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Frequently Asked Questions About your Mortgage
Take a look at answers to some of our more frequently asked questions.
A pre-approved mortgage provides an interest rate guarantee and a set loan amount for a specific period (usually up to 120 days). This process helps you know your budget before house hunting and ensures you’re looking at homes within your financial range.
To determine affordability, assess your taxable income, debt obligations, and how much you can allocate towards mortgage payments, property taxes, and heating costs. It’s crucial to balance lender guidelines with what you’re comfortable paying.
What is the minimum down payment required for a home?
The minimum down payment is typically 5% of the home’s purchase price, subject to price restrictions. You must also cover closing costs, such as legal fees and appraisal costs. For down payments less than 20%, mortgage loan insurance is required.
What is mortgage loan insurance?
Mortgage loan insurance protects lenders against default on high-ratio mortgages (loan-to-value ratio over 80%). The insurance premiums, paid by the borrower, can be added to the mortgage amount.
How can I use my RRSP to help buy my first home?
The Home Buyers Plan (HBP) allows first-time buyers to withdraw up to $35,000 from their RRSP tax-free for a down payment. Each partner can withdraw up to $25,000, totaling $50,000, with repayment starting two years after purchase.
A fixed-rate mortgage has a set interest rate for a predetermined term, usually between 6 months to 25 years. This provides the security of knowing your payment amount will remain constant throughout the term.
A variable-rate mortgage has fixed payments for a set period, but the interest rate can fluctuate based on market conditions. Lower rates mean more of your payment goes towards the principal.
Insured mortgages allow for down payments as low as 5%. These mortgages include an insurance premium, which is added to the mortgage amount, and you’ll need to cover appraisal, legal, and insurance fees.
Costs include the down payment, closing costs, home inspection fees, legal fees, property insurance, moving expenses, and additional costs for appliances and maintenance.
To reduce your mortgage term and save on interest, consider:
– Opting for an accelerated payment schedule
– Increasing payment frequency
– Making additional principal payments
– Doubling up payments
– Choosing a shorter amortization period at renewal
Lenders often offer to lock in an interest rate up to 120 days before your mortgage matures. This can protect you from rate increases and, if rates drop, the new lender might adjust your rate accordingly. It’s a good idea to compare rates and negotiate before renewing your mortgage to avoid paying higher rates than necessary.
A down payment is the portion of the home’s purchase price that you pay upfront. The size of your down payment affects your mortgage size and overall cost. A larger down payment reduces the amount you need to borrow and can lower your interest costs over time.
What defines a conventional mortgage?
A conventional mortgage usually requires a down payment of 20% or more of the purchase price, resulting in a loan-to-value ratio of 80% or less. These mortgages generally do not require mortgage loan insurance.
How does bankruptcy impact mortgage eligibility?
The impact of bankruptcy on mortgage qualification varies. Some lenders may still offer mortgage financing depending on the specifics of your bankruptcy situation.
If you pay child support or alimony, these payments are usually deducted from your income when determining mortgage eligibility. Conversely, if you receive child support or alimony, these amounts may be added to your income, provided you can show proof of regular receipt.
Yes,
it’s possible to secure a mortgage that covers both the purchase of a home and the cost of renovations. High-ratio insured mortgages from CMHC or GE Capital can finance both the home purchase and necessary improvements. Some conditions apply, and if renovations are structural, the insurance premium may be higher.
Many lenders accept gifted funds from family as a down payment. You’ll typically need a gift letter from the donor confirming that the money is a gift and not a loan. For mortgages requiring insurance, CMHC requires the gifted funds to be in your possession before applying. GE Capital may not have this requirement.
How do I determine how much I can afford for a home?
To gauge affordability, start by assessing your taxable income and current debt obligations. Generally, you can allocate up to 39% of your income towards mortgage payments, property taxes, and heating costs. If applicable, include half of the estimated monthly condominium fees in this calculation.
Next, calculate 44% of your taxable income and subtract all monthly debt payments, including car loans and credit card payments. The lower of these two calculations indicates the amount you can reasonably spend on housing costs. It’s also wise to consider your comfort level with monthly payments and ensure you don’t stretch your finances too thin.
Buying a home involves several costs:
– Down payment (typically 5% to 20%)
– Closing costs (up to 2.5% of the purchase price)
– Home inspection fees
– Legal fees
– Property insurance
– Moving expenses
– Additional costs for appliances and maintenance
Mortgage terms range from six months to 10 years. Shorter terms generally have lower rates but higher payments, while longer terms offer stability but may come with higher rates. Consider your plans, interest rate expectations, and risk tolerance when choosing a term.
Monthly homeownership costs include:
– Mortgage payment
– Property taxes
– School taxes (if applicable)
– Utilities (heating, gas, electricity, water, phone, cable)
– Maintenance and upkeep
A longer-term mortgage offers stability and lower monthly payments, suitable for those who prefer predictability. A shorter-term mortgage typically has lower rates and can save on interest but requires higher payments. Your choice depends on your financial situation and preference for flexibility or stability.