What mortgage size can we get at our level of family income?

What are the monthly payments for a certain mortgage size?

What expenses can I expect with a real estate purchase, besides the necessary initial payment? What is a "closing cost"?

How to accumulate the down payment sum, that is over a third more than was originally planned, for a real estate purchase?

Which of the two types of Mortgage Insurance do I have the right to refuse?

We have just made an offer to buy real estate and only now realized that for the first real estate purchase we can use the Home Buyer’s Plan program. Is it too late?

Can I withdraw money more than once from the RRSP pension plan while purchasing real estate?

What is a "closing cost"?

What is the price of the lawyer’s service at the moment of drawing up the transaction papers?

In an advertisement about the cost of the lawyer’s service I found a price of $599, even though my friends tell me this kind of service is in the range of $1,100 - 1,200. Is the advertisement lying?

What is a Land Transfer Tax and what is the real cost of this tax for the buyer?

What mortgage should I take, fixed or variable?

What is the Prime Rate today and how has it changed recently?

Is it possible to buy a house while not having any money?

Is it possible to buy real estate having just found a job?

Is it possible to pay more, than my monthly payments on mortgage?

I have heard that making bi-weekly payments greatly reduces the amortisation period. Is this true and why does this occur?

Is there a difference between by-weekly and weekly payments?

What’s the difference between by-weekly accelerated and by-weekly regular payments?

Why does the bank want the buyer to confirm that the money going towards down payment is his/her and not borrowed? Moreover, why does the bank request a confirmation that the money was not taken under credit only yesterday?

Why is it preferable that the money lay in the account at the bank, instead of under the pillow, as you begin seriously thinking about a real estate purchase?

I have requested a mortgage. The bank demands that the money has been on my accounts for 3 months. Why do they raise these demands? Is it not enough that the money is on my accounts?

Is it possible to refinance the house three months after the purchase date, to get rid of the debts that have appeared because of extensive house repairs?

How much must I pay initially upon purchasing real estate in order to avoid proving and confirming my income?

What documents are accepted for income verification?

What is Equity Deal?

How can we y a house if we are unable to show the required income? We are both self-employed and are unable to accumulate the necessary sum of money.

We have a decent down payment - 25%. We have a business that works. We want to buy a house but cannot show taxable income, as almost all the expenses are written off.

What documents are required upon real estate purchase?

What documents are required upon refinancing?

What documents are required upon mortgage renewal?

What documents must be presented to the bank for future real estate purchase (pre-approval)?

For how long will my "pre-approval" be valid?

Is there a difference between visiting a few banks while trying to receive a mortgage and going to the mortgage agent instead?

Why does the bank have to check the price of the house? I remember that when I took a mortgage for the first time (15% down payment) nobody asked me to estimate the real estate (Appraisal). Now, the bank asks to pay for the appraisal $250 plus tax. In my opinion the bank isn’t risking too much, as now, it’s lending only 70% of the house cost.

If I put in some large amount of money, thus partially paying off the mortgage, will my payments decrease?

How much time should I give my self when starting to work on mortgage renewal?

If I make additional payments on the mortgage, on top of the required monthly payments, will my monthly interest decrease?

On the last few days before closing the deal, the lawyer informs me of unexpected turn of events - I have to invest a considerable sum of money, otherwise the transaction will not go through. If someone has warned me beforehand, there would be no such surprises. What happened?

I have heard that it’s possible to avoid mortgage insurance when the down payment is 20%. I have addressed the bank but they request that insurance is necessary. Who is right?

When I bought the house I didn’t have 25% down payment, so I had to be insured through CMHC insurance program. Then, I have redone the mortgage in another bank and was forced to pay for the same insurance program again. That’s unfair. Is that really necessary?

What is Top-Up Premium?

If the mortgage has already been issued and I have questions, whom should I call: mortgage broker or the bank?

What is the longest amortization periodtoday?

Can I pay just the interest? How does this program work?

What is the profitability of taking a long amortization period? For whom can it be profitable? After all, a lot of money is repaid as the interest.

If I choose a 40-year amortisation period, instead of the 25-year, and immediately start paying more than the minimum requirements of the mortgage, will I pay the bank more money in the form of the interest?

My bank has requested my last Notice of Assessment, even though I warned that I am self-employed. I have been told that my income doesn’t matter, so why do I have to show this document?

Can a non-resident (the person who has no status) purchase real estate in Canada?

