What is Credit Reporting?
Many people don’t realize how important it is to maintain a good credit rating. Nor do they understand what is involved in achieving this.
The first step is to review your own individual credit report, which is a detailed history of how consistently you meet your financial obligations.
In Canada there are two major credit bureaus – Equifax and Trans Union. Each of these companies can provide you with a copy of your individual credit report, for a nominal fee. It is more useful to order a credit report with your credit score (beacon score).
Once you have a copy of your credit report you should check for the following:
- wrong mailing addresses,
- incorrect social insurance number,
- signs of identity theft,
- errors in your credit accounts,
- late payments,
- unauthorized hard enquiries.
Hard inquiries, done when you apply for new credit, can affect your credit score while soft inquiries by your existing creditors when requesting an update of your information do not affect your score.
What is a Beacon Score?
Your credit score – or beacon score – translates information from your credit report and other sources into a number between 300 and 900, representing a prediction of your overall credit-worthiness. The higher your score the more likely you are to be approved for a mortgage and receive favourable rates.
How long do items appear on my credit report?
Inquiries remain on your report for three years after the date of inquiry. Your credit information remains for six years from the activity date.
Consumer proposals will remain on your report for three years while the first bankruptcy reports stay for seven years. Should you be unfortunate enough to declare bankruptcy twice or more, the second and subsequent times will remain on your report for 14 years each.
You can see how credit abuse can impede your ability to obtain credit in the future.
What about credit repair?
- Never pay for credit repair services. Only responsible credit practices over time can improve a poor credit history.
- Pay your debts on time – always meet due dates. Ensure timely payments with pre-authorized withdrawals
- Don’t max out your credit cards – use only up to 50% of a card’s credit limit.
- Borrow only the amount you can afford to repay.
- Re-establish credit as soon as possible after being discharged from bankruptcy, through responsible use of a credit card or line of credit.
- Identity fraud/theft is on the rise in Canada - protect yourself! Review your credit report regularly.
What Is Mortgage Default Insurance?
Mortgage Insurance protects a lender in case there is a default in mortgage by the borrower. In Canada this sort of insurance is typically needed for mortgage loans with down payments smaller than 20% of the property value.
In Canada there are three companies offering mortgage default insurance:
- CMHC www.cmhc.ca
- Genworth www.genworth.ca
- Canada Guaranty www.canadaguaranty.ca
What Is Mortgage Life Insurance?
Mortgage Life Insurance can pay off the outstanding balance on the insured mortgage in the event of your death.
Mortgage Critical Illness Insurance can pay off your outstanding mortgage balance in the event you are diagnosed with severe illnesses such as heart attack, stroke or life threatening cancer, providing you and your loved ones with a “living” benefit..
Mortgage Disability Insurance can pay your mortgage payments should you become disabled and are prevented from performing the normal duties of your job due to accident or illness..
Costs to Consider When Buying a Home
Buying a home costs more than the offer
you make. There are numerous other expenses that will add to the amount that
you'll need to spend. This purchase price checklist outlines all the costs you
can expect. Please note that these costs can vary by province and are subject
Budgeting For Closing Costs
The starting point in your calculations... if you're like most first-time home buyers, you'll need a mortgage for the majority of this!
Although fees vary across the nation, it can cost you up to $1,200 depending on whether you are re-mortgaging your existing home or buying new. Contact me or your realtor to help with this process.
Land Transfer Tax
A tax payable to the provincial government by the purchaser upon the transfer of title from a seller. This tax is usually not expected by most homeowners. It can be sizeable. The amount varies from province to province and is generally a percentage of your purchase price.
Fees paid to the provincial government for recording a title transfer, mortgage registration or other instrument such as an Assignment or Lien with the local authorities.
High Ratio (Mortgage) Insurance
Must be purchased if you are buying a home with a down payment of less than 20% of the purchase price of the property. A sliding fee scale applies, depending on the percentage of the purchase price required in a first mortgage (there are some minor exceptions).
Obtained by your lawyer and required in many municipalities throughout Canada before a property transfer can take place. This is an acknowledgement from the building department that the property either has, or is clear of, outstanding work-orders. Work-orders are specific clean-up or fix-up requirements that the owner is legally required to do, and which must be completed before ownership can be transferred.
Obtained by your lawyer at the time of sale to confirm that local taxes have been paid up to date. If they are not up to date, the seller is required to pay them from the proceeds of the sale. If there are insufficient proceeds, then you may be legally required to pay the outstanding taxes. If, on the other hand, taxes have been prepaid, you may have to compensate the seller for them.
Provincial "New Home Warranty Program" Premiums – New Homes Only!
A third party (provincial) warranty
program between a builder and a buyer. With the exception of Ontario and
Quebec, membership in such a program is voluntary for the builder. Through
these programs, your home is guaranteed against defects for at least one year.
