 |       |
| |
Downpayment | Insurance |
| 5% - 9.99% | 2.90% |
| 5% - 9.99% | 2.75% |
| 10% - 14.99% | 2.00% |
| 15% - 19.99% | 1.75% |
With a downpayment of 20% or greater, the mortgage is deemed "conventional." A conventional mortgage is not subject to any CMHC fees. Thus, a larger downpayment represents a two-fold advantage to the prospective homebuyer. First, the prospective homebuyer will avoid CMHC premiums with 20% downpayment. Secondly, a larger downpayment will translate into smaller monthly payments, or a shorter amortization; both of which lead to interest savings over the life of the mortgage.
What is the minimum downpayment needed?
A minimum downpayment of 5% is required to purchase a home, subject to certain maximum price restrictions. Regardless of the amount of your downpayment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed.
Can you use gift funds as a downpayment?
Most lenders will accept funds that are gifted from family as an acceptable downpayment. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan. Mortgages with less than 20% down must have mortgage loan insurance provided by CMHC, Genworth, or AIG.
How can you use your RRSP to help you buy your first home?
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 downpayment on your first home. You then have 15 years to repay your RRSP.
Our Mortgage Brokers can help determine the best way to use your funds to finances a down payment.
Using Your RRSP to Buy Your First Home
Today, about 50% of first-time homebuyers use their RRSP savings to help finance a downpayment. With the federal government's Home Buyers' Plan, you can use up to $20,000 in RRSP savings - that's per couple - to help finance the down payment on your first home.
To qualify, the RRSP funds you are using must be on deposit for at least 90 days. You will also need a signed agreement to buy a qualifying home.
Even if you have already saved for your downpayment, 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 downpayment, 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. You then have 15 years to repay your RRSP.
While using your RRSP for a downpayment may help you buy a home sooner, it can also mean missing some tax-sheltered growth. So be sure to ask an expert whether this strategy makes sense for you, given your personal financial situation. Our Mortgage Brokers can help.
You're Pre-Approved! Are You Sure?
If you are just getting started in the hunt for a new home, it's important to know the difference between pre-qualifying, pre-approval and a loan commitment. It is not enough to simply begin looking for the home of your dreams. It is critical that you determine the price range that you can afford, get qualified for a loan and understand all of the steps to assist you in securing that perfect property when you find it.
Pre-Qualification
Pre-qualification does not mean that you have been approved for a loan, but it is an important component of the home buying process. You have to know what you can afford before you look. Pre-qualification will save you time and ultimately money.
A mortgage professional can help you determine your qualification. You should candidly discuss your financial situation with him or her and not withhold any information. Most likely your mortgage consultant will want to know your yearly household income as well as your assets and liabilities. If you can discuss your finances candidly and determine what you can reasonably qualify for a loan, then no one's time will be wasted. Otherwise, your agent may end up being a tour guide, showing you beautiful houses that you will never be able to get a mortgage for rather than helping you find an appropriate property to make an offer on. However, pre-qualification doesn't mean that much to sellers. It is more of a tool to help potential buyers figure out their price range.
Pre-Approval
Pre-approval is a firmer commitment that is based on more information than pre-qualification. A mortgage broker or lender will need to do a thorough credit investigation and it is particularly important that you disclose all financial information that is requested. The amount that you are approved for will be the amount that the lender is committed to loan for the purchase of a house. Getting pre-approval may give you more bargaining power when you are negotiating the price of a home.
If the seller knows that you are approved for the loan already you may have more leverage. In fact, it is a good idea to plan on getting pre-approved. Some real estate agents won't waste their time showing homes to potential buyers who do not have a pre-approval, especially in a hot market. However, pre-approval doesn't necessarily mean that you will ultimately get the loan. The final approval will still depend on verification on the information provided and also approval of the home you wish to purchase.