Is it possible to avoid paying the bank for the mortgage? There is just no opportunity for me to pay this month. What are the consequences?

We have decided to purchase a new house which will be constructed only next year. Can we take the money for the down payment this year?

What is the interest adjustment date? When do I really begin paying for the mortgage?

What is the first, the second and the third mortgage? Why is the interest usually higher on the second mortgage, in comparison to the first?

I want to buy a second house, let’s say for investment. I have requested a second mortgage, which I’ve been told will be at a higher interest. I don’t understand, why? I have never heard before that the interest on the second property has to be higher.

It’s best to meet with a mortgage specialist so he/she can check your personal financial situation, recommend suitable products and calculate your monthly payments. However, you can approximate yourself the sum you can apply for using a specially developed calculator - Mortgage Qualifier.   ▲

You can get information about monthly payments here.   ▲

What is a "closing cost"?

"Сlosing cost" are your expenses at the moment of registration of real estate with the lawyer. It includes Land Transfer Tax (a State tax taken during the transfer of the property from one owner to another); lawyer’s fee; if the down payment is less then 20-25%, there is the provincial tax, PST (8%) that is paid on the mandatory mortgage insurance on CMHC, Genworth or AIG, as well as some other non-essential expenses. One of such expenses might be a property tax (the tax on the real estate). If the previous owner has paid for the taxes in full, this amount must be returned to him/her. The bank considers the services on the closing cost to be equal to 1.5% of the real estate cost and demands that the buyer shows that he/she has an amount at the time of the deal registration. By the way, to confirm that it is his/her own money and not borrowed, the buyer has to give some evidence showing that the money has been on the accounts (chequing, investment, savings, RRSP) no less then 3 months.   ▲

Let’s assume that your goal is to save $20,000 during the period of two years for the down payment. If you accumulate money in a bank account you will have only the saved amount. If you invest into the pension plan, at the moment of purchasing of the real estate, you will have $20,000 plus $6,200 of return tax; thus, you have saved not $20,000 but $26,200 (if your income from $37,178 to $74,357 - $6,200 = $20,000x0.3100). It seems to me that $6,200 will not be superfluous when buying real estate; this amount will comprise 1/3 of your savings. You will have this opportunity if you use RSSP program to save money for the down payment when purchasing real estate. You need the consultation of a specialist to understand how RRSP is used and whether you need it or not.   ▲

There are two types of mortgage insurance in Canada:

• mortgage insurance with a small initial payment (down payment);
• individual mortgage insurance from the bank that has been offered to you at the moment of signing the contract for the loan.

You don't have the right to refuse the first type of insurance because it is used to protect the bank system. The obligatory insurance (let’s call it so) is required when the down payment is less than 20% of the real estate’s cost. This is a new condition, as before April 2007 the insurance was mandatory for down payments lower than 25%. Today this new condition is extended to those who work and immediately pay the taxes - full time position, and for those who are self-employed, taking into account that after deduction of business expenses they show good taxable income. For all other people everything has been left as before.

The second insurance appears unexpectedly at the moment of contract signing. The manager in the bank, while signing a contract, asks, "If you want to protect your family, so that in case of spouse’s death, disability or dismemberment the unpaid balance left on the mortgage will be fully paid for, please put a check mark here". Any sensible person who loves his family does not want to leave any debts to his family in case of his death. However, you have the right not to sign this insurance; it is your personal choice. In any case, the protection is really useful! There is an opportunity to protect your family more favourably than the bank offers. There are insurance programs that are more favourable for a family than what the bank offers. They are cheaper and protect the family better. You can look at the comparison of mortgage insurance programs that are offered by the banks and the insurance companies in the section "Mortgage Insurance".   ▲

It might be or not. Everything depends on the closing date. For you to understand who can use the HBP (Home Buyers’ Plan) program I will mention the conditions that are necessary to fulfill while registering for HBP. First of all, this program is for those who are purchasing their first real estate (there are some exceptions but it’s better to speak to a financial consultant about them). The HBP program implies that the money has to be in RRSP for 90 days, only then the whole process will work. However, the government allows withdrawal of money from RRSP after the real estate is bought and considers this a HBP withdrawal, if the money has been withdrawn within 30 days after the closing date. So if there are 60-90 days before the closing date, theoretically it is possible to have the time to register everything. In practice, it is necessary to consider that certain time is necessary for paper registration, thus it’s not practical to speak about 60 days, you need to have some days in reserve. The best thing is to consult a specialist as there are lots of essential nuances. For example, who of the spouses will make the payments, to register spousal or usual RRSP, etc?   ▲

