Your 9 Essentials for Navigating Mortgages in Canada

HomeHappy • Mar 15, 2021

Canadian winters can be icy, and we’d never brave the elements unprepared. So why wade into the complex world of mortgages and house hunting without arming yourself with the right knowledge? 


The happiest homebuyers are well-educated, and we’re passionate about helping you know your options and make great choices.


Don’t get left in the cold.


Stay warm and informed — no matter the season — with these 9 need-to-know basics.


1. Credit Scores


Your credit score allows Lenders to evaluate your risk level as a borrower. In Canada, credit scores range between 300-900, and you unlock the best rates and terms with great credit. 


What determines your score?


  • 35% Payment History: How you’ve handled debt, and if payments are timely.
  • 30% Debt Owed: Credit utilization, and how reliant you are on non-cash funds. 
  • 15% Credit Account History: How long you’ve had credit.
  • 10% New Credit: The number of recently opened accounts and hard inquiries.
  • 10% Types of Credit: How many cards, loans, or lines of credit you have. 


Lenders want to know that you’re a good, reliable investment. At minimum, they want to see two accounts with limits over $2,500, and two years of history. 


No (or little) credit means there’s nothing to vouch for your ability to pay back the loan on time. In some ways, it’s worse than bad credit, because there’s nothing to speak for you. Right now is the best time to start building or improving your credit. Especially, If you’re looking to invest in property, or find a great home for you and your family.


If you want more information than we provide here, we encourage you to check out our articles on how to make your credit work for you, and everything you need to know about credit. 


2. Pre-Approval


House-hunt with confidence. Know what you can afford, and shop with a locked in interest rate for up to 120 days. Pre-approval can also unlock financial perks that save you money along the way. 


Note: Speedy apps and pre-qualifying calculators are only estimates. They refer to likely approval, but make no guarantees. Save time, stress, and rest assured by letting us vet and verify your information. We get guarantees, so you know how much you can borrow, and can find the best home for your needs.


3. Down Payments


In Canada, 5% of the property value is the minimum down payment. That being said, any down payment under 20% requires a home buyer to purchase mortgage default insurance (CMHC). Any one who can afford to pay 20% or more gains financial flexibility by avoiding the high insurance premium.


No matter your situation, we specialize at finding solutions, and strategies. If you have questions about your options, a quick (free!) consultation can help. 


4. Closing Costs


Typically, you need between 2-4% of your home’s purchase price to cover the often overlooked fees that come with purchasing property. 


We love transparency, so here’s some fees you can expect: land transfer tax, appraisal fees, legal fees, property tax, adjustments (strata and taxes), home inspection fees, title insurance/survey fee, home insurance, utility hook-ups, and moving expenses.


Our service is generally free, and we can help you prepare for and manage the financial obligations inherent in closing. So you can get right on to celebrating your new purchase!


5. Interest Rates


There are two mortgage products to consider when purchasing a home: 


A Fixed Mortgage Rate locks a buyer into a fixed rate for either a payment term (typically five years at a time) or for the length of their mortgage. 7 in 10 Canadians choose this option.


A Variable Mortgage Rate is tied to a lender’s prime rate, so can be subject to change. About 30% of Canadians choose this option.


If you’re curious, and want to know which option is best for you — we’ve done our homework (and it’s not cheating if you save time and leverage our expertise). If you want to do your own research, we have resources that can help you craft that awesome pros and cons list too. 


6. Mortgage Types


Open Mortgages

 

Pay off your mortgage without penalty. Refinancing is more flexible. But, greater flexibility has a price tag, and these mortgages have higher rates than closed mortgages. 


While prepayment can save thousands in interest by shortening the term of your mortgage product, this option isn’t best for everyone.


Closed Mortgages


Lower interest rates, but less flexibility. While many closed mortgages allow for some prepayment privileges, there is a limit for how much you can pay down. 


Most Canadians go with a closed mortgage. 


7. Mortgage Terms


A mortgage term is how long you’re locked in to your mortgage rate. It can range from 6 months to 5 years or more. When your term is up, you can re-evaluate your financial plan and renegotiate your mortgage product and terms. Even if that means changing lenders (sans penalty) to get the best deal and achieve your goals. 


8. Mortgage Payments


In Canada, you have options. The most common frequencies are monthly, bi-monthly, bi-weekly, accelerated biweekly or every week. It’s important to choose a plan that fits your lifestyle and budget. The flexibility in repayment options can give you the opportunity to become mortgage free faster.