Mortgage Commitment
A mortgage commitment is a letter that is issued by the lender that states that they will fund your mortgage. This letter may include details of your interest rate and the maximum amount of loan they will offer. This sort of commitment requires that both you and the house be approved. This means that the home will need to be appraised at the sale price or higher and must meet the lender's guidelines.
Regardless of what stage of home buying you are in, it is very important that you keep a few things in mind. Remember that just because you are approved for a large loan, does not necessarily mean that you should borrow at the upper limit of your loan approval. Homeownership involves more expenses than renting and some properties need more work than others. Make sure you leave a financial cushion for repairs and upgrades to your new home.
Once you get approved don't make any big changes to your finances. Changing jobs, banks and taking out other loans can lower your credit rating, change your debt-to-income ratio and ultimately keep you from getting the loan. Now is not the time to buy that new car, big screen television or to take an expensive vacation. The lender may make one last credit check even if you have a loan commitment. Our Mortgage Brokers can help ensure you're educated and prepared so that the home buying process is easy and stress free.
Understanding the Difference between Term and Amortization
Many people confuse the "term" of the mortgage with "amortization," but the two are very different.
The amortization of the mortgage refers to the entire length of time that it will take for the mortgage to be completely paid off. The term is the period for which your current payment obligations are valid. In other words, you may choose a five-year term and a 25-year amortization. This would mean that your interest rate, your payments, and your pre-payment options would be the same for the next five years. At the end of these five years, you would re-negotiate the term, and the amortization would now be 20 years. Questions? Our Mortgage Brokers can help.
Closed or Open - How Do You Choose?
Fixed rate mortgages can be "closed" or "open" and each has its benefits.
Open mortgages allow you to pre-pay some, or all, or your outstanding mortgage obligation at any time, without penalty. Generally, open mortgages have a six-month, and a one-year term option, however they tend to have higher interest rates than closed mortgages of the same term length.
Closed mortgages are offered in terms ranging from six months to ten years. Most offer more stringent pre-payment options subject to various pre-set regulations. For most people, such pre-payment options can be vital to reducing the amortization of one's mortgage and deciding between a closed or open mortgage deserves careful consideration. Our Mortgage Brokers can help.
Selecting a Mortgage Term
The length of mortgage terms varies widely-usually from six months right up to 10 years. As a rule of thumb, the shorter the term, the lower the interest rate and 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, consider the following:
- 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.
- Do you believe that interest rates have bottomed out and are not likely to drop more? If that is 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.
- Are you looking for security as a first-time homebuyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
- Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that is the case, a short mortgage term may best suit your needs.
Still not sure which term best suits your needs? Our Mortgage Brokers can help.
How to Save Money and Pay Off Your Mortgage
The best way to reduce the overall cost of your mortgage is to decrease your principal quickly, thereby decreasing your interest obligation. Here's how:
Increase Payment Frequency - Instead of paying monthly, consider paying bi-weekly. This simple step is works especially well if you're paid bi-weekly-it can be arranged so that payments come out of your account on payday. This can cut your mortgage amortization by up to five years, and can save you tens of thousands of dollars.
Prepay - Use every opportunity to prepay your mortgage. One way to do this would be to use your RRSP tax refund to make a yearly pre-payment.
Increase Payments - Round up your bi-weekly payment. For example, if you have a bi-weekly payment of $531.59, round your payment to an even $550.00. This will have a profound effect on the interest paid, and the amortization of the mortgage.
For more ways to save on your mortgage, our Mortgage Brokers can help.
Looking for A Commercial Mortgage?
Commercial mortgages can be tricky and complicated to arrange. That's why it pays to work with a professional.
Mortgage Architects' team of Mortgage Brokers can also facilitate all your industrial, commercial and investment project needs.
Funding is available for all types of commercial properties, such as:
- Apartment Buildings
- Income Properties
- Land Development
- Industrial Properties
- Retail and Shopping Centers
- Office Buildings
- Construction and Mezzanine Financing
- Nursing and Retirement Facilities
- And much more!
Our Mortgage Brokers can help facilitate all your commercial mortgage needs.