Yes, you can. You can withdraw money from the RRSP program to purchase a real estate in several stages but you have to do it within one calendar year. At the best, you can consider that you will be allowed to take the money in January of the following year and it will be counted as part of the previous year. If the money will be taken within two years or after January of the upcoming year, then the money taken after January 31st of upcoming year will be added to the income of the previous year and will be taxed.   ▲

Сlosing cost includes: Land Transfer Tax (it is a state tax which is taken during the transfer of the property from one owner to another); lawyer’s fee; if the initial payment is less then 20-25% there is provincial tax PST (8%) that is paid on the mandatory mortgage insurance on CMHC, Genworth or AIG and some other non essential expenses. One of such expenses might be a property tax (the tax on the real estate). If the previous owner has paid for the taxes in full, this amount must be returned to him/her. The bank considers the services on the closing cost to be equal to 1.5% of the real estate cost and demands that the buyer shows that he/she has an amount at the time of the deal registration. By the way, to confirm that it is his/her own money and not borrowed, the buyer has to give some evidence showing that the money has been on the accounts (chequing, investment, savings, RRSP) no less then 3 months.   ▲

We often see in commercials that lawyers charge $500-600 plus GST for their services. In practice the cost is higher, as besides the professional fee (legal fee) the lawyer often encounters additional expenses. Let’s talk about them.

PURCHASE

Professional fee - usually $500-600 plus GST for lawyer’s services. This is the amount that the lawyer considers his earning. When a new apartment (condo) is bought, there is intermediate work for the lawyer - Interim Closing. What is it? Moving in and living in the new residence is already possible, even though the building is not handed over and there was no real Closing. In such a situation there is additional work for the lawyer and during this temporary moving in, the lawyer charges additionally approximately $200 plus GST.

Very often in clarification of lawyer’s services Disbursement is mentioned - $500. This is the cost of the office operation, preparation of the documents, sending faxes, composing of inquiries, registration, etc. We pay for these services.

When we speak about closing cost we are talking about the payment of lawyer’s services and Land Transfer Tax. However, at the moment of signing the documents with the lawyer we find out that we have to pay for Title Insurance. Since the lawyer is responsible for it, I will write out the cost of this insurance. Usually, Title Insurance costs $350 if the property is less than $500,000. Every additional thousand dollar increase in real estate price increases the cost of Title Insurance by 90%.

RENEWAL of terminated mortgage (Switch or Assignment)

Professional fee of a lawyer is $500-600 plus GST.

Disbursement cost is $100-200.

SALE

Legal fee is $400-500 plus GST, if there is simultaneous real estate purchase or you have consulted this lawyer several times already. If it is a single operation with this lawyer you will be charged the usual amount ($500-$600).

Disbursement is $200-300.

REFINANCING with the transfer to another bank

Professional fee and Disbursement is $750-800 plus GST. This includes a payment to the previous bank - discharge fee of $200-250. This money is paid to cover document preparation when the present mortgage is terminated.

Title Insurance costs $130-140 if the real estate’s price is up to $750,000. For every additional $1,000 increase in real estate price, Title Insurance cost increases 90%.

Do not forget that all existing debts are closed at refinancing. For each debt closure the lawyer charges $50. If you know how many debts need to be closed, you can calculate the total amount for this process.

REFINANCING at your bank

If conditions of the mortgage have not sufficiently changed, the discharge fee is not paid. All the other expenses are left the same, as they are registered through the lawyer. ▲

Certainly not, nobody publishes a lie. This amount is paid for the services of the lawyer him/her self. The other, larger amount includes office expenses for documents’ preparation, copying and other administrative work, as well as payment of registration fee and title insurance, etc. As a result, the lawyer’s cheque is much larger.   ▲

Land Transfer Tax is charged by the government when real estate is transferred from one owner to another. The tax is paid every time a real estate is purchased, with the exception of the purchase of the first property. In this case the government gives a loan on the first $200,000, the rest is taxed.

To calculate Ontario Land Transfer Tax you need to add the following:

• 0.5% for the first $55,000 from the house cost
• 1.0% for the amount from $55,001 to $250,000
• 1.5% for the amount from $250,001 to $400,000
• 2.0% for the amount above $400,000

Or use the table.

