Frequently Asked Questions

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.                

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.                

A minimum down payment of 5% is required to purchase a home up to $500,000 purchase price. On homes up to $999,999.99 there is a minimum of 5% on the first $500,000 and an additional 10% on the amount above and beyond to a max of $999,999.99. Purchases of $1M+ a minimum of 20% down payment is needed. 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 the 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 either CMHC or GE.                

Mortgage loan insurance is insurance provided by Canada Mortgage and  Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage  Insurance Company, an approved private corporation. 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 .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.                

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.                 

Depending on the circumstances surrounding your bankruptcy, generally  some lenders would consider providing mortgage financing. It may come down to working with an alternative lender depending on the history, reasoning and timing.                

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.                

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, Canada  mortgage and housing corporation 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 GE Capital this is not a requirement. See 'what  is mortgage loan insurance?' for further information.                

A pre-approved mortgage provides an interest rate guarantee from a  lender for a specified period of time (usually up to 120 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.                

Lenders will often guarantee an interest rate to you as much as 120 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.

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                

Today, about 50% of first-time home buyers use their RRSP savings to  help finance a down payment. If you are a first-time home buyer, the  Home Buyers Plan (HBP) allows you to withdraw money from your Registered  Retirement Savings Plan (RRSP) tax-free to make your down payment. The  HBP is administered by the Canada Revenue Agency (CRA).  There are certain conditions you must meet to be eligible for the HBP.  For more information, contact CRA at www.cra.gc.ca.  How much can you withdraw? - You can withdraw up to $25,000 from your RRSP - If you buy the home together with your spouse, partner, or someone  else, each of you can withdraw up to $25,000, for a total of up to $50,000. - The withdrawal from your RRSP does not need to be included in your  income on your annual income tax return, and no tax is taken off the money you withdraw. What is the payback period? - You don't have to start paying back the money to your RRSP until two  years after the purchase of the home. - You must pay back all withdrawals from your RRSP within 15 years by  making RRSP deposits each year, starting the second year following your withdrawal. CRA will  determine what your minimum yearly repayment will be and will notify you  once you need to start repaying the amount. - If you do not repay the amount due in a given year, it is included in  your taxable income for that year and you'll have to pay income tax on  this amount.  source: Financial Consumer Agency of Canada                

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.                

The length of mortgage terms varies widely - from six months right up to  10 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.                

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.                

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.                

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. Open variable rate  mortgages allow prepayment of any amount (with certain minimums) on any  payment date.