All homes with a high-ratio insured mortgages (with greater than 80% loan to
value) must be enrolled in such a program.
An appraiser offers their professional opinion on the current market value of a property. The lender will use this information when deciding if the land and building in question are suitable as security for a mortgage. An appraiser will not typically do a detailed examination of the condition of the building and its systems (like heating and plumbing) – you’ll need a home inspector for that.
A report commissioned by a property owner or purchaser, usually to verify the condition of a property prior to the "firming up" of a real estate transaction. The scope and detail may vary, but most reports indicate the specific problem and the cost to repair. Unfortunately, no licensing is required, and this service is not specifically regulated other than by general consumer protection legislation. The best safeguard against inadequate work is to ask for the resume of the inspector, and if possible check references from previous customers.
The legal written and/or mapped description of the location and dimensions of the land. The survey should also show the dimensions and placement on the lot of any structure, including additions such as pools, sheds and fences. An up-to-date survey is often required by a lender as part of the mortgage transaction.
Title insurance can be purchased by home buyers to protect against loss or damage resulting from defects in title (Title is the legal term for the right of ownership of property). These defects could include fraud, zoning infractions, irregularities not revealed by a property survey, errors or omissions in deeds, or liens by contractors or for unpaid taxes.
Some local utility companies (hydro, gas, oil) charge a fee on closing to connect new buyers up to their service. More common, however, is an extra charge on the first billing.
Property Tax and Prepaid Utilities Adjustments
If the previous owner prepaid property taxes or other utilities, they will be credited the prepaid portion on closing.
Interest Adjustment (IA)
If you arrange to make your mortgage payments monthly on the first day of the month, and your transaction closes after the first day of the month, your lender will charge you interest on closing to the next interest date, called the Interest Adjustment Date (IAD), when your payment cycle will commence. This can be a sizeable amount, but it is the correct interest you should pay. For example, close on June 15th, pay 15 days interest on closing and start payments on August 1st.
Many lenders allow you to make a lump sum payment – usually 10% to 20% of the original principal balance. In addition, many mortgage products now include a "double-up and skip-a-payment" feature. This lets you "bank" extra mortgage payments for a rainy day, at which time you can "skip" them if you need to. Ask us to advise you on your options today!
Many mortgages now allow the amortization to be adjusted by increasing the payment on closed terms by 10% to 20% per year, once annually.
Most mortgages now come with the option to pay your mortgage at a frequency that matches your cash flow – weekly, bi-weekly or semi-monthly. The added benefit of the "accelerated" weekly and bi-weekly payments is that by dividing a regular monthly payment into two or four respectively, and deducting it at the new interval, an extra payment a year is made directly against principal.
Take advantage of our renewal registry! Register now and we will guarantee you the best rate 120 days prior to your renewal. You can register up to four years in advance - just fill out the form below.
I can get you a mortgage that suits your needs in most situations regardless of your circumstances, at a competitive rate.
Below is a list of the most common non-traditional mortgage situations. Please note that not all situations are listed and each would be looked at on a case-by-case basis to fit with the appropriate lender. This is where our expertise and knowledge is essential in taking care of you and your family.
Employment - Self-employed
- Recent job
- Lack of
- Income -
- Good, but a
lot of credit
- New immigrant
As long as you have a valid work visa or confirmation of application for Permanent Residency, full-time employment, credit references from your home country and down payment from your own resources, you may qualify for home ownership sooner than you think.
We have put together some basic information on mortgage terminology, mortgage costs and some tips on how to make an informed decision on your mortgage needs. While this is not an all-inclusive list, we hope it will help you find the right mortgage for your needs.
Amortization: A mortgage is amortized over a period of years, the length of time it takes to pay off the mortgage in full. The usual amortization period is 25 years, however, this can be accelerated to pay off the mortgage more quickly or in some cases can be stretched to 35 years to reduce the monthly payment.
Assumable: Some mortgages are assumable with qualification. This means that should you sell your house before the term of the mortgage is completed, the purchaser can take over your mortgage if they qualify. This allows you to avoid paying a penalty to break your mortgage.
Blend and Increase: The ability to increase your existing mortgage or the term of the mortgage, with only the increased amount or term at today’s interest rate. The interest rate for the existing mortgage is combined or blended with the interest rate of the increased amount. This is advantageous if you have a good rate on your existing mortgage or if you want to avoid a penalty to pay out an existing mortgage.
Commitment Letter: This is the document in which your lender will confirm the basic terms and conditions of the mortgage as well as the conditions that must be met before funding. The standard conditions include, but are not limited to, receipt of an appraisal, income verification by way of employment letters and income tax returns, as well as verification that the purchaser’s down payment has not been borrowed.