If you want an even easier method, click on the links to the appropriate tables and you’ll see how much tax you have to pay upon closing.

Table 1: Price from $100,000 to $264,000

Table 2: Price from $265,000 to $384,000

Table 3: Price from $385,000 to $528,000   ▲

Answering this question unambiguously is very difficult. Everything is clear with a fixed mortgage - you need to go and stake out the smallest interest. The problem is that it is difficult to foresee how the rates will change during the entire period of existence of the mortgage term. The interest can both fall and rise and you need to be calm about it. Perhaps today the fixed interest is 5.6%, which is good. In 2 years the fixed interest might be less, yet the term is 5 years - you should be prepared for such a situation. Variable rate of a mortgage is less predictable, but statistically, people who have such mortgages win. Why? Because it takes into account the condition, bad or good, of the current market. If the person clearly understands the factors that influence variable mortgage, it is possible to make up one’s mind and take a loan based on the situation. Below I would like to explain what factors influence interest fluctuation.

If country’s economy is doing well that means businesses are doing well and produce goods, Gross Domestic Product grows, unemployment decreases, wages go up. If the businesses’ goods are being actively bought, because the wages are up and etc, then businesses raise the price and produce new and improved goods at higher prices, and as a result there is an increased inflation. The government tries to restrict inflation to 2% (allowing a fluctuation of 1 to 3%). If the inflation creeps up to 3%, the government introduces appropriate steps in an attempt to return to the desired 2%. To slow down the economy, it’s sufficient to increase the interest on borrowed money, which businesses always use for development purposes. Overtime, business’ development will slow down and as a result the inflation will drop. All of this works the other way as well. After the terrorist acts of 2001, the government gradually lowered the discount rate to stimulate the businesses and economy.

You have to remember that high mortgage interest and high level of inflation go hand in hand - 20% Prime Rate was in affect at the time when the inflation was 15%.   ▲

The table below illustrates the recent changes in Prime Rate.

Prime Rate Changes

  ▲

Of course it’s possible, but it’s always better to have some saved up. Today, buying a dwelling without a down payment is possible and much easer than it used to be. However, the banks still would like to see some small amount of savings on your accounts for closing cost expenses. The Closing cost includes: Land Transfer Tax (a tax that is applicable when ever real estate is transfer from one owner to the other); lawyer’s fee; if the down payment is less then 20-25% there is the provincial tax, PST (8%) that is paid on the mandatory mortgage insurance with CMHC, Genworth or AIG, as well as some other non essential expenses. The bank considers the expenses of the closing cost to be about 1.5% of the real estate cost and thus demands that the buyer owns this amount at the moment of deal registration. Thus, an amount of 1.5% of the real estate cost should be in your possession. There are other conditions, for example, insurance companies that insure mortgage for the banks refuse contracts where there is no down payment and the person is self-employed and unable to show the desired taxable income. Such a person must pay a minimum of 5%. As well, let’s not forget that credit history plays a considerable role. If the credit score is below 680, then, unfortunately, it is impossible to buy real estate without a down payment. Additionally, the person must have a credit history for over 2 years. But it’s best to consult a specialist in regard to your specific situation.   ▲

It’s possible, but a little bit harder, since the banks are cautions about people with recent jobs who have not yet went through the probation period. The situation is greatly simplified if the letter from the employer does not mention about probation.   ▲

Yes, it’s possible. Make sure to carefully study the contract details, as it’s usually allowed to increase monthly payments by 10-25% and, on top of that, make yearly instalments of 10-25% of the total mortgage amount. Moreover, there are certain conditions on supplementary payments - some allow payments to be made only once a year, the majority however will accept through out the year during the usual payment deadlines. There are also completely open mortgages that allow supplementary payments of any amount at any time. Carefully study the contract guidelines to find out all conditions of supplementary payments and to avoid punitive sanctions.   ▲

It is true, bi-weekly payments shorten a 25-year amortization period by about 4 years. I want to explain why this is the case. For example, monthly payments are $2,000. You half this amount and pay $1,000 bi-weekly. This "magical" 4 year reduction in amortization period comes from the fact that we are used to thinking of a month as strictly 4 weeks. This is not true, as there are usually some days left over. For example, if you have already made two bi-weekly payments this month, 28 days have passed, yet there are 31 days. Divide $1,000 by 14 days (2 weeks) and we get $71.43 - an amount we pay per day. Now, multiple this amount by 3 (number of days left in this month after the 28-day period) and we get $214.29. This amount, almost $215, is your supplementary payment amount that goes towards repaying your mortgage, thus shortening the amortization period. Here is another example: paying $2,000 monthly, we end up giving the bank $24,000 per year ($2,000 times 12 weeks). If we are paying bi-weekly, we will end up giving the bank $26,000, since there are 52 weeks in a year. This additional $2,000 is what makes the difference.