9. Mortgage Pay Back Time Period (Amortization)


The overall paid interest on your mortgage product is determined by the length of your pay back period. A longer amortization means you make smaller payments over a longer amount of time. In the short term you pay less, but your total paid interest will be significantly higher than if you went with a shorter amortization. 


To shorten your payment plan, you can make additional payments — like when you receive a bonus or inheritance. Before you do, review your contract and check with your broker to avoid any penalties that may cheapen your extra deposit. 


Reach out — journeys are better with friends. Your home buying expedition is no exception.


As always we’re here for you, whenever you need us. 


We’re always happy to advise, and develop strategies that fit your unique needs. If you have any questions, please contact us for more customized information. 


Consulting with a trusted Mortgage Broker, saves you time, energy, and money. Our services are free, and we advocate for you every step of the way. 


We make a complex process as hassle-free as can be.

Share:

Recent Posts

Porting Your Mortgage

By HomeHappy • 08 May, 2024
Porting your mortgage is when you transfer the remainder of your current mortgage term, outstanding principal balance, and interest rate to a new property if you’re selling your existing home and buying a new one. Now, despite what some big banks would lead you to believe, porting your mortgage is not an easy process. It’s not a magic process that guarantees you will qualify to purchase a new property using the mortgage you had on a previous property. In addition to re-qualifying for the mortgage you already have, the lender will also assess the property you’re looking to purchase. Many moving parts come into play. You’re more likely to have significant setbacks throughout the process than you are to execute a flawless port. Here are some of the reasons: You may not qualify for the mortgage Let’s say you’re moving to a new city to take a new job. If you’re relying on porting your mortgage to buy a new property, you’ll have to substantiate your new income. If you’re on probation or changed professions, there’s a chance the lender will decline your application. Porting a mortgage is a lot like qualifying for a new mortgage, just with more conditions. The property you are buying has to be approved So let’s say that your income isn’t an issue and that you qualify for the mortgage. The subject property you want to purchase has to be approved as well. Just because the lender accepted your last property as collateral for the mortgage doesn’t mean the lender will accept the new property. The lender will require an appraisal and scrutinize the condition of the property you’re looking to buy. Property values are rarely the same Chances are, if you’re selling a property and buying a new one, there’ll be some price difference. When looking to port a mortgage, if the new property’s value is higher than your previous property, requiring a higher mortgage amount, you’ll most likely have to take a blended rate on the new money, which could increase your payment. If the property value is considerably less, you might incur a penalty to reduce the total mortgage amount. You still need a downpayment Porting a mortgage isn’t just a simple case of swapping one property for another while keeping the same mortgage. You’re still required to come up with a downpayment on the new property. You’ll most likely have to pay a penalty Most lenders will charge the total discharge penalty when you sell your property and take it from the sale proceeds. The penalty is then refunded when you execute the port and purchase the new property. So if you are relying on the proceeds of sale to come up with your downpayment, you might have to make other arrangements. Timelines rarely work out When assessing the housing market, It’s usually a buyer’s market or a seller’s market, not both at the same time. So although you may be able to sell your property overnight, you might not be able to find a suitable property to buy. Alternatively, you may be able to find many suitable properties to purchase while your house sits on the market with no showings. And, chances are, when you end up selling your property and find a new property to buy, the closing dates rarely match up perfectly. Different lenders have different port periods Understanding that different lenders have different port periods is where the fine print in the mortgage documents comes into play. Did you know that depending on the lender, the time you have to port your mortgage can range from one day to six months? So if it’s one day, your lawyer will have to close both the sale of your property and the purchase of your new property on the same day, or the port won’t work. Or, with a more extended port period, you run the risk of selling your house with the intention of porting the mortgage, only to not be able to find a suitable property to buy. So while the idea of porting your mortgage can seem like a good idea, and it might even make sense if you have a low rate that you want to carry over to a property of similar value, it’s always a good idea to get professional mortgage advice and look at all your options. While porting your mortgage is a nice feature to have because it provides you with options, please understand that it is not a guarantee that you’ll be able to swap out properties and keep making the same payments. There’s a lot to know. If you’re looking to sell your existing property and buy a new one, please connect anytime. It would be a pleasure to walk you through the process and help you consider all your options, including a port if that makes the most sense!