Discharge: For reasons planned or unplanned, the borrower may need to sell before the end of the mortgage term. Discharge fees vary widely between lenders which may result in thousands of dollars in penalties. Worse yet, if the policy is "No Discharge", the borrower may be locked in for the entire term of the mortgage.
Early Pay-out Penalty: Many people don’t think about breaking their mortgage when they are in the midst of arranging it, however, this possibility cannot be overlooked. An individual’s circumstances can change – transfer of employment, marriage breakdown, etc. Some mortgages are fully closed and cannot be broken under any circumstance. Other mortgages have a sales clause allowing for early payout of the mortgage upon an arms-length sale of the property, subject to a penalty (for example, three months interest). Some mortgages allow the borrower to break the mortgage, for any reason, upon payment of a penalty.
Interest Adjustment Date: This may apply to mortgages that close on any day other than the requested day of payment. For instance: since some lenders want monthly payments to be made on the first day of the month, they will adjust the interest due on closing so that interest on your mortgage is paid up until the first of the coming month. If you close on the 20th of the month (and the month has 30 days), you will have to pay interest for 10 days so that you are paid up until the first of the coming month. Then your first full mortgage payment will be due on the first of the following month.
Interest Rate: The rate of interest is a key consideration when arranging your mortgage. The interest is the payment to the lender for the use of the mortgage money.
The interest rate can be fixed (where the rate remains constant for the term) or floating (where the rate changes at regular intervals). Short term or convertible terms usually have lower interest rates and can be used to a borrower’s advantage in an unstable market. These mortgages allow you to ride out a fluctuating or falling rate market until rates reach a level where you wish to "lock-in" to a longer term. On the other hand, long term rates offer stability and eliminate the need to monitor rates daily.
Interim Financing: When the purchase of your new home closes in 60 days but the sale of your current home closes in 90 days, you will need interim or bridge financing. This is because for 30 days, you will own both properties, and of course, not receive the equity out of your old property. If the lender you choose cannot provide you with interim financing, you may find getting it from other lenders could be expensive.
Mortgage: A contract between a borrower and a lender, where the borrower pledges a property to a creditor as security for the payment of a debt. "Charge" is another word for mortgage.
Mortgage Life Insurance: Life insurance that pays off the balance of the mortgage in the case of the borrower’s death (i.e., if a spouse dies, the remaining insured spouse would not have to worry about mortgage payments – the mortgage would be paid in full).
Payment frequency options: You will often have the choice of making payments on your mortgage on a monthly, semi-monthly, bi-weekly or weekly basis. Increasing the payment frequency, i.e., bi-weekly instead of monthly, can shorten the amortization of your mortgage and save you a considerable amount of interest.
Pre-authorized chequing/debit: Mortgage payments are normally made by pre-authorized chequing or debit where the lender takes your regular monthly, semi-monthly, bi-weekly, or weekly payment out of a predetermined bank account automatically.
Prepayment privileges: These prepayment privileges allow you to make extra lump sum payments, double your payments or increase your regular payments. Prepayment privileges vary from lender to lender. If you want to be able to pay your mortgage off quickly, check the flexibility of your prepayment privileges.
Portable: If you have a good mortgage rate and a number of years remaining on your term, you may want to take your mortgage with you to a new home when you move. This can be done if the mortgage is portable. The property you are moving to will have to be reviewed and approved by the lender before you can "move" the mortgage to the new property.
Rate Guarantee: The period of time, prior to closing of your house purchase ("the completion date") that a lender will guarantee that the interest rate they have offered will not rise. This is usually for a period between 60 and 90 days - although longer rate holds are available under special conditions. The commitment letter will also state under what conditions (if any) that they will decrease the interest rate if and when rates in general drop prior to your completion date.
Standard mortgage fees: All mortgages have standard fees associated with them such as renewal fees, discharge fees, NSF fees, etc. These vary from lender to lender and should be considered.
Tax holdback: When property taxes are included with your mortgage payments, your lender will hold back funds from your mortgage proceeds to cover interim or final property taxes payable to the municipality. The amount depends on the month the mortgage was funded and on the dates when interim and final taxes are due. Holdbacks are used to pay for the current year’s taxes, while your monthly tax instalments are accumulated in the account to pay for the next year’s taxes.
Term: This is the period of time that the interest rate and the loan is contracted for. Terms can vary from 3 months to 35 years (although the standard term is still 25 years).
Q. Why use a mortgage consultant?
A. By approaching one or two financial institutions and choosing from their in-house mortgage products, many consumers miss out on a wide array of mortgage options that could suit their needs better and save them a lot of money over the long term. There are literally hundreds of mortgage options available to Canadians today from a variety of lenders: chartered banks, credit unions, and trust companies, as well as other sources of funds such as life insurance companies and pension funds.