There are some differences to be remembered: bi-weekly accelerated and bi-weekly regular (not accelerated). Bi-weekly accelerated presumes division of the monthly amount into half - this is what was explained above. If you want to pay bi-weekly (let’s say, this coincides with the timing of your pay checks), but don’t want to over pay the bank, then bi-weekly regular is your option. In this situation, the required yearly amount of $24,000 is divided by 26 weeks and what we get is $923.08 bi-weekly. This way you pay bi-weekly without overpaying.

By the way, some families loose a lot of money using bi-weekly accelerated option. For example, a few years ago a family took a mortgage and following the recommendation of a bank’s employee, a bi-weekly accelerated option was chosen. It’s not always the case that the person who’s making the payments clearly sees through the repayment process, he or she simply agrees with the recommendations of the professional. That is normal, however if the circumstances change one should act appropriately. For example, with existing credit card debts one should not hurry to repay the mortgage with 5-6% interest, when the credit card debts are under 18-20%. It’s better to contribute those additional $215 from the family budget toward repaying the credit card debt.   ▲

You choose the bank payment’s schedule that suits you: monthly, bi-weekly, weekly. The difference between bi-weekly and weekly payments is minimal. If you have to pay $2,000 per month, then bi-weekly accelerated payments will be $1,000 and weekly accelerated - $500. Both bi-weekly accelerated and weekly accelerated result in the same annual amount - $26,000.   ▲

There is a difference and it’s quite big. Bi-weekly accelerated - a mode of payment where your monthly instalment amount is divided into two and you pay this amount bi-weekly. Bi-weekly payments shorten a 25-year amortization period by about 4 years. For example, your monthly payments are $2,000. You half this amount and pay $1,000 bi-weekly. This "magical" 4 year reduction in amortization period comes from the fact that we are used to thinking of a month as strictly 4 weeks. This is not true, as there are usually some days left over. For example, if you have already made two bi-weekly payments this month, 28 days have passed, yet there are 31 days. Divide $1,000 by 14 days (2 weeks) and we get $71.43 - an amount we pay per day. Now, multiple this amount by 3 (number of days left in this month after the 28-day period) and we get $214.29. This amount, almost $215, is your supplementary payment amount that goes towards repaying your mortgage, thus shortening the amortization period. Here is another example: paying $2,000 monthly, we end up giving the bank $24,000 per year ($2,000 times 12 weeks). If we are paying bi-weekly, we will end up giving the bank $26,000, since there are 52 weeks in a year. This additional $2,000 is what makes the difference. If you choose the bi-weekly regular (not accelerated) option then the yearly payment amount of $24,000 is divided by 26 weeks and we get $923.08. This way you pay the bank bi-weekly without having to overpay the bank, and accordingly, amortization period is of the same length. Bi-weekly regular does not shorten amortization period.   ▲

The banks set the following condition: buyer, paying for the down payment, has to own the money, as opposed to acquiring it from a loan. Let’s think about where this is coming from. A simple example: a family notifies the bank that they are planning on buying a $400,000 real estate with 5% down payment, while in reality they have borrowed the money for the down payment under certain interest. The bank evaluates family’s financial situation, ability to pay mortgage and other existing debts, without taking into account the debt for the down payment and closing cost ($26,000). This way, the probability that the family will not be able to repay its mortgage and other debts sharply increases. It’s understandable that banks don’t want to risk; therefore, before giving out a mortgage financial institution will count all debts, including those taken for the down payment. Now, the story is different - price on mortgage insurance will change along with other corrections. Financial institution wants to know that the down payment and the closing cost will not force you into additional debts. Closing cost amounts to approximately 1.5% of the real estate price. In addition, to prove that the money is owned and not taken through a loan the buyer needs to provide confirmation that the money is located on his or her accounts (chequing, investment, savings, RRSP) for no less than 3 months.   ▲

