Frequently Asked Questions

Questions

How much can I afford to pay for a home?

What is a home inspection and should I have one done?

What is mortgage default insurance?

What is a conventional mortgage?

How does bankruptcy affect qualification for a mortgage?

How will child support affect mortgage qualification?

Can I get a mortgage to purchase a home?

What is a pre-approved mortgage?

Should I wait for my mortgage to mature?

What is a down payment?

How can you acquire a home with as little as 5% down?

How can you pay off your mortgage sooner?

How can you use your RRSP to help you buy your first home?

What are the costs associated with buying a home?

What should the length of my mortgage term be?

What are the monthly costs of owning a home?

Should you go with a short or long-term mortgage?

Answers

How much can I afford to pay for a home?
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 gross 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 gross 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.

back to top

What is a home inspection and should I have one done?
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. For more information click on the following link for the official webpage of the Ontario Association of Home Inspectors: http://www.oahi.com/

back to top

What is mortgage default insurance?
Mortgage default insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth Financial Canada, 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 3.10%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance. For additional information on mortgage default insurance visit Genworth Financial Canada: www.genworth.ca

back to top

What is a conventional mortgage?
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 default insurance.

back to top

How does bankruptcy affect qualification for a mortgage?
Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing. Call us direct for additional details on available options: 1.877.993.4878

back to top

How will child support affect mortgage qualification?
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.

back to top

Can I get a mortgage to purchase a home?
Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Canada, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply.

Where the improvements are cosmetic, the mortgage default insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing.

back to top

What is a pre-approved mortgage?
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 30 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 verification, for example.

Most 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.

back to top

Should I wait for my mortgage to mature?
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 date, 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 through your Licensed Mortgage Agent at "Custom-FitMortgages.ca." If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need to.

back to top

What is a down payment?
Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.

The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.

The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.

back to top

How can you acquire a home with as little as 5% down?
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.

back to top

How can you pay off your mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by:

Selecting an accelerated payment schedule
Increasing your payment frequency schedule
Making principal prepayments
Making Double-Up Payments
Selecting a shorter amortization

back to top

How can you use your RRSP to help you buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. 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 down payment on your first home. You then have up to 15 years to repay what you initial borrowed from your RRSP.

To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home.

Even if you have already saved for your down payment, 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 down payment - 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.

While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.

For additional information on this program visit the Canada Revenue Agency website at: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html

back to top

What are the costs associated with buying a home?
Down payment - a percentage based on your purchase price usually a minimum of 5% (however programs can vary and a lesser option may be available)

Legal fees and disbursements - You will need to hire a Lawyer to close your real estate transaction. Generally speaking on a regular purchase transaction the fees should range from $1200 to $1500 plus GST. For a recommendation on a reputable lawyer in your area contact Custom-FitMortgages.ca at 1.877.993.4878 or visit www.canadianlawlist.com

Home Inspection - a voluntary option, the cost will typically not cost more than $500 on a traditional residential home.

Land Transfer tax - this tax is a one-time tax based on a percentage of the purchase price of the property. For an exact figure of your land transfer tax contact Custom-FitMortgages.ca at 1.877.993.4878

Default insurance premium PST - If your mortgage is insured through CMHC or Genworth Financial Canada (typically on mortgages that are greater than 80% of the house value), you will have to pay PST (8% in Ontario) on the premium at closing.

Property/fire insurance - a requirement that must be in place by the closing date. Premiums will vary based on the size, age and location of the home, contents and personal insurance track record of the individual applying for the insurance.

Remember, there will be all kinds of things you'll have to purchase early on - appliances, furniture, window dressings, garden tools, cleaning materials etc. So factor these expenses into your initial costs.

back to top

What should the length of my mortgage term be?
The length of mortgage terms varies widely - from six months right up to 35 years.

While five year mortgage terms are traditional 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.

back to top

What are the monthly costs of owning a home?
Needless to say, you'll have financial responsibilities as a home owner.

Some of them, like property 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, amortization and interest rate.

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.

Home & Fire insurance - a requirement that must be in place by the closing date. Premiums will vary based on the size, age and location of the home, contents and personal insurance track record of the individual applying for the insurance. Usually this insurance can be paid monthly.

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.

back to top

Should you go with a short or long-term mortgage?
A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates. Our 4, 5 and 7-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.

