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Frequently Asked Questions About Mortgages (F.A.Q.)

Q: I have no downpayment saved. Can I still get a mortgage?

Currently, several banks and lending institutions offer free downpayment mortgage. That means that if you have no downpayment saved, the bank will provide the 5% of the downpayment on your behalf. To be approved for this mortgage, buyers need to demostrate solid credit (no minimum monthly payments missed on their current credit cards for the past 2 year;, and job stability for about 1 year on the same job or in the same line of business. The plus side of going with zero down is that your dream of ownership can come true without worrying about the downpayment. The negative one is right now you will only have a option of a 5 year closed mortgage at typically higher interest rate. Nevertheless, zero down mortgages are extremely popular these days!

Q: How can I find such low rates?: Mortgage brokers deal with the lenders, who don't have huge overhead due to big business expenses or bureaucracy. They specialize only in real estate financing and can afford offering low rates. It is also cheaper for them to pay us, mortgage brokers, finder fees, than open an office in every city.

Q: I have been dealing with my bank for many years now. Since I am their “preferred customer”, will I get the lowest possible mortgage rate from them?: You might receive the lowest rate your bank can offer its' loyal customers, but unfortunately this does not mean that this will be the lowest rate available in Canada . Typically, your bank will offer me, a mortgage broker, even a lower rate, since I deal with different institutions and shop around. So before you sign your bank's rate offer, give me a call just to see, if you can do better. The reality is your bank is here to make money, even on its preferred customers.

Q: What are pre-payment privileges?
Most lenders offer pre-payments privileges, which allow you to put money down to your principle mortgage amount and pay out your mortgage sooner. The amount of pre-payment every year varies from 10% to 25% of the original mortgage amount depending on the lender. You can also double up your regular mortgage payments.

Q: What is mortgage payment schedule?: When you arrange a mortgage loan, you can choose how often you would like to make your mortgage payments. Options available to you are:

Monthly payments – pay your mortgage every month. In this case your loan will be completely paid out in 25 years.
Bi-weekly payments – mortgage payments every 2 weeks. So if your monthly payments are $800.00, your bi-weekly payments will be $400.00. Since you would pay 26 bi-weekly payments, by the end of a year you would have paid the equivalent of one extra monthly payment. This will allow you to shorten your amortization period from 25 years to 20.57 years
Weekly payments – mortgage payments every week. With monthly payments of $800.00 your weekly payments will be $200.00. You would then make 52 weekly payments a year. This way you will cut your amortization from 25 years to 20.53 years.

Q: How can you use your RRSP to help you buy your first home? First time home buyers can use their RRSP savings as their downpayment. 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. To qualify, the RRSP funds you're using must be on deposit for at least 90 days.
For more information, visit Canada Customs & Revenue Agency Web site .

Q: Can I qualify for a mortgage if I am unable to confirm my income?
If for whatever reason you cannot confirm your income (for instance, you are self-employed), there is a variety of mortgage products available to you. In cases like this, the typical requirements are a solid downpayment (usually 25% or more) and the applicants need to have a good credit.

Q: When is an appraisal required? Why do I have to pay for the appraisal?
Home buyers usually confuse an appraisal with a home inspection. An appraisal is a written estimate of value based on comparable properties that have recently sold in the marketplace. Lenders need some form of assurance on every mortgage. In the case of a high-ratio mortgage (when your downpayment is less than 25% of the purchase price), CMHC or GE Capital will provide insurance, that protects the lender in case the buyer defaults on his mortgage payments. With a conventional mortgage when your downpayment is 25% or more, for the lender to be assured that they are lending on quality property, an appraisal is usually ordered. It is typically the borrowers' responsibility to cover the cost of an appraisal.

Q: When do I need to have my mortgage insured by CMHC or GE?

Mortgage insurance allows home buyer to put as little as 5% down. So if your downpayment is less than 25% of the purchase price, you will be required to purchase mortgage insurance through your lender. Mortgage insurance protects your lender against payment default. Mortgage insurance premiums are calculated based on the amount of your downpayment. For instance, if your downpayment is 5%, premium on the total loan amount will be 2.75%. In other words, if your loan amount less 5% of the downpayment is $100,000, your CMHC or GE insurance will be $2,750. Homebuyers can either pay this amount upfront, or add it to their mortgage. Please see the table below, to find out what your mortgage insurance premium will be:

Amount of your downpayment	Mortgage Insurance premium
5%	2.75%
10%	2.00%
15%	1.75%
20%	1.00%

If your mortgage is insured (or in other words high-ratio), CMHC or GE wants to make sure that other than your downpayment, you have funds saved for expenses associated with purchase and moving to your new home. This amount is calculated by CMHC as 1.5% of your original loan amount. If the sale price is $100,000 and you are putting 5% down, you will need to have $6,500 saved ($5,000 for the downpayment and $1,500 for moving expenses).

For more information, please visit http://www.cmhc.ca/en/moinin/moinbuho/

Q: What supporting documents are required for a mortgage?

1. Proof of Downpayment

If from savings we need 3 months bank statements showing the amount saved.
If a gift we need a signed gift letter. CMHC/GE requires that the gift be deposited into the bank.
If sale of home we need a copy of the offer to purchase and waiver of sale on existing home, with corresponding mortgage statements.

2. For a Salaried/Hourly Employee

Letter from employer (how long on job and gross annual earnings).
Recent Pay Stub.
T-4 Slips.

3. For a Salaried/Hourly Employee (Overtime & Bonuses)

Above plus two years NOA or T-4's to prove extra income.

4. For Self Employed / Commissioned Clients

Last two years Revenue Canada Notice of Assessment - this form is required to confirm tax returns were filed. It is mailed to you by Revenue Canada after you file your taxes.
Last two years financial statements if incorporated.
Last two years statement of business activities if a proprietor.
First two pages of T1 Generals, for the last two years.

5. Other Documentation

Offer / feature sheet or MLS listing.
Copy of separation agreement if applicant is divorced or separated.
Lawyer's name, address, phone number and fax.
Branch for servicing (If applicable).

Q: I am building a new house, and the builder requires money to be advanced in stages. Can a mortgage broker secure this kind of financing?

Absolutely! I can help you get approved for a construction process draw mortgage. Advances will be made as construction progresses. The key features of this type of draw mortgage are the house can't be self-built, it needs to be HEWDAC approved (Registered under the Provincial / National New Home Warranty Program), and the land should be owned free and clear.