When buying real estate, banks make the following condition: the buyer paying for the mortgage has to own the money, as apposed to have taken it through a loan. Furthermore, the buyer must prove that this money has been on his or her account for no less than 3 months (in certain programs such as RRSP and etc, it’s enough to just show the money). The bank will be interested in the source of any amount you have in your accounts. First of all, let’s not forget that in Canada, like everywhere around the world, money laundering is being actively fought; secondly, the bank’s employee has an enumeration of rules and guidelines to put a checkmark beside - done! A confirmation is necessary that the money belongs to the buyer and has been on his or her account for no less than 3 months, excellent. In certain circumstances other documents are accepted, for example: international real estate sold and consecutive transfer of money to Canada and etc. That’s why if you have money but keep them at home or in a "safety deposit box", you should put them in an account.   ▲

The banks set the following condition: buyer, paying for the down payment, has to own the money, as opposed to acquiring it from a loan. Let’s think about where this is coming from. A simple example: a family notifies the bank that they are planning on buying a $400,000 real estate with 5% down payment, while in reality they have borrowed the money for the down payment under certain interest. The bank evaluates family’s financial situation, ability to pay mortgage and other existing debts, without taking into account the debt for the down payment and closing cost ($26,000). This way, the probability that the family will not be able to repay its mortgage and other debts sharply increases. It’s understandable that banks don’t want to risk; therefore, before giving out a mortgage financial institution will count all debts, including those taken for the down payment. Now, the story is different - price on mortgage insurance will change along with other corrections. Financial institution wants to know that the down payment and the closing cost will not force you into additional debts. Closing cost amounts to approximately 1.5% of the real estate price. In addition, to prove that the money is owned and not taken through a loan the buyer needs to provide confirmation that the money is located on his or her accounts (chequing, investment, savings, RRSP) for no less than 3 months.   ▲

It depends on the bank. However, to avoid unpleased surprises, it’s better to find out ahead of time. Condition most often set in place - refinancing is possible only after 6 months or 1 year after the purchase of real estate. If you don’t want to call the bank personally, ask us and we will find out this information for you.   ▲

If the person is working for someone, meaning the person has a permanent position, then proof of income is necessary. If the person is a business owner or is self-employed for no less than 2 years, or has a good credit score (beacon score above 680), then with a 25% down payment no proof of income is required. The conditions vary across different banks, however there are some banks out there willing to avoid asking you about your income if a 25% down payment is paid. The bank personally will plug in the numbers in the formulas, but will make sure to ask the last Notice of Assessment - the document that you receive from taxation authority upon filling out tax return. This document is necessary for the sole purpose of making sure the family doesn’t have any outstanding tax obligations. It doesn’t matter that your income is a couple hundred thousand dollars, the real estate is half a million and for the bank it’s most important to know that all the taxes have been paid off.   ▲

Usually, income is confirmed via a letter from work and a pay stub (this document is given to employees and shows the earned amount as well as for what and how much a certain amount is deducted). The letter may be informal, however it must contain information about the date your started working, your position and your annual income. Why is it necessary to show both documents? The letter fully satisfies the bank’s need for income information, and must be written on a blank, company letterhead - pay stub by it self does not reflect all the needs of the bank. Let’s say the person asking for a mortgage has started working on 1-st of January, the current year, but presents a pay stub dated March 1-st. Yes, he is paying taxes, however in one month he might be out of work because the 3-months probation period has ended. Only the letter carries this kind of information, and precisely because of this the banks will not place importance on the letter that mentions "subject to probation period". Similarly, T-4 document is not good enough, the person might have received this form and quit by now. Furthermore, bank’s employees use information provided on the company’s letterhead - work phone number, for validating employment and checking existence of the company through search engines www.411.ca and www.canada411.ca   ▲

Equality deal - you get the mortgage without having to confirm anything. For this kind of mortgage it is necessary that the buyer is a business owner or is self-employed for at least 2-3 years, as well as holds a good credit history (beacon score above 680). Down payment must be no less than 25%. Some banks differ in details - some don’t offer this option at all and some offer but only with a 35% down payment. Please note, the bank will make sure to ask you for the last Notice of Assessment - the document that you receive from taxation authority upon filling out tax return (T-1 General). This document is necessary to make sure the family doesn’t have any outstanding tax obligations. It doesn’t matter that your income is a couple hundred thousand dollars, the real estate is half a million and for the bank it’s most important to know that all the taxes have been paid off. If this document says that you owe (this happens sometimes when we pay on the last days of April), then an appropriate document must be provided validating fulfillment of your tax obligations.   ▲

This is possible if the members of the family are self-employed or own a business for no less than 2 years. In this situation the bank will not be interested in your income, instead it will place all responsibility on an insurance company, which insures the deal. These companies, CMHC (Canada Mortgage and Housing Corporation) and Genworth Financial Canada, AIG, without hesitation will charge appropriate insurance costs, which are almost twice as large as compared to a normal situation. Often this is pretty much the only option and it’s good that it exists; before 2006 this option was not present. Lately there have been changes in mortgage insurance, making it easier for self-employed to receive mortgage upon real estate purchase. The fact you must remember and pay attention to is that it’s necessary to pay at least 5% of the total real estate cost, and of course, credit history should be good (beacon score above 680).   ▲

In this situation everything is clear - you need to find financial institution that offers an equity deal. Equity deal presumes giving a mortgage without asking for income proof. For this kind of deal it is necessary that the buyer owns a business or be self-employed for a minimum of 2-3 years, as well as has a good credit history (beacon score above 680). The down payment must be no less than 25%. Although not rare, this option is not offered by all the banks yet. Please note, the bank will make sure to ask you for the last Notice of Assessment - the document that you receive from taxation authority upon filling out tax return (T-1 General). This document is necessary to make sure the family doesn’t have any outstanding tax obligations. It doesn’t matter that your income is a couple hundred thousand dollars, the real estate is half a million and for the bank it’s most important to know that all the taxes have been paid off. If this document says that you owe (this happens sometimes when we pay on the last days of April), then an appropriate document must be provided validating fulfillment of your tax obligations.   ▲

1. MLS Listing

2. Agreement of Purchase and Sale

3. Income verification*

4. Mortgage Application

5. Void Cheque

6. Down payment

Type of documents confirming income depend on the kind of employment you are in:

Full Time Employee

• Letter of employment (on company letterhead, dated and signed by appropriate authority, contain date of hire and position, the amount received annually or the hourly rate and guaranteed hours worked per week, bonus)
• Most recent pay stubs

Self Employed

• Notice of Assessment (2 years)
• T1 General (papers from the accountant)

Business Owner

• Notice of Assessment
• Business registration (2 years)   ▲

1. Most recent Mortgage Statement

2. Property Tax Statement

3. Income verification* (see the question, "What documents are required upon real estate purchase?")

4. Mortgage Application

5. Home Insurance

6. Copy of the most recent Charge/Mortgage registered against the property. Legal size document received from the lawyer on day of closing

7. Listing of debts being paid as a result of refinancing

8. Void cheque   ▲

1. Most recent Mortgage Statement

2. Property Tax Statement

3. Home Insurance

4. Income verification* (see the question, "What documents are required upon real estate purchase?")

5. Mortgage Application

6. Copy of the most recent Charge/Mortgage registered against the property. (Legal size document received from the lawyer on day of closing)

7. Void cheque   ▲

In order to receive a pre-approval, it’s necessary to show documentation regarding income and give permission to check your Credit History, in other words, to sign Mortgage Application. Usually this is sufficient.   ▲

Usually, a pre-approval, just like an approval, is valid for 4 months - 120 days.

When trying to get a mortgage, banks first look at your credit history and your present income. Income part is easy - you either have it or not. If you don’t - bad - you need to consult a specialist to see if there are any options available for you. If you do, excellent, but there is still an issue of whether it would be enough to buy the desired house and etc. The credit history part is more complex.

First of all, the person might not know his/her real credit history. He or she might think that it’s good, since the bills are always paid on time. Yes, there are debts, but no due dates are missed and there are always new offers coming in the mail, which the person simply ignores. So this person probably doesn’t have a bad credit history, but the score may be lower or higher. Be careful - practically every time your credit history is checked, your score is lowered. Any kind of check, and every bank you turn to will surely check your Credit History, results in your score being changed. For example, someone owns a business with moderate taxable income and wants to make a large down payment of 30%; credit rating is also not bad - 685. After turning to the first bank, the person is rejected as his income is not high enough. Surely the down payment is great, but in this particular bank the down payment needs to be 35% in order to get an equality deal - where income does not have to be revealed. Ok, let’s go to another bank. This time we’re smarter and ask ahead regarding the conditions of the equality deal. It turns out this bank asks only for 25% down payment in order to receive equality deal - great, yet the bank refuses to give mortgage claiming the credit history score is not high enough for their conditions - only 679. Previous credit history check has lowered the score and …

