FAQ



We’ve compiled a list of the most commonly asked questions we receive. Please have
a closer look or if you need more assistance by all means, feel free to
Contact Us

How much can I afford to pay for a home?

To determine ‘affordability’ you will first need to know your taxable
income along with the amount of any debt outstanding and the monthly payments. Assuming
it is your principal residence you are purchasing, calculate 32% of your income
for use toward a mortgage payment, property taxes and heating costs. If applicable,
half of the estimated monthly condominium maintenance fees will also be included
in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt
payments, including car loans, credit cards, lines of credit payments. The lesser
of the first or second calculation will be used to help determine how much of your
income may be used towards housing related payments, including your mortgage payment.
These calculations are based on lenders’ usual guidelines.

In addition to considering what the ratios say you can afford, make sure you calculate
how much you think you can afford. If the payment amount you are comfortable with
is less than 32% of your income you may want to settle for the lower amount rather
than stretch yourself financially. Make sure you don’t leave yourself house
poor. Structure your payments so that you can still afford simple luxuries.

What is a home inspection and should I have one done?

A home inspection is a visual examination of the property to determine the overall
condition of the home. In the process, the inspector should be checking all major
components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining
walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather
proofing, etc.). The results of the inspection should be provided to the purchaser
in written form, in detail, generally within 24 hours of the inspection.

A pre-purchase home inspection can add peace of mind and make a difficult decision
much easier. It may indicate that the home needs major structural repairs which
can be factored into your buying decision. A home inspection helps remove a number
of unknowns and increases the likelihood of a successful purchase.

What is the minimum down payment needed for a home?

A minimum down payment of 5% is required to purchase a home, subject to certain
restrictions. In addition to the down payment, you must also be able to show that
you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal
fees and a survey certificate, where applicable).

Regardless of the amount of your down payment, at least 5% of it must be from your
own cash resources or a gift from a family member. It cannot be borrowed.

Lenders will generally accept a gift from a family member as an acceptable down
payment provided a letter stating it is a true gift, not a loan, is signed by the
donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing
Corporation (CMHC), the gift money must be in your possession before the application
is sent in to CMHC for approval.

Mortgages with less than 20% down must have mortgage loan insurance provided by
CMHC, Genworth Financial Canada or AIG United Guaranty.

What is mortgage loan insurance?

Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation
(CMHC), a crown corporation, Genworth Financial Canada or AIG United Guaranty, approved
private corporations. This insurance is required by law to insure lenders against
default on mortgages with a loan to value ratio greater than 80%. The insurance
premiums, ranging from 0.50% to 3.75%, are paid by the borrower and can be added
directly onto the mortgage amount. This is not the same as mortgage life insurance.

What is a conventional mortgage?

A conventional mortgage is usually one where the down payment is equal to 20% or
more of the purchase price, a loan to value of or less than 80%, and does not normally
require mortgage loan insurance. If your down payment is less than 20% of the purchase
price, you will generally require a high-ratio mortgage with mortgage loan insurance.

How does bankruptcy affect qualification for a mortgage?

Depending on the circumstances surrounding your bankruptcy, generally some lenders
would consider providing mortgage financing.

How will child support affect mortgage qualification?

Where child support and alimony are paid by you to another person, generally the
amount paid out is deducted from your total income before determining the size of
mortgage you will qualify for.

Where child support and alimony are received by you from another person, generally
the amount paid may be added to your total income before determining the size of
mortgage you will qualify for, provided proof of regular receipt is available for
a period of time determined by the lender.

Can I get a mortgage to purchase a home?

Subject to qualification, yes. In fact, even purchasers with 5% down may qualify
to buy a home and make improvements to it. For high-ratio financing, CMHC, Genworth
Financial and AIG United Guaranty, insured mortgages are available to cover the
purchase price of a home as well as an amount to pay for immediate major renovations
or improvements that the purchaser may wish to make to the property. This option
eliminates the need to finance the renovations or improvements separately. Some
conditions apply.

Where the improvements are cosmetic, the mortgage loan insurance premium is unchanged
from the standard schedule. Where the improvements are deemed to be structural,
the mortgage loan insurance premium is increased by .50% over the standard schedule.
For more information on mortgage loan insurance premiums see ‘what is mortgage loan
insurance?’

Can I use gift funds as a down payment?

Most lenders will accept down payment funds that are a gift from family as an acceptable
down payment. A gift letter signed by the donor is usually required to confirm that
the funds are a true gift and not a loan. Where the mortgage requires mortgage loan
insurance, CMHC requires the gift money to be in the purchaser’s possession before
the application is sent in to them for approval. Where mortgage loan insurance is
provided by CapitalGenworth Financial Canada or AIG United Guaranty this nay not
be a requirement. See ‘what is mortgage loan insurance?’ for further information.

What is a pre-approved mortgage?

A pre-approved mortgage provides an interest rate guarantee from a lender for a
specified period of time (usually 60 to 90 days) and for a set amount of money.
The pre-approval is calculated based on information provided by you and is generally
subject to certain conditions being met before the mortgage is finalized. Conditions
would usually be things like ‘written employment and income confirmation’

and ‘down payment from your own

resources’, for example.

Most successful real estate professionals will want to ensure you have a pre-approved
mortgage in place before they take you out looking for a home. This is to ensure
that they are showing you property within your affordable price range.

In summary, a pre-approved mortgage is one of the first steps a home buyer should
take before beginning the buying process.

Should I wait for my mortgage to mature?

Lenders will often guarantee an interest rate to you as much as 90 days before your
mortgage matures. And, as long as you are not increasing your mortgage, they will
cover the costs of transferring your mortgage too. This means a rate promised well
in advance of your maturity date, thus eliminating any worries of higher rates.
And if rates drop before the actual maturity rate, the new lender will usually adjust
your interest rate lower as well.

Most lenders send out their mortgage renewal notices offering existing clients their
posted interest rates. The rate you are being offered is usually not the best one.
Always investigate the possibility of a lower interest rate with the lender or another
lender. If you don’t you may end up paying a much higher interest rate on
your renewing mortgage than you need to.

What is a down payment?

Very few home buyers have the cash available to buy a home outright. Most of us
will turn to a financial institution for a mortgage the first step in a potentially
long-standing relationship. But even with a mortgage, you will need to raise the
money for a down payment.

The down payment is that portion of the purchase price you furnish yourself. The
amount of the down payment (which represents your financial stake, or the equity
in your new home) should be determined well before you start house hunting.

The larger the down payment, the less your home costs in the long run. With a smaller
mortgage, interest costs will be lower and over time this will add up to significant
savings.

How can you acquire a home with as little as 5% down?

Most lenders now offer insured mortgages for both new and resale homes with lower
down payment requirements than conventional mortgages – as low as 5%. Low down payment
mortgages must be insured to cover potential default of payment, and their carrying
costs are therefore higher than a conventional mortgage because they include the
insurance premium.

With all low down payment insured mortgages, you are responsible for:

Appraisal and legal fees, an application fee for the insurance, the payment of the
mortgage default insurance premium (although the amount of the premium may be added
to the mortgage amount).

How can you pay off your mortgage sooner?

There are ways to reduce the number of years to pay down your mortgage. You’ll
enjoy significant savings by:

• Selecting a non-monthly or accelerated payment schedule

• Increasing your payment frequency schedule

• Making principal prepayments

• Making Double-Up Payments

• Selecting a shorter amortization at renewal

How can you use your RRSP to help you buy your first home?

Today, about 50% of first-time home buyers use their RRSP savings to help finance
a down payment. 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.

Even if you have already saved for your down payment, it may make good financial
sense to access your savings through the Home Buyers’ Plan. For example, if
you had already saved $20,000 for a down payment – and assuming you still had enough
“contribution room” in your RRSP for a contribution of that amount you
could move your savings into a registered investment at least 90 days before your
closing date. Then, simply withdraw the money through the Home Buyers’ Plan.

The advantage? Your $20,000 RRSP contribution will count as a tax deduction this
year. Use any tax refund you receive to repay the RRSP or other expenses related
to buying your home.

While using your RRSP for a down payment may help you buy a home sooner, it can
also mean missing out on some tax-sheltered growth. So be sure to ask your financial
planner whether this strategy makes sense for you, given your personal financial
situation.

What are the costs associated with buying a home?

First and foremost, you have to make sure you have enough money for a down payment
– the portion of the purchase price that you furnish yourself.

To qualify for a conventional mortgage you will need a down payment of 20% or more.
However, you can qualify for a low down payment insured mortgage with a down payment
as low as 5%.

Secondly, you will require money for closing costs (up to 2.5% of the basic purchase
price).

If you want to have the home inspected by a professional building inspector – which
we highly recommend – you will need to pay an inspection fee. The inspection may
bring to light areas where repairs or maintenance are required and will assure you
that the house is structurally sound. Usually the inspector will provide you with
a written report. If they don’t, then ask for one.

You will be responsible for paying the fees and disbursements for the lawyer or
notary acting for you in the purchase of your home. We suggest you shop around before
making your decision on who you are going to use, because fees for these services
may vary significantly.

There are closing and adjustment costs, interest adjustment costs between buyer
and seller and (depending on where you live) land transfer tax – a one-time tax
based on a percentage of the purchase price of the property and/or mortgage amount.

Finally, you will be required to have property insurance in place by the closing
date. And you will be responsible for the cost of moving.

Remember, there will be all kinds of things you’ll have to purchase early
on – appliances, garden tools, cleaning materials etc. So factor these expenses
into your initial costs.

What should the length of my mortgage term be?

The length of mortgage terms varies widely – from six months right up to 25 years.
As a rule of thumb, the shorter the term, the lower the interest rate the longer
the term, the higher the rate.

While four or five year mortgages are what most home buyers typically choose, you
may consider a short-term mortgage if you have a higher tolerance for risk, if you
have time to watch rates or are not prepared to make a long-term commitment right
now.

Before selecting your mortgage term, we suggest you answer the following questions:

1. Do you plan to sell your house in the short-term without buying another? If so,
a short mortgage term may be the best option.

2. Do you believe that interest rates have bottomed out and are not likely to drop
more? If that’s the case, a long mortgage term may be the right choice for
you. Similarly, if you think rates are currently high, you may want to opt for a
short to medium length mortgage term hoping that rates drop by the time your term
expires.

3. Are you looking for security as a first-time home buyer? Then you may prefer
a longer mortgage term, so that you can budget for and manage your monthly expenses.

4. Are you willing to follow interest rates closely and risk their being increased
mortgage payments following a renewal? If that’s the case, a short mortgage
term may best suit your needs.

What are the monthly costs of owning a home?

Needless to say, you’ll have financial responsibilities as a home owner.

Some of them, like taxes, may not be billed monthly, so do the calculations to break
them down into monthly costs. Below you will find a list of these expenses.

The Mortgage Payment

For most home buyers, this is the largest monthly expense. The actual amount of
the mortgage payment can vary widely since it is based on a number of variables,
such as mortgage term or amortization.

Property Taxes

Property tax can be paid in two ways – remitted directly to the municipality by
you, in which case you may be required to periodically show proof of payment to
your financial institution; or paid as part of your monthly mortgage payment.

School Taxes

In some municipalities, these taxes are integrated into the property taxes. In others,
they are collected separately and are payable in a single lump sum, usually due
at the end of the current school year.

Utilities

As a home owner, you’ll be responsible for all utility bills including heating,
gas, electricity, water, telephone and cable.

Maintenance and Upkeep

You will also have to cover the cost of painting, roof repairs, electrical and plumbing,
walks and driveway, lawn care and snow removal. A well-maintained property helps
to preserve your home’s market value, enhances the neighbourhood and, depending
on the kind of renovations you make could add to the worth of your property.

Should you go with a short or long-term mortgage?

A longer-term mortgage is worth considering if you have a busy life and don’t
have time to watch mortgage rates. Our 4, 5 and 7-year mortgages let you take advantage
of today’s rates, while enjoying long-term security knowing the rate you sign
up for is a sure thing.

If you want to keep your mortgage flexible right now, you can explore a shorter-term
mortgage that usually allows you to take advantage of lower rates and save.

What is a fixed rate mortgage?

The interest rate on a fixed-rate mortgage is set for a pre-determined term – usually
between 6 months to 25 years. This offers the security of knowing what you will
be paying for the term selected.

What is a variable rate mortgage?

A mortgage in which payments are fixed for a period of one to two years although
interest rates may fluctuate from month to month depending on market conditions.
If interest rates go down, more of the payment goes towards reducing the principal;
if rates go up, a larger portion of the monthly payment goes towards covering the
interest. Most open variable rate mortgages allow prepayment of any amount (with
certain minimums) on any payment date, up to a maximum total amount per year.

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