arrange for the minimum 5% down payment through sources other than their own resources. These arrangements are subject to certain restrictions based on the qualification and the beacon score of the applicant(s). The 5% down payment can come from borrowed funds such as a line of credit, a loan or a family member. The amount borrowed for a down payment is factored into the debt service ratios, which determine how much of a mortgage you ultimately qualify for.

Another option for arranging the required 5% down payment can come from a cash back feature built into the mortgage offered by several lending institutions. In this case, the posted rate (undiscounted rate) will apply to mortgage term arranged for you. The 5% cash back is typically delivered to your solicitor on closing along with the mortgage funds required to complete the purchase transaction, and is deemed to be 100% financing. Please keep in mind that should you decide to discharge your mortgage before your term is up, the cash back will be refundable to the lender on a pro-rated basis.

Please feel free to contact us for some free advice.

It is important as an informed consumer to have a home inspection done on the home you are considering to purchase. A home inspection is a visual examination of a home which helps to determine the general condition of the home. During the home inspection, the inspector checks all major components of the structure such as roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, the electrical system, heating, plumbing, drainage, exterior weather proofing, etc. The inspector then provides the potential home buyer with a detailed written report. If the report demonstrates deficiencies, the purchaser can more than likely get a reduction in the price offered to the vendor(s) equal to the estimated cost of the deficiencies.

A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase giving a purchaser peace of mind. Please feel free to contact us for some free advice.

Our consultants are trained professionals who will assist you with determining the price range you qualify for when you are prepared to purchase your home. To do this, our Consultants would first calculate your affordability by determining your Gross Debt Service Ratio (GDSR). This is done by taking your Taxable Income along with the amount of the household debt outstanding or the required monthly household payments, and assuming it is your principal residence you are purchasing, the Consultant will then calculate 32% of your income for use toward a the mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

In addition to this, our consultants would then calculate 40% of your Taxable Income known as the Total Debt Service Ratio (TDSR). This is done by taking your required monthly household payments along with all other monthly debt payments, including car loans, credit cards, and line of credit payments, and dividing them by your Taxable Income.

Although under typical lender guidelines the GDSR and TDSR should not exceed 32% and 40%, it is important to keep in mind that these are guidelines and may not necessarily fit your budget without having to give up the every day simple luxuries. Please feel free when consulting with one of our professionals to express your comfort level with the monthly payment that you feel suits you best, should you decide that the payment under the maximum guidelines is slightly above your budget.

Please feel free to contact us for some free advice.

A pre-approval is very important in the process of obtaining mortgage financing whether it be for the purchase of a home or for the purpose of re-financing your existing home for renovations, investments or a major purchase of a variety of durable consumer goods when an existing homeowner is looking to minimize their payments by amortizing their loan over a longer period of time. Pre-approvals allow home buyers the opportunity to determine exactly what they qualify for before they commit to an offer of purchase along with providing them a guarantee on the rate for the term of their choice for 120 days.

In the case of a re-finance, a pre-approval allows the client the opportunity to determine how much of an investment they can make, how much they can afford in renovations, or just how much they can afford to spend on other items using the equity in their home. Pre-approvals are also usually a good idea when a client is considering a switch or a re-finance, (especially in a rising interest rate environment); because the rate again is guaranteed for a period of 120 days as opposed to the typical 60-90 days that the Banks offer under their rate hold policy.

Please feel free to contact us for some free advice.