Arranging a mortgage can seem confusing, especially if you are a first time buyer.
We have assembled a mortgage information section that answers many of your questions.
If you have any further questions, please do not hesitate to contact us at info@OttawaHomesandCondos.com or by phone at (613) 298-5101.
A loan for up to 75% of the purchase price of a property.
A loan for up to 95% of the purchase price of a property.
High ratio mortgages must be insured through CMHC (Canada Mortgage and Housing Corporation). CMHC guarantees the risk of lending to homebuyers who need a high ratio mortgage. An insurance premium is paid by the borrower on behalf of the lender. The insurance premium that is paid to CMHC is to protect the lender in the event that the mortgage is not paid. This is not life, disability, or job loss insurance.
The insurance premium is calculated as a percentage of the mortgage amount, depending on the loan to value, and may be added to the mortgage amount. The premiums are as follows:
|Up to and including 65%||0.60%|
|Up to and including 75%||1.70%|
|Up to and including 80%||2.40%|
|Up to and including 85%||2.80%|
|Up to and including 90%||3.10%|
|Up to and including 95%||4.00%|
Other high ratio financing costs include an appraisal of $235.00 plus 8% PST on the insurance premium.
Mortgage Money Sources:
There are a wide range of financial institutions that are involved in the mortgage industry in Canada. Some of these include:
|Chartered Banks||Loan Corporations|
|Trust Companies||Credit Unions|
|Finance Companies||Pension Funds|
|Life Insurance Companies||Private Individuals|
Term of a Mortgage:
The actual length of time money is loaned at the contractual rate of interest. Available from six months to twenty-five years. Usually, the longer the term the higher the rate.
Allows borrowers to repay the total amount of their mortgage at any time without penalty. Ideal for those who plan to sell their homes in the near future.
Usually has the lowest interest rate available. A good choice for those that want security in knowing their monthly payments are fixed for a certain term. Lacks option of repaying entire amount of the mortgage upon request.
A short term mortgage usually six or twelve months, allowing the borrower to switch into a longer term at any time without penalty.
Variable Rate Mortgage:
A mortgage where payments can be fixed from one to five years, but the interest rate could change from month to month, depending on market conditions. Payments and balance outstanding are adjusted accordingly.
Usually the only financing required. Gives borrowers the best rate of interest.
A higher interest loan that provides borrowers with additional financing if the first mortgage does not meet their total financial requirements.
The gradual repayment of a debt by means of partial payments on the principal at regular intervals. The amortization period is the time required to repay the debt completely. The amortization period has a dramatic effect on the amount of interest paid over the length of the mortgage. Consider the following example*:
$150,000 mortgage with an interest rate of 4.00%
With a 25 year amortization, the monthly payments are $527.83.
The initial step, before searching for your new home is to be pre-approved by a lending institution.
A qualified mortgage representative will process all pertinent paperwork and arrive at a ceiling price that you can spend on your new home.
- You save time in the search for your home. You know what you can afford.
- The lending institution can approve your mortgage in days.
- The lending institution will “Lock In” your mortgage rate for up to 90 days. This is beneficial, if rates are rising.
- You are a serious buyer in the eyes of the vendor, giving you more offer clout.
Information Required for Mortgage Pre-Approval:
- Have your employer give you a letter on company letterhead outlining your name, position, gross annual income, and number of years employed with the company.
- If self employed, three years financial statements, and tax returns (together with official assessment from Revenue Canada).
- Social Insurance Numbers.
- At least 3 year history of residences and employers.
- Know your banking information (institutions name, address, type of accounts, account numbers).
- Know your assets and liabilities ( e.g. car loan, credit card balances).
- Please let them know about any past credit problems you may have had.
- Write down a list of questions you would like to have answered.
CMHC 5% Down Payment Program Highlights:
- Minimum down payment of 5% of appraised value.
- There is no price ceiling on the purchase.
- Maximum loan to value 95% of purchase price or appraised value whatever is less.
- Maximum GDSR 35%
- Maximum TDSR 42%
- At least one applicant cannot have owned their principal residence in the last five years.
- CMHC insurance premium
- Down payment must be from client’s own resources or an outright gift – not borrowed.
- Credit history must be in good standing.
- Client must be qualified at posted 5 year rate to be CMHC approved.