Answers

How much can I afford to pay for a home?
To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, and lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries.

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Why choose a mortgage broker?
Over 50% of Canadians do and the numbers are growing, because we offer:

Choice:
We deal with a great number of banks, financial institutions and private lending sources to find you the best rates available to you based on your financial situation.

Convenience:
We do the work. We package your application, contact the head offices to explain your situation and sell your application to the bank. We bypass the local branches and directly deal with the person that makes the decisions about you, the customer.
You can reach us, talk to a live person and we can be available to you even outside of "banking hours".

Expertise:
We will save you thousands, we get you the best interest rate and we also connect you to the right bank that will offer you best terms for your situation.
We arrange financing for residential/commercial, first/second/third mortgages.

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How much does it cost to use a broker?
We offer Completely Free service on residential mortgages. There are rare cases where someone has unique property and circumstances that requires them to find either a 'high risk' or atypical lender, and in those cases there may be fees at those lenders if you request them to do some sort of specialized services for you. Robert W. May and Axis Mortgage Inc. work for you to save you money and it doesn't cost you a thing!

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Who does the mortgage broker represent, the bank or the applicant?
Both. We negotiate on your behalf with the banks, but we also want to be careful to protect our banks, as business partners from fraud and show them applications that meet their guidelines.

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Why doesn't my own bank give me the best interest rate?
Simply put, they don't have to. They already have you as a client and no longer need to compete with other lenders for your business. Typically, we are able to find clients rates that are up to a full percentage point lower then the banks posted interest rates. This is a huge amount and could make a different of thousands of dollars in savings for you.

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What is a home inspection and should I have one done?
A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results
of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection.

A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.

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How do you know which bank is right for me?
Each lender has different underwriting guidelines. They specialize in different type of applicants. This very often prevents them from dealing with unique cases. We continuously study the guidelines of each bank and keep up-to-date with the changes. If you happen to be self-employed or own a rural property or have less-than-perfect credit most banks will not deal with you. We specialize in hard-to-approve applications.
How about NO MONEY down, 100% financing even with less-than-perfect credit?

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What happens when I keep checking my credit at various places?
It may ruin your credit completely. The more you check it the worse it gets. Even if your credit has been perfect up until now, frequent checks could put you in a difficult position.
We check your credit once and we use the same credit report for all the financial institutions where we represent you, this way your credit stays the same. We will even help you improve it at no charge.

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What is the minimum down payment needed for a home?
In most cases, a minimum down payment of 5% is required to purchase a home. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, where applicable).

Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed. There is a new CMHC program that will allow some alternate sources of down payment.

Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in your possession before the application is sent in to CMHC for approval.

Mortgages with less than 20% down must have mortgage loan insurance provided by either CMHC or GE.

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What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from .50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.

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What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require mortgage loan insurance.

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How does bankruptcy affect qualification for a mortgage?
There are different lenders for different applicants. Some lenders base your mortgage approval upon your credit, some base it upon your income, some base it upon the property you are buying and your downpayment, etc.

The key is that we personally seek out financing from lenders who fit the client and the clients specific characteristics.

We have lenders who loan regardless of bankruptcy, regardless of credit, regardless of taxable income, etc. The key is to not waste our clients time trying to fit them into the typical application and send them to lenders who are not the right fit.

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How will child support affect mortgage qualification?
Where child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for.

Where child support and alimony are received by you from another person, generally the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender.

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What type of documentation will be required to obtain a mortgage?
Some of the items you MAY need to provide are:

- Your personal information, including identification such as your drive's license
- Details on your job, including confirmation of income by way of a wage letter
- Your sources of income
- income tax Notices of Assessment
- Information and details on all bank accounts, loans and other debts
- Proof of financial assets
- Source and amount of down payment
- Proof of source of funds for the closing costs (approximately 2.5% of purchase price)
- Copy of Divorce Agreements, Auto Leases, and other relevant contracts

Keep in mind that we have lenders who offer mortgages suited to a variety of different applicants. Just because you do not fit the traditional mold does not mean that there is not financing available to you at great rates, it just means you need to know where to look for it.

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Can I get a mortgage to purchase a home?
Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation and GE Capital, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.

Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.

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Can I use gift funds as a down payment?
Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Where the mortgage requires mortgage loan insurance, Canada mortgage and Housing Corporation requires the gift money to be in the purchaser's possession before the application is sent in to them for approval. Where mortgage loan
insurance is provided by GE Capital this is not a requirement. See 'what is mortgage loan insurance?' for further information.

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What is a pre-approved mortgage?
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 90 to 120 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own
resources', for example.

Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.

In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process.

