Frequently Asked Questions

We get a lot of repetative mortgage services questions from visitors to the www.mortgagecat.ca website. To save our followers time we have compiled a list of the most frequently asked mortgage services questions and answers for your review.

Are Home Inspections necessary?

Home inspections are a visual examination of the home/property to access the condition of the home. The home inspector is responsible to check all the major areas of the home (plumbing, heating, drainage, electrical, weather proofing, ventilation, etc.). They typically create an inspection report that is provided to the purchaser in written form within 24 hours of the inspection. This report provides descriptions of findings and in most cases, pictures of supporting key details.

Getting a pre-purchase inspection can certainly give you peace of mind when making this significant financial decision to buy or not buy a house. Inspections can reaffirm a purchase decision and or identify structural repairs that may need to be factored into your purchase decision. The nice thing about home inspections is that they can help identify any unknowns to ensure you know what you buying thus increasing your chances of a successful purchase.

What is the minimum down payment needed for a home?

The minimum down payment required to purchase a home is 5% and can be subject to certain maximum price restrictions by lenders. Regardless of how much your down payment is, at least 5% of it must be from your own cash resources or can be from a gift from a family member. This money cannot be borrowed!

Generally, lenders will typically accept a gift from a family member as a down payment as long as they receive a letter stating it is a true gift not a loan and this letter must be signed by the donor. As it relates to mortgage loan insurance provided by the Canada Mortgage and Housing Corporation (CMHC), the gifted down payment must be in your possession before the application is sent into CHMC for approval.

Mortgages that have less than a 20% down payment must have mortgage loan insurance by either CMHC, Canada Guaranty, or Genworth.

What is mortgage loan insurance?

Mortgage loan insurance is offered by Canada Mortgage and Housing Corporation (CMHC) which is a crown corporation and GE Canada Guaranty and Genworth Canada approved private corporations. This insurance is not an option and is required by law to insure lenders against default on Mortgages with a loan to value ratio greater than 80%. The premiums for this mortgage insurance range from 2.40% – 4.0% and are paid by the borrower and can be added directly to the mortgage. Note, this insurance is not the same as mortgage life insurance!

What is a conventional mortgage?

A conventional mortgage is usually considered to be a mortgage that has a down payment equal to 20% or more of the purchase price. A loan to value (LTV) that is less than 80% of the purchase price does not typically need mortgage loan insurance.

Can a person who has declared bankruptcy previously qualify for a mortgage?

This really depends on the circumstances surrounding the bankruptcy however there are lenders who will consider offering mortgage financing.

How does child support and alimony affect qualifying for a mortgage?

When both child support and alimony are paid by you to another person, typically the amount paid out is deducted from your total income before identifying the size of the mortgage you can qualify for.

If you are receiving both child support and alimony from another person typically this amount is added to your total income before determining the size of the mortgage you will qualify for. Proof of regular receipt of this support will be required by the lender for a predetermined period.

Can I get a mortgage to purchase a home that needs improvements?

Yes, you can subject to qualification! Purchasers with as little as a 5% down payment may qualify to buy a home and make improvements to it! The Canada Mortgage and Housing Corporation (CMHC), Canada Guaranty and Genworth Canada have insured mortgages available to cover the purchase price as well as money for major renovations or improvements to the property. This program for qualified buyers makes it unnecessary to finance these renovations and or home improvements later increasing the equity in the home immediately.

If the improvements are cosmetic the mortgage loan insurance premium will remain unchanged from the standard rate. If the improvements are deemed structural the mortgage loan insurance premium will be increased by.50% over the standard rate.

Are gifted funds allowed for a down payment?

Most but not all lenders typically accept a gift as an acceptable down payment. You will require a letter signed by a donor which is required to confirm that the funds have been truly gifted and are not a loan. If the mortgage requires mortgage loan insurance, Canada Mortgage and Housing Corporation requires the gift money to be in the purchasers’ possession before the application is sent in for approval.

If the mortgage loan insurance is provided by Canada Guarantee or Genworth Canada, this is not a requirement. You can refer to “See what is mortgage loan insurance?” for more information.

What is a pre-approved mortgage?

It is an interest rate guarantee for a mortgage from a lender for a specified period of time (typically 90-120 days) for a fixed amount of money. This pre-approval is calculated based on information provided by you that is usually subject to certain conditions being met before the mortgage is finalized. Although a mortgage approval is not a certainty based on the information provided by you, it is highly likely. The conditions usually requested are; written employment and income confirmation and down payment from your own resources.

Typically, real estate specialists will want to ensure that their clients are pre-approved for a mortgage before they take you looking for a home to purchase. They will use this information to show you homes that are within your price range.

Getting a mortgage pre-approval is one of the first steps they should take before starting the buying process.

My mortgage is coming up for renewal, what should I do?

Most lenders will send out mortgage renewal notices with proposed interest rates 4-9 months in advance of the maturity date of your existing mortgage. The rates they offer you are typically not the best rates available and you should always investigate what other options may be available to better your rates, terms and or conditions.