If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.

back to top

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Trusted Lenders & Partners We Deal With... Mortgage Renewals Moving Resources Mortgage Resources Referral Rewards Why Use a Broker? Mortgage Calculator's FAQ's Mortgage Glossary Proud Member of CAAMP & IMBA	Frequently Asked Questions Questions How much can I afford to pay for a home? What is a home inspection and should I have one done? What is mortgage default insurance? What is a conventional mortgage? How does bankruptcy affect qualification for a mortgage? How will child support affect mortgage qualification? Can I get a mortgage to purchase a home? What is a pre-approved mortgage? Should I wait for my mortgage to mature? What is a down payment? How can you acquire a home with as little as 5% down? How can you pay off your mortgage sooner? How can you use your RRSP to help you buy your first home? What are the costs associated with buying a home? What should the length of my mortgage term be? What are the monthly costs of owning a home? Should you go with a short or long-term mortgage? Answers How much can I afford to pay for a home? 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 gross 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 gross 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. back to top What is a home inspection and should I have one done? 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. For more information click on the following link for the official webpage of the Ontario Association of Home Inspectors: http://www.oahi.com/ back to top What is mortgage default insurance? Mortgage default insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth Financial Canada, 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 3.10%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance. For additional information on mortgage default insurance visit Genworth Financial Canada: www.genworth.ca back to top What is a conventional mortgage? 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 default insurance. back to top How does bankruptcy affect qualification for a mortgage? Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing. Call us direct for additional details on available options: 1.877.993.4878 back to top How will child support affect mortgage qualification? 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. back to top Can I get a mortgage to purchase a home? Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Canada, insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply. Where the improvements are cosmetic, the mortgage default insurance premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the mortgage loan insurance premium is increased by .50% over the standard schedule. For information on mortgage loan insurance premiums see high-ratio home mortgage financing. back to top What is a pre-approved mortgage? A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 30 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 verification, for example. Most 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. back to top Should I wait for my mortgage to mature? 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 date, 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 through your Licensed Mortgage Agent at "Custom-FitMortgages.ca." If you don't you may end up paying a much higher interest rate on your renewing mortgage than you need to. back to top What is a down payment? Very few home buyers have the cash available to buy a home outright. Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment. The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting. The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings. back to top How can you acquire a home with as little as 5% down? Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium. back to top How can you pay off your mortgage sooner? There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by: Selecting an accelerated payment schedule Increasing your payment frequency schedule Making principal prepayments Making Double-Up Payments Selecting a shorter amortization back to top How can you use your RRSP to help you buy your first home? Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. 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 down payment on your first home. You then have up to 15 years to repay what you initial borrowed from your RRSP. To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home. Even if you have already saved for your down payment, 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 down payment - 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. While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation. For additional information on this program visit the Canada Revenue Agency website at: http://www.cra-arc.gc.ca/E/pub/tg/rc4135/rc4135-e.html back to top What are the costs associated with buying a home? Down payment - a percentage based on your purchase price usually a minimum of 5% (however programs can vary and a lesser option may be available) Legal fees and disbursements - You will need to hire a Lawyer to close your real estate transaction. Generally speaking on a regular purchase transaction the fees should range from $1200 to $1500 plus GST. For a recommendation on a reputable lawyer in your area contact Custom-FitMortgages.ca at 1.877.993.4878 or visit www.canadianlawlist.com Home Inspection - a voluntary option, the cost will typically not cost more than $500 on a traditional residential home. Land Transfer tax - this tax is a one-time tax based on a percentage of the purchase price of the property. For an exact figure of your land transfer tax contact Custom-FitMortgages.ca at 1.877.993.4878 Default insurance premium PST - If your mortgage is insured through CMHC or Genworth Financial Canada (typically on mortgages that are greater than 80% of the house value), you will have to pay PST (8% in Ontario) on the premium at closing. Property/fire insurance - a requirement that must be in place by the closing date. Premiums will vary based on the size, age and location of the home, contents and personal insurance track record of the individual applying for the insurance. Remember, there will be all kinds of things you'll have to purchase early on - appliances, furniture, window dressings, garden tools, cleaning materials etc. So factor these expenses into your initial costs. back to top What should the length of my mortgage term be? The length of mortgage terms varies widely - from six months right up to 35 years. While five year mortgage terms are traditional 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. back to top What are the monthly costs of owning a home? Needless to say, you'll have financial responsibilities as a home owner. Some of them, like property 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, amortization and interest rate. 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. Home & Fire insurance - a requirement that must be in place by the closing date. Premiums will vary based on the size, age and location of the home, contents and personal insurance track record of the individual applying for the insurance. Usually this insurance can be paid monthly. 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. back to top Should you go with a short or long-term mortgage? A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates. Our 4, 5 and 7-year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing. If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save. back to top