While consumers are spoiled for choice, comparing different mortgage types and interest rates on your own is a time consuming and rather intimidating task. And if you deal with a financial institution directly and your application is declined, you must start over from scratch with another institution.
An independent mortgage consultant has access to the full range of mortgage lenders and can guide you to the mortgage that suits your individual needs, at a very competitive rate.
Q. Are there any fees involved with a mortgage consultant?
A. In most instances, there are no fees involved. Mortgage consultants receive a commission from the lending institution that receives and funds your mortgage application. If you do not qualify normally due to bad credit, job instability or other unseen factors there may be a brokerage fee, but it will be disclosed to you prior to proceeding.
Q. Should I wait for my mortgage to mature?
A. No. Allow me to begin shopping around for an interest rate at least 120 days before your mortgage comes up for renewal. Lenders will often guarantee you an interest rate as much as 120 days before your mortgage matures. As long as you are not increasing your mortgage, they will cover the costs of transferring your mortgage as well. This means a rate promised well in advance of your maturity date, which eliminates any worries about higher rates and if rates drop before the actual maturity date, the lender will adjust your interest rate to the lowest it has been during the 120 days since the application was submitted.
Q. What is mortgage loan insurance?
A. Mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, as well as Genworth Financial and AIG United Guaranty, approved private corporations. This insurance is required by law to ensure lenders against defaults on mortgages with a loan to value ration of more than 80%. The insurance premiums, typically ranging from .50% to 2.75% (higher for special situations) are paid by the borrower and can be added directly into the mortgage amount. This is not the same as mortgage life insurance.
Q. What is a conventional mortgage?
A. A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price (which means a loan to value of less than 80%), and does not normally require mortgage insurance.
Q. What is a high-ratio mortgage?
A. A high-ratio mortgage is one where the amount to be borrowed is greater than 80% of the purchase price or appraised value. High-ratio mortgages generally require mortgage loan insurance provided by either CMHC, a crown corporation, or Genworth Financial or AIG United Guaranty, private insurers.
The mortgage loan insurance premium paid to CMHC, Genworth or AIG protects the lender in case of default in the event the mortgage is not repaid, and the lender has to take back the property. The benefit to the borrower is that they can purchase a home with less than 20% down, to as low as 5% down. The insurance premium is paid by the borrower and can be added directly to the mortgage amount. This is not the same as mortgage life insurance.
Q. What can I use for a down payment?
A. In most cases, a down payment may come from:
- Accumulated savings
- Registered Retirement Savings Plans (RRSPs) – may be used as a down payment up to a maximum of $25,000 and is not subject to income tax if repaid within 15 years.
- Gift from immediate family
- Sale of existing home
Q. What is the minimum down payment needed to buy a home?
A. A minimum down payment of 5% is usually required to purchase a home, but there are exceptions. For instance we have relationships with lenders that offer mortgages involving lower down payments or “cashback” arrangements. However to qualify for this financing your credit must be clean and in good standing. Regardless of the down payment chosen you must be able to show that you can cover the applicable closing costs (such as legal fees, appraisal fees and a survey certificate when appropriate).
Q. How much can I afford to pay for a home?
A. 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 the 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. Both of these two calculations will be used to help determine how much of your income will be used towards housing payments, including your mortgage payment. The 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 than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so you can still afford simple luxuries.
Q. How does bankruptcy affect my ability to qualify for a mortgage?
A. Depending on the circumstances surrounding your bankruptcy, generally some lenders will consider providing mortgage financing.
Q. What do I need to bring to my initial consultation?
A. Employment and income documents proving income such as a recent paystub or a letter of employment. For self employed, commissioned or seasonal workers (such as oilfield, construction, truck driving, etc.), you will need to provide 2-3 years of Revenue Canada Notice of Assessments.
Q. What paperwork do I need to provide for approval of my application?
A. While documentation requirements can vary depending on your circumstances and the lender who will be doing the financing, the following lists the most commonly requested documents:
Employment Income Documents:
- Letter of employment
- Recent paystub
- Or, 2-3 years Revenue Canada Notice of Assessments for self employed, commissioned or seasonal workers
- (If purchasing) Confirmation of Downpayment and Closing Costs
From Own Resources:
- 90 days bank transaction history and current balance (must show name and account number)
- Confirmation of source of any large deposits (i.e. paystubs)
- RRSP statements if using RRSP funds
- Gift letter signed by Giftor and Giftee stating funds are a gift and non-repayable
From Sale of existing home (or other asset):
- Contract of Sale
- Current mortgage statement showing balance to be paid out
- Copy of Contract to purchase and listing sheet
For refinance/equity take out transactions:
- Copy of current mortgage statement showing balance and payment information