Talking with a mortgage agent/broker before you make any decision regarding your mortgage can save you thousands and as lenders pay for our services to our clients “our services to you are FREE”!

What is a down payment?

Very few people have the cash available to buy a home without a mortgage. Most people will either turn to a brokerage or bank to arrange their financing needs but are still faced with the task of raising the money for the down payment.

A down payment is a percentage/portion of the purchase price of the home that you furnish yourself. This down payment represents your financial stake and or equity in your home. You should understand how much of a down payment will be required so that you can save for it prior to going house hunting.

The larger your down payment is the less principle and interest you will pay over the term of your mortgage.

How can I pay off my mortgage sooner!

There are many different ways you can reduce the number of years it takes to pay down your mortgage. Engaging a mortgage professional can help you determine what the right payment strategy is for you. Savings can be enjoyed by:

  • Selecting a non-monthly or accelerated payment schedule
  • Making lump sum principal payments
  • Doubling up on the amounts of your payments
  • Increasing your payment frequency
  • Selecting an amortization period that is shorter

How you can use your Registered Retirement Savings Plan (RRSP) when buying your first home?

A large portion of first-time home buyers use their RRSP savings to finance their down payment for their first home. The federal government has a Home Buyers’ Plan (HBP) which allows you to use up to $25,000 in RRSP savings ($40,000 per couple) to help pay for your down payment on your first home. Please be aware that you have up to 15 years to repay your RRSP.

Qualifying RRSP funds that you are using must be deposited in you account for at least 90 days and you will need a signed agreement to buy the home that qualifies.

Using your Registered Retirement Savings Plan for your down payment may help you get into your first home sooner. You should however consult your financial planner to examine if this strategy is right for you given your current financial circumstances.

What costs should you anticipate when buying a home?

Down Payment

  • Make sure you have enough money saved for your down payment which should be a minimum of 5% of the purchase price that you furnish yourself.

Conventional Mortgage

  • You need a down payment of 20% or more to qualify for a conventional mortgage where no government regulated mortgage insurance is required.

 Closing Costs

  • Beyond your down payment, you will be required to set aside money to cover your closing costs. These costs can vary but as a rule, allocating 1.5-2.5% of the basic purchase price of the home is a good way to estimate these costs.

Home Inspection

  • Having your home professionally inspected is something that is highly recommended. You will need to allocate roughly $300-$600 to have an inspection completed which will give you clarity on how sound the structure of the home is. Most inspectors provide a written report but if they don’t, ask for one.

Legal / Notary Costs

  • You are responsible for paying the disbursements and fees for the Lawyer or Notary acting on your behalf regarding the purchase of your home. You should shop around for these services and the prices can vary dramatically.

Other Costs

There are some other costs like; interest adjustment costs, land transfer tax, etc… As well you will be required to have property insurance in place prior to the closing dates. Also, remember that there are other things you will have to purchase like appliances, garden tools and equipment, cleaning materials, etc. so it is important to allocate funds to cover these costs.

What are the monthly costs of owning a home?

As a home owner, there are a number of financial responsibilities that need to be considered. Some costs like taxes may not be billed monthly so do the breakdown by month. A list of these expenses are as follows:

Mortgage Payment

  • For most home owners, this typically is their largest expense each month. The mortgage payment is made up of both principal and interest and will vary in size based on the mortgage term and amortization period.

Property Taxes

  • These taxes can be paid in two ways – either remitted directly to your town/municipality by you in which case you may be asked to show proof of payment to your mortgage lender. Also these taxes can be paid as part of your monthly mortgage payment.

School Taxes

  • Depending on the municipality you reside in these taxes may be integrated into the property taxes. In some municipalities, they are collected separately and payment is required in a lump sum at the end of the school year.

Utilities

  • The home owner can expect to be responsible for all utility bills including; heat, electricity, water, gas, telephone and cable.

Home Maintenance & General Upkeep

  • A property and home that is well maintained can hold its value and if renovations are done they can improve the value/equity of the home. Some typical maintenance/upkeep are roof repairs, painting and plumbing, lawn care, snow removal, etc…

Which mortgage type should you choose, a short or long-term?

Typically, people tend to gravitate to longer term mortgages because they don’t have time to watch mortgage rates. Terms of 4, 5 or even 7 years let home owners take advantage of rates available today while at the same time enjoying the security of knowing your rate will be set for the period you choose.

Some clients prefer more flexibility and prefer shorter terms which allows them flexibility to take advantage of rates that have declined.

What is a fixed rate mortgage?

Quite simply a fixed rate mortgage is set/fixed for a predetermined term, usually between 6 months and 25 years. This type of mortgage offers you the security of a rate that will not change for the term you selected. This means that your monthly mortgages payments do not change during the term making it easier to manage you monthly expenses.

What is a variable rate mortgage?

This type of mortgage has payments that are fixed typically for a period of one to five years. Interest rates may fluctuate from month to month depending on the market conditions. If interest rates go down more of the payment goes to reducing the principal, conversely if rates go up less of the payment goes towards principal. In many cases these types of mortgages can be converted to a fixed product with your existing lender.