Direct: 1-705-727-9573

Arranging a Mortgage and Pre-Approval

You will need a down payment on your purchase.  This can be as low as 5% of the purchase price.  Add 2 % to allow for closing costs (legal fees, disbursements, taxes).  See the Appendix attached for closing cost details.

You will also require adequate income to support the mortgage repayment schedule, plus other monthly expenses including insurance, taxes and utilities.

How much can we afford?

Financial Qualification Criteria

There are two basic factors in determining the maximum amount you can spend on housing.  The first is your down payment.  Conventional mortgages require a minimum of 20% down (80% being loaned by the bank).  If you have less than 20% of the purchase price down, the lender will allow the smaller down payment if the mortgage is insured with CMHC or GE Capital.  These insuring companies protect the lenders from loss if mortgages go into default. This type of financing is called high-ratio financing.

 Note: Buying an investment / non-primary residence the minimum down payment is 20% down.

The second factor is the total of your combined incomes.  Most lenders use similar guidelines of 32% GDS and 40% TDS.  This means that 32% of your gross income, without any debt is the maximum you can spend on shelter payments.  The maximum total financial obligations you can have must not exceed 40% of your gross income.


To Calculate GDS (Gross Debt Service):

 (PRINCIPLE & INTEREST PAYMENT x 12) + TAXES +(HEATING BILLx12)

GROSS ANNUAL INCOME

To Calculate TDS (Total Debt Service):

 

(PRINCIPLE & INTEREST PAYMENT x 12) + TAXES + (HEATING BILL x12) + (LOAN PAYMENT x12)

GROSS ANNUAL INCOME

 

***note that condo purchases must include 50% of the condo fee x 12 in the calculations

Amortization

Buyers can amortize their mortgage over 25 years to qualify. The higher you amortize, the lower your monthly payments (also the more interest you pay).

Term

Interest rates differ, depending on the term you choose.  The term you choose would depend on your overall goals of your purchase.


 First time buyers must qualify for the mortgage at the Bank of Canada benchmark Qualifying Rate, the 5 year posted rate.  This gives some comfort to the lender and the Buyer, that should the rates go up, the buyer will still be able to afford the payments.

Borrow from RRSP

As of February 2013, 1st time Buyers can borrow up to $25,000 from their RRSP for down payment on a 1st time purchase.

Insurance Premiums for CMHC High Ratio Mortgages

A mortgage must be insured if your down payment is less than 20%. Mortgage loan insurance ensures homebuyers are provided with competitive interest rates - comparable to those with a 20% down payment, and helps protect lenders against mortgage default.

 The premium for the mortgage insurance is added to the mortgage loan; however, you do have to factor this into your qualifying process.  It is a onetime fee...if you move again and have less than 20% down again, you only have to pay the difference in the purchase price.  Insurance is subject to PROVINCIAL SALES TAX. Therefore, 8% is calculated on the premium amount.  Tax is NOT added to mortgage payments. This has to be paid on closing, so factor this into your closing costs.

Table of CMHC Mortgage Loan Insurance Premiums

 

**If you have 20% down payment, you do not require this loan insurance**

Loan-to-Value

Premium on Total Loan

Premium on Increase to Loan Amount for Portability and Refinance

Standard Premium

Self-Employed without 3rd Party Income Validation

Standard Premium

Self-Employed without 3rd Party Income Validation**

Up to and including 65%

0.50%

0.80%

0.50%

1.50%

Up to and including 75%

0.65%

1.00%

2.25%

2.60%

Up to and including 80%

1.00%

1.64%

2.75%

3.85%

Up to and including 85%

1.75%

2.90%

3.50%*

5.50%*

Up to and including 90%

2.00%

4.75%

4.25%*

7.00%*

p to and including 95%

2.75%

N/A

4.25%*

*

90.01% to 95% -
Non-Traditional Down Payment***

2.90%

N/A

*

N/A

Extended Amortization Surcharges
Add 0.20% for every 5 years of amortization beyond the 25 year mortgage amortization period (for LTV ≤ 80%).

Note: See your lender for premium surcharges and other terms and conditions that apply.


 

Our Recommendation to You:

The best advice we can give you regarding your financing is this: Go to your Bank or Mortgage Broker and obtain a written pre-approval for a mortgage with a specified time frame (the longer, the better).

1.      You will then know exactly what you are qualified to purchase.

2.     You can then make an offer on a property with confidence that financing will not be a problem and have better negotiating power.

3.     Your written pre-approval guarantees you the rate negotiated at the time of the approval for at least 60 days (varies from lender to lender) and protects you from any interest rate increase during that period.

What about Bridge Financing?


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