How to Handle Missed Payments

By HomeHappy • 01 May, 2024
If you’ve missed a payment on your credit card or line of credit and you’re wondering how to handle things and if this will impact your creditworthiness down the road, this article is for you. But before we get started, if you have an overdue balance on any of your credit cards at this exact moment, go, make the minimum payment right now. Seriously, log in to your internet banking and make the minimum payment. The rest can wait. Here’s the good news, if you’ve just missed a payment by a couple of days, you have nothing to worry about. Credit reporting agencies only record when you’ve been 30, 60, and 90 days late on a payment. So, if you got busy and missed your minimum payment due date but made the payment as soon as you realized your error, as long as you haven’t been over 30 days late, it shouldn’t show up as a blemish on your credit report. However, there’s nothing wrong with making sure. You can always call your credit card company and let them know what happened. Let them know that you missed the payment but that you paid it as soon as you could. Keeping in contact with them is the key. By giving them a quick call, if you have a history of timely payments, they might even go ahead and refund the interest that accumulated on the missed payment. You never know unless you ask! Now, if you’re having some cash flow issues, and you’ve been 30, 60, or 90 days late on payments, and you haven’t made the minimum payment, your creditworthiness has probably taken a hit. The best thing you can do is make all the minimum payments on your accounts as soon as possible. Getting up to date as quickly as possible will mitigate the damage to your credit score. The worst thing you can do is bury your head in the sand and ignore the problem, because it won’t go away. If you cannot make your payments, the best action plan is to contact your lender regularly until you can. They want to work with you! The last thing they want is radio silence on your end. If they haven’t heard from you after repeated missed payments, they might write off your balance as “bad debt” and assign it to a collection agency. Collections and bad debts look bad on your credit report. As far as qualifying for a mortgage goes, repeated missed payments will negatively impact your ability to get a mortgage. But once you’re back to making regular payments, the more time that goes by, the better your credit will get. It’s all about timing. Always try to be as current as possible with your payments. So If you plan to buy a property in the next couple of years, it’s never too early to work through your financing, especially if you’ve missed a payment or two in the last couple of years and you’re unsure of where you stand with your credit. Please connect directly; it would be a pleasure to walk through your mortgage application and credit report. Let’s look and see exactly where you stand and what steps you need to take to qualify for a mortgage.

Credit and Mortgage Financing

By HomeHappy • 24 Apr, 2024
Credit. The ability of a customer to obtain goods or services before payment, based on the trust that you will make payments in the future. When you borrow money to buy a property, you’ll be required to prove that you have a good history of managing your credit. That is, making good on all your payments. But what exactly is a “good history of managing credit”? What are lenders looking at when they assess your credit report? If you’re new to managing your credit, an easy way to remember the minimum credit requirements for mortgage financing is the 2/2/2 rule. Two active trade lines established over a minimum period of two years, with a minimum limit of two thousand dollars, is what lenders are looking for. A trade line could be a credit card, an instalment loan, a car loan, or a line of credit; basically, anytime a lender extends credit to you. Your repayment history is kept on your credit report and generates a credit score. For a tradeline to be considered active, you must have used it for at least one month and then once every three months. To build a good credit history, both of your tradelines need to be used for at least two years. This history gives the lender confidence that you’ve established good credit habits over a decent length of time. Two thousand dollars is the bare minimum limit required on your trade lines. So if you have a credit card with a $1000 limit and a line of credit with a $2500 limit, you would be okay as your limit would be $3500. If you’re managing your credit well, chances are you will be offered a limit increase. It’s a good idea to take it. Mortgage Lenders want to know that you can handle borrowing money. Now, don’t confuse the limit with the balance. You don’t have to carry a balance on your trade lines for them to be considered active. To build credit, it’s best to use your tradelines but pay them off in full every month in the case of credit cards and make all your loan payments on time. A great way to use your credit is to pay your bills via direct withdrawal from your credit card, then set up a regular transfer from your bank account to pay off the credit card in full every month. Automation becomes your best friend. Just make sure you keep on top of your banking to ensure everything works as it should. Now, you might be thinking, what about my credit score, isn’t that important when talking about building a credit profile to secure a mortgage? Well, your credit score is important, but if you have two tradelines, reporting for two years, with a minimum limit of two thousand dollars, without missing any payments, your credit score will take care of itself, and you should have no worries. With that said, it never hurts to take a look at your credit every once and a while to ensure no errors are reported on your credit bureau. So, if you’re thinking about buying a property in the next couple of years and want to make sure that you have good enough credit to qualify, let’s talk. Connect anytime; it would be a pleasure to work with you and help you to understand better how your credit impacts mortgage qualification.
Share by: