What You Should Know About Canadian Mortgages
If you are going to buy a home in Canada, you are going to need a mortgage, unless you have a store of money lying around to use to pay cash for your home. Before you sign on the dotted line for your mortgage, make sure you know what you are agreeing to. After all, your mortgage is a long-term financial agreement, so you should know as much as you can about it at the outset.
Basic Structure of a Mortgage
Since most people do not have the cash stores necessary to pay for a home in full, they will usually borrow money from a lender for the purchase of the home. The property in question is the collateral for the loan, which means that the bank or lender has the right to take the home if you do not pay the loan according to its terms.
A mortgage is considered an amortized loan. This means that you have a set number of years in which you must pay back the loan and the interest on it. In Canada, most loans are amortized for around 25 years, but this can vary based on the loan structure. The amortization period is separate from the term, which is the period that the interest rate is guaranteed. Sometimes the term and the amortization period are not the same, which means you will need to negotiate a new mortgage term when the first one is over.
Finally, a mortgage has an interest rate applied to it. This is the percent of the total loan amount that you will pay to the bank for the privilege of borrowing the money. Your goal should be to find a loan with the lowest possible interest rate.
Getting Approved
Once you have decided that you wish to buy a house, it is time to get approved for a mortgage. Shop around to find a lender with good rates, and then apply. Your approval will be based on the size of the loan, your credit rating, employment history, and current income, among other factors.
Making a Down Payment
Most lenders require you to make a down payment on the property you wish to buy. This shows them that you are responsible with your money and have a good intention of paying what you owe on the loan. It is generally recommended that you put down a 20 percent down payment. You can put down more if you wish. You can also put down less, but if you do you will have to buy mortgage insurance.
What is mortgage insurance? Under the Canadian Bank Act, federally regulated lending institutions, with a few exceptions, cannot provide loans that exceed 80 percent of the value of the home without purchasing mortgage insurance. This insurance protects the lender against the possibility of default, which statistics have shown is more likely when the borrower does not place at least 20 percent down on the home. The premium on the insurance policy is typically determined based on a percentage of the home’s purchase price. You will typically pay this premium as part of your loan payment each month. This allows you to purchase a home with as little as 5 percent down.
Your Monthly Payment
Your monthly mortgage bill is broken down into an interest payment and a principal payment. At the beginning of your loan, more of the payment goes towards interest than principal. This gradually shifts until you are paying mostly principal than interest at the end of the loan. If you wish, you can pay your loan off faster by paying extra towards the principal on the loan. Once you have paid off the entire principal balance on the loan, you will officially own your home.
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Mortgage FAQ:
Question: Where can I find the right mortgage Canada?
How to find the right mortgage in Canada that’s right for me? I have my down payment.
Answer: You have to decide what’s right for you, variable or fixed, and what term 6 months or up to 7 years. And you have to decide on the amortization period, now a maximum of 35 years, but shorter is much better.
Talk to a mortgage broker or if you have a realtor see if they have some mortgage people they deal with. I like to have my first time buyers be in a fixed rate for at least 3 years.
Question: Can my sister who lives in the US cosign for my house mortgage in Canada?
I immigrated to Canada a few weeks back and am looking to buy a house but since I do not have a credit history in Canada, I won’t be able to get my mortgage approved. I was wondering if my sister who lives in the US can cosign for my mortgage?
Answer: If you don’t have a credit history in Canada, why would your sister? Credit histories tend to be international. If you can’t get a mortgage there is more than credit history going on.
Question: Gave false income info to obtain mortgage in Canada – will pay on time. Should I worry?
I am a Canadian citizen, buying a house in Canada. My mortgage broker told me he will provide the bank with some letters from an employer to prove my income is high and so the bank approved me for a decent mortgage. I will be making all my payments on time and all that. Shall I worry? Do you think the bank will find out?
Answer: You will probably be OK unless you default on the loan in the first year or two. Should you default during that time an audit would be pretty much automatic. Also a very small percentage of loans are audited just trying just to see if the lenders are following guidelines. I wouldn’t worry unless you end up not making the payments.
However I would be more concerned that you are dealing with a broker that would willingly participate in perpetrating a fraud on a bank. If I were you, I’d run away very fast from your mortgage broker and wait until you make enough money to carry a house.
Question: What is the best kind of mortgage insurance here in Canada?
Can anyone tell the pro’s & con’s of mortgage insurance here in Canada? I had been told there is private & bank insurance, are there better options and what would you recommend?
Answer: Totally depends on what your future needs may be. We have our basic insurance on our mortgage through the bank itself. In case of accident or death it is quicker and more efficient to use the banks policy. If you are adding on huge details and extras, then maybe you should shop around a bit more for a different carrier. There are many out here. Just go visit your local insurance agent and they will give you better ideas.
Question: Does anyone know how the mortgage business works in Canada?
I am in the mortgage business in NY and would like to explore getting into the business in Canada. Anyone have info?
Answer: Our Canadian Mortgage and Housing Corporation (CMHC) is the organization that deals with mortgages here in Canada. Occasionally, there are lending companies who will lend mortgage money to potential homeowners when they are denied by CMHC.
Question: Can you get a mortgage in Canada if I’ve got a mortgage in Ireland & are renting the house out in Ireland?
I’ve currently got a mortgage now in Ireland and are hoping to rent the property and migrate to Canada were my family and I hope to get another mortgage for a home were we can live.
Answer: There is a government program through CMHC that guarantees any mortgage for new immigrants. However, you must arrange 25% down payment. Check out the Canada Mortgage and Housing Corporation website for more details.
Question: I have $100,000 CAD. I want to borrow a further $190k for a property in Canada. Will I get a mortgage?
I am a non Canadian resident (from UK) but my wife is Canadian. We’re planning to move to Canada next year. The property in question is commercial with retail (ground floor) and flat/apt (rented) above. Any ideas which banks I should approach to get a mortgage?
Answer: You generally need a down payment of 25% on a property. If you’ve got $100K of $290 it shouldn’t be a problem. The five main banks are Royal Bank of Canada, TD Bank, Bank of Nova Scotia, Bank of Montreal, and CIBC. Also try ING Direct.
Question: What kind of Interest rates will I get with Bad Credit on a Mortgage in Canada?
I have been Discharged from Bankruptcy in 2005.
Answer: By discharged I am assuming that it was cleared off your credit history? If so, then your major problem in getting a mortgage is a lack of actual credit.
The first thing someone should do when considering to get a mortgage is to find out what is on their credit BEFORE they get to the bank. Go on to the Equifax site and request a copy for a small fee.
Once you have a hard copy of this report you can actually get to the business of seeing what the damage is. Review it to make sure that it is correct as it will list any and all credit “dings” and in some cases these items may be incorrect. From there you may be able to correct any errors by contacting the companies involved.
As for the effect a bad credit has when applying, it may disqualify you from any conventional or may result in special conditions and or increased rates by a few % points. The higher the risk the higher the rate.