Education & Resources

• How much can I afford to pay for a home?
• What is the minimum down payment that you need to make when purchasing a home on a mortgage?
• What is Mortgage Loan Insurance?
• What is a Conventional Mortgage?
• What is a High-Ratio Mortgage?
• What is a pre-approved mortgage? What is the benefit of getting pre-approved?
• Can I qualify for a mortgage if I have been declared bankrupt?
• What documentation is required to obtain a mortgage?
• How will child support and alimony affect my mortgage qualification?
• What is the difference between a fixed rate mortgage and a variable rate mortgage?

Next, you need to calculate 40% of your taxable income and from that, deduct all of your other monthly payments such as car loans, credit card bills and other such debts. The lesser of these two calculations will be used to determine how much of your income may be used towards housing related payments, including your mortgage.

Apart from what the ratios tell you, you should make calculations of your own to determine how much 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 take all other expenses into consideration too so that you can easily afford the basic luxuries.

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What is the minimum down payment that you need to make when purchasing a home on a mortgage?
In most cases, you will need to pay a minimum of 5% of the house value as a down payment. In addition to the down payment, you must also be able to show that you have the capacity to cover other closing costs such as the legal fees and disbursements, appraisal fees (if required) and a survey certificate.

Certain lenders also accept gift money from a family member or friend as a down payment. However, such a sum needs a signed letter from the donor stating that it is a gift and does not have to be repaid.

For any down payment that is less than 20% of the total value, a loan insurance from either the CMHC, Genworth or AIG is required.

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What is Mortgage Loan Insurance?
Mortgage Loan Insurance is an insurance cover provided to a lender against default on mortgage installments, when the down payment amount is less than 20%. Like any other insurance, mortgage loan insurance too requires premium payments. The premium amount can vary between 0.5% to 2.75%, depending on the insurance provider and how much of the purchase price is financed by the mortgage; greater the down payment, lesser will be the premium. Mortgage loan insurance is distinct from Mortgage Life Insurance as the latter guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.

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What is a Conventional Mortgage?
A conventional mortgage is one in which the down payment amount is equal to more than 20% of the purchase price (or where the loan value is less than 80%). Such a mortgage normally does not require mortgage loan insurance.

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What is a High-Ratio Mortgage?
A mortgage which is greater than 80% of the purchase price or appraisal, whichever is less, is known as a High-Ratio mortgage. A High-Ratio Mortgage requires mortgage loan insurance. Premiums for a mortgage loan insurance can range from 0.5% to 2.75%, depending on the value of the mortgage.

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What is a pre-approved mortgage? What is the benefit of getting pre-approved?
A pre-approved mortgage is one that provides an interest rate guarantee from a lender for a specified period of time (usually 90 to 120 days) and for a set amount of money. The pre-approval is calculated on the basis of information provided by the borrower and is subject to certain conditions being fulfilled before the mortgage if finalized. These conditions usually include factors such as a written confirmation of employment and income among other things. Many brokers & Realtors prefer it when their clients have a pre-approved mortgage as this gives a clear idea of the affordable price range when hunting for a new home.

The benefits of getting a pre-approved mortgage are many. First of all, pre-approval gives you an idea of what you can afford, making your search for a new home much simpler. It also does away with the tension of trying to find out what your monthly installments are going to be. Probably the greatest advantage of getting a pre-approved loan is that it allows you to lock in a rate. As the lender guarantees a fixed rate when pre-approving the mortgage, the borrower can secure that same rate even when the market prices climb up. In case a situation arises where the interest rates fall below those that were pre-approved, the lenders usually offer the lower rate.

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Can I qualify for a mortgage if I have been declared bankrupt?
Some lenders may consider you eligible for a mortgage even though you have faced bankruptcy. However, this decision may vary from lender to lender and will greatly depend on the circumstances surrounding the bankruptcy. Certain measures can be taken by the prospective borrowers to improve their credit rating. Approach your mortgage broker for details.

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What documentation is required to obtain a mortgage?
To make your mortgage application process as simple and lucid as possible, it is advisable that you collect all these documents beforehand so as to avoid any interruptions later.
Personal information and identification such as your driver’s license or passport.
Job details, including confirmation and proof of income.
Your sources of income.
Proof of financial assets.
Information and details of all your bank accounts, loans and other debts.
Source and amount of down payment.
Proof of source of funds for the closing costs (usually about 1.5% of purchase price)

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How will child support and alimony affect my mortgage qualification?
If you are paying child support and alimony to another person, generally the amount paid out is deducted from your total income before determining the mortgage amount that you would qualify for.

If you are receiving child support and alimony from another person, the amount paid to you will be added to your total income before determining the mortgage that you will qualify for. However, you will be required to produce a regular receipt for the same for a set time period as specified by the lender.

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What is the difference between a fixed rate mortgage and a variable rate mortgage? In a fixed rate mortgage, the interest rate is pre-determined at the beginning of the loan term, which can range from 6 months to 25 years. The advantage of this type of mortgage is that it offers a security of knowing your monthly payments beforehand and allows you to plan accordingly.

In a variable rate mortgage, the payments can be fixed; however the interest rates can fluctuate every month depending on the market conditions. If the interest rates drop, more of the payment goes towards reducing the principal; if the rates go up, a larger portion of the monthly payment goes towards covering the interest. The interest rate is based on a predetermined formula which is in-turn based on the prime-lending rate.

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