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Should I wait for my mortgage to mature?
Lenders will often guarantee an interest rate to you as much as 120 days before your mortgage matures. And, as long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage too. This means a rate promised well in advance of your maturity date, thus eliminating any worries of higher rates. And if rates drop before the actual maturity rate, the new lender will usually adjust your interest rate lower as well.

Most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is usually not the best one. Always investigate the possibility of a lower interest rate with the lender or another lender. If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need
to.

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What is a down payment?
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.

The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.

The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.

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How can you acquire a home with as little as 5% down?
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.

With all low down payment insured mortgages, you are responsible for:

-appraisal and legal fees
-the payment of the mortgage default insurance premium (although the amount of the premium will be added to the mortgage amount).

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How can you pay off your mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by:

Selecting a non-monthly or accelerated payment schedule
Increasing your payment frequency schedule
Making principal prepayments
Making Double-Up Payments
Selecting a shorter amortization at renewal

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How can you use your RRSP to help you buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government's Home Buyers' Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.

To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home.

Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers' Plan. For example, if you had already saved $20,000 for a down payment - and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan.

The advantage? Your $20,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.

While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.

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What are the costs associated with buying a home?
First and foremost, you have to make sure you have enough money for a down payment - the portion of the purchase price that you furnish yourself.

To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.

Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price).

If you want to have the home inspected by a professional building inspector - which we highly recommend - you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don't, then ask for one.

You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.

There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax - a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.

Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.

Remember, there will be all kinds of things you'll have to purchase early on - appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.

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What should the length of my mortgage term be?
The length of mortgage terms varies widely - from six months right up to 40 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate.

While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.

Before selecting your mortgage term, we suggest you answer the following questions:

1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.

2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that's the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.

3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.

4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that's the case, a short mortgage term may best suit your needs.

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What are the monthly costs of owning a home?
Needless to say, you'll have financial responsibilities as a home owner.

Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses.

The Mortgage Payment

For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.

Property Taxes

Property tax can be paid in two ways - remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment.

School Taxes

In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.

Utilities

As a home owner, you'll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.

Maintenance and Upkeep

You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home's market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property.

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Should you go with a short or long-term mortgage?
A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates. Our 5, 7 and 10-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing. Some of our lenders even offer the option to lock your payments in for up to 25 years.

If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.

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What is a fixed rate mortgage?
The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 40 years. This offers the security of knowing what you will be paying for the term selected.

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What is a variable rate mortgage?
Variable Rate Mortgages float up and down with the Canadian Prime Rate which, when it changes, only does so in small increments. When the rate goes up or down, it does so slowly, and the actual impact on your monthly payment is equally minor. The fact is, (and most lenders don't publicize this), when you compare a Variable Rate Mortgage to a Fixed Rate Mortgage of the same term length, over the life of the term, most often the Variable Rate out-performs its cousin.

Variable Rate Mortgages work very similarly to Fixed Rate Mortgages, though there are more term lengths to choose from with Fixed Rate products. Variables tend to be either 3 or 5 year terms. Also, as previously mentioned, Variable Rate Mortgages fluctuate up and down with the Canadian Prime Rate, either right at Prime or within about .75 to .90% plus or minus, depending on your credit rating.

Variable Rate Mortgages tend to be more difficult to qualify for, as the lenders require more in the way of proof of income, credit scores, and job stability. This is due to their perceived increase in risk, with this product.

Like Fixed Rates, Variable Rate Mortgages can be either Open or Closed. If the mortgage is Closed, then the conditions of the loan are locked in for the length of the term. More often though with Variable Rate Mortgages, the mortgage is Convertible, and you could lock the rate in at any time if you felt the rates were getting out of control. Each Financial Institution will have it's own set of policies relating to this option.

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Mortgage Application Mortgage Calculators Mortgage Glossary Frequent Questions	Frequently Asked Questions Questions How much can I afford to pay for a home? Why choose a mortgage broker? How much does it cost to use a broker? Who does the mortgage broker represent, the bank or the applicant? Why doesn't my own bank give me the best interest rate? What is a home inspection and should I have one done? How do you know which bank is right for me? What happens when I keep checking my credit at various places? What is the minimum down payment needed for a home? What is mortgage loan insurance? What is a conventional mortgage? How does bankruptcy affect qualification for a mortgage? How will child support affect mortgage qualification? What type of documentation will be required to obtain a mortgage? Can I get a mortgage to purchase a home? Can I use gift funds as a down payment? What is a pre-approved mortgage? Should I wait for my mortgage to mature? What is a down payment? How can you acquire a home with as little as 5% down? How can you pay off your mortgage sooner? How can you use your RRSP to help you buy your first home? What are the costs associated with buying a home? What should the length of my mortgage term be? What are the monthly costs of owning a home? Should you go with a short or long-term mortgage? What is a fixed rate mortgage? What is a variable rate mortgage? Answers How much can I afford to pay for a home? To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation. Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, and lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines. In addition to considering what the ratios say you can afford, make sure you calculate how much you think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries. back to top Why choose a mortgage broker? Over 50% of Canadians do and the numbers are growing, because we offer: Choice: We deal with a great number of banks, financial institutions and private lending sources to find you the best rates available to you based on your financial situation. Convenience: We do the work. We package your application, contact the head offices to explain your situation and sell your application to the bank. We bypass the local branches and directly deal with the person that makes the decisions about you, the customer. You can reach us, talk to a live person and we can be available to you even outside of "banking hours". Expertise: We will save you thousands, we get you the best interest rate and we also connect you to the right bank that will offer you best terms for your situation. We arrange financing for residential/commercial, first/second/third mortgages. back to top How much does it cost to use a broker? We offer Completely Free service on residential mortgages. There are rare cases where someone has unique property and circumstances that requires them to find either a 'high risk' or atypical lender, and in those cases there may be fees at those lenders if you request them to do some sort of specialized services for you. Robert W. May and Axis Mortgage Inc. work for you to save you money and it doesn't cost you a thing! back to top Who does the mortgage broker represent, the bank or the applicant? Both. We negotiate on your behalf with the banks, but we also want to be careful to protect our banks, as business partners from fraud and show them applications that meet their guidelines. back to top Why doesn't my own bank give me the best interest rate? Simply put, they don't have to. They already have you as a client and no longer need to compete with other lenders for your business. Typically, we are able to find clients rates that are up to a full percentage point lower then the banks posted interest rates. This is a huge amount and could make a different of thousands of dollars in savings for you. back to top What is a home inspection and should I have one done? A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection. A pre-purchase home inspection can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase. back to top How do you know which bank is right for me? Each lender has different underwriting guidelines. They specialize in different type of applicants. This very often prevents them from dealing with unique cases. We continuously study the guidelines of each bank and keep up-to-date with the changes. If you happen to be self-employed or own a rural property or have less-than-perfect credit most banks will not deal with you. We specialize in hard-to-approve applications. How about NO MONEY down, 100% financing even with less-than-perfect credit? back to top What happens when I keep checking my credit at various places? It may ruin your credit completely. The more you check it the worse it gets. Even if your credit has been perfect up until now, frequent checks could put you in a difficult position. We check your credit once and we use the same credit report for all the financial institutions where we represent you, this way your credit stays the same. We will even help you improve it at no charge. back to top What is the minimum down payment needed for a home? In most cases, a minimum down payment of 5% is required to purchase a home. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, where applicable). Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed. There is a new CMHC program that will allow some alternate sources of down payment. Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in your possession before the application is sent in to CMHC for approval. Mortgages with less than 20% down must have mortgage loan insurance provided by either CMHC or GE. back to top What is mortgage loan insurance? Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from .50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance. back to top What is a conventional mortgage? A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require mortgage loan insurance. back to top How does bankruptcy affect qualification for a mortgage? There are different lenders for different applicants. Some lenders base your mortgage approval upon your credit, some base it upon your income, some base it upon the property you are buying and your downpayment, etc. The key is that we personally seek out financing from lenders who fit the client and the clients specific characteristics. We have lenders who loan regardless of bankruptcy, regardless of credit, regardless of taxable income, etc. The key is to not waste our clients time trying to fit them into the typical application and send them to lenders who are not the right fit. back to top How will child support affect mortgage qualification? Where child support and alimony are paid by you to another person, generally the amount paid out is deducted from your total income before determining the size of mortgage you will qualify for. Where child support and alimony are received by you from another person, generally the amount paid may be added to your total income before determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a period of time determined by the lender. back to top What type of documentation will be required to obtain a mortgage? Some of the items you MAY need to provide are: - Your personal information, including identification such as your drive's license - Details on your job, including confirmation of income by way of a wage letter - Your sources of income - income tax Notices of Assessment - Information and details on all bank accounts, loans and other debts - Proof of financial assets - Source and amount of down payment - Proof of source of funds for the closing costs (approximately 2.5% of purchase price) - Copy of Divorce Agreements, Auto Leases, and other relevant contracts Keep in mind that we have lenders who offer mortgages suited to a variety of different applicants. Just because you do not fit the traditional mold does not mean that there is not financing available to you at great rates, it just means you need to know where to look for it. back to top Can I get a mortgage to purchase a home? Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation and GE Capital, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply. Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing. back to top Can I use gift funds as a down payment? Most lenders will accept down payment funds that are a gift from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Where the mortgage requires mortgage loan insurance, Canada mortgage and Housing Corporation requires the gift money to be in the purchaser's possession before the application is sent in to them for approval. Where mortgage loan insurance is provided by GE Capital this is not a requirement. See 'what is mortgage loan insurance?' for further information. back to top What is a pre-approved mortgage? A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 90 to 120 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own resources', for example. Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range. In summary, a pre-approved mortgage is one of the first steps a home buyer should take before beginning the buying process. back to top Should I wait for my mortgage to mature? Lenders will often guarantee an interest rate to you as much as 120 days before your mortgage matures. And, as long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage too. This means a rate promised well in advance of your maturity date, thus eliminating any worries of higher rates. And if rates drop before the actual maturity rate, the new lender will usually adjust your interest rate lower as well. Most lenders send out their mortgage renewal notices offering existing clients their posted interest rates. The rate you are being offered is usually not the best one. Always investigate the possibility of a lower interest rate with the lender or another lender. If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need to. back to top What is a down payment? Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment. The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings. back to top How can you acquire a home with as little as 5% down? Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium. With all low down payment insured mortgages, you are responsible for: -appraisal and legal fees -the payment of the mortgage default insurance premium (although the amount of the premium will be added to the mortgage amount). back to top How can you pay off your mortgage sooner? There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by: Selecting a non-monthly or accelerated payment schedule Increasing your payment frequency schedule Making principal prepayments Making Double-Up Payments Selecting a shorter amortization at renewal back to top How can you use your RRSP to help you buy your first home? Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government's Home Buyers' Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP. To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home. Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers' Plan. For example, if you had already saved $20,000 for a down payment - and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan. The advantage? Your $20,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home. While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation. back to top What are the costs associated with buying a home? First and foremost, you have to make sure you have enough money for a down payment - the portion of the purchase price that you furnish yourself. To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%. Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price). If you want to have the home inspected by a professional building inspector - which we highly recommend - you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don't, then ask for one. You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly. There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax - a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount. Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving. Remember, there will be all kinds of things you'll have to purchase early on - appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs. back to top What should the length of my mortgage term be? The length of mortgage terms varies widely - from six months right up to 40 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate. While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now. Before selecting your mortgage term, we suggest you answer the following questions: 1. Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option. 2. Do you believe that interest rates have bottomed out and are not likely to drop more? If that's the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires. 3. Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses. 4. Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that's the case, a short mortgage term may best suit your needs. back to top What are the monthly costs of owning a home? Needless to say, you'll have financial responsibilities as a home owner. Some of them, like taxes, may not be billed monthly, so do the calculations to break them down into monthly costs. Below you will find a list of these expenses. The Mortgage Payment For most home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization. Property Taxes Property tax can be paid in two ways - remitted directly to the municipality by you, in which case you may be required to periodically show proof of payment to your financial institution; or paid as part of your monthly mortgage payment. School Taxes In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year. Utilities As a home owner, you'll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable. Maintenance and Upkeep You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care and snow removal. A well-maintained property helps to preserve your home's market value, enhances the neighbourhood and, depending on the kind of renovations you make could add to the worth of your property. back to top Should you go with a short or long-term mortgage? A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates. Our 5, 7 and 10-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing. Some of our lenders even offer the option to lock your payments in for up to 25 years. If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save. back to top What is a fixed rate mortgage? The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 40 years. This offers the security of knowing what you will be paying for the term selected. back to top What is a variable rate mortgage? Variable Rate Mortgages float up and down with the Canadian Prime Rate which, when it changes, only does so in small increments. When the rate goes up or down, it does so slowly, and the actual impact on your monthly payment is equally minor. The fact is, (and most lenders don't publicize this), when you compare a Variable Rate Mortgage to a Fixed Rate Mortgage of the same term length, over the life of the term, most often the Variable Rate out-performs its cousin. Variable Rate Mortgages work very similarly to Fixed Rate Mortgages, though there are more term lengths to choose from with Fixed Rate products. Variables tend to be either 3 or 5 year terms. Also, as previously mentioned, Variable Rate Mortgages fluctuate up and down with the Canadian Prime Rate, either right at Prime or within about .75 to .90% plus or minus, depending on your credit rating. Variable Rate Mortgages tend to be more difficult to qualify for, as the lenders require more in the way of proof of income, credit scores, and job stability. This is due to their perceived increase in risk, with this product. Like Fixed Rates, Variable Rate Mortgages can be either Open or Closed. If the mortgage is Closed, then the conditions of the loan are locked in for the length of the term. More often though with Variable Rate Mortgages, the mortgage is Convertible, and you could lock the rate in at any time if you felt the rates were getting out of control. Each Financial Institution will have it's own set of policies relating to this option. back to top
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