Secondly, credit history may sometimes have errors; the process of entering information into database is performed by people. From time to time I check my credit history online just to know what is going on there. Picture this, I have discovered that my wife’s credit rating greatly lowered in a very short time, yet we were expecting an increase, since we have paid off and closed a credit card. The credit bureau showed the following information: R9, Bad debts, Unable to locate. Meaning, I’m practically bankrupt, they keep trying and can’t get the money from me and I’m not answering their phone calls. Of course, in a little while everything was fixed, however I know of incidents where it took months to fix the mistakes and etc. Image if at that moment my wife went to the bank and asked for credit - she’ll surely be declined. She is surprised, yet the bank employee has no right to share the information and tell her about the credit score.

So, what does the mortgage broker do? He checks the credit history and with this information applies to various financial institutions. If for some reason you want to switch the current bank, you can do so in most cases without additional credit history check. In general, it is easier to reason with the broker, since he/she has access to more information, than a bank employee. It is worth while to listen to what the broker has to say - he/she knows how to better present the client and which bank to turn to in every specific situation.

It might also be the case that everything is ideal - vocation, income, credit score and etc. Just remember, for a mortgage broker getting you what you want is his/her only source of income, where as for a bank employee income comes either way. Thus, there are usually less hassles and head aches with a mortgage broker and lower interest, since a broker is consequently more interested in you as a client.   ▲

Unfortunately, people are very ingenious when it comes to swindling. Recently I heard a story where a dwelling was sold in Moscow. The buyers received a mortgage of $800,000 for a dwelling that cost only $400,000. Sellers were very surprised, buyers dodged the questions - it’s not your problem, we’ll figure this out. In Canada with its stable market and concrete rules, established and verified over time, this is not possible - during each purchase there is property appraisal. If the down payment on purchase is less than 20-25%, mortgage is insured with appropriate appraisal of the property made. Appraisal is usually performed via computer database, however if the database is not enough for the insurance company to make a reliable estimate of the dwelling in a certain region, the insurance company sends an appraiser, the cost of whom goes into the mortgage insurance amount.

Accordingly, when a down payment of 20-25% or above is made insurance company is not included in the process and the bank employees themselves make a decision on mortgage offer and amount. In order to minimize the risk, it is absolutely necessary for the bank to know the type of real estate and its real cost. That’s why the appraisal will always be part of the process and you will have to pay for this service. Upon buying and refinancing you will have to pay for the appraisal, but when transferring banks upon mortgage renewal, the new mortgage lender partially pays for this.

There are two ways of appraising the dwelling that you are about to buy: full appraisal and drive by. During full appraisal, the appraiser enters the house and fully describes the dwelling, takes appropriate photos, and then compares the given real estate with a similar real estate in the same region. Such an appraisal costs $212 and above, plus 6% tax. During the simpler, drive by appraisal, bank does not require the appraiser to enter the dwelling; it’s enough to compare this real estate with another in the same region and confirm the existence of the real estate it self. Such an appraisal is $100 plus 6% tax.   ▲

No!!! Mortgage payments will not decrease a dollar, because in the contract it states that in the following 5 years fixed mortgage payments will be permanently set at, let’s say, $1,500 a month and variable mortgage payments are determined using a specific formula. If you put in some additional amount to pay off the mortgage, then the relationship between interest and principle will change with regard to your monthly payments - more money will go towards paying off principal, since the debt amount has decreased. However, this does not affect the size of mortgage payments; amortization period will in turn shorten. Therefore, be attentive when deciding to put in a large amount to pay off the mortgage.   ▲

It’s better to start looking for a new mortgage 3-4 months prior to the ending date of the old mortgage. A simple example - at the end of May 2007, fixed mortgage interest rates started rapidly growing, changing in two weeks from 5.19% to 5.69%; in the following few weeks the banks raised the interest to 5.89% - in one month mortgage market has drastically changed. It’s better to fix the interest and wait to see what happens in the following months. In my opinion that is the most reasonable way. Besides that, our office suggests that you sign up for a special program, "Manage Your Mortgage". Once part of this program, we will start 3-4 months in advance looking for the best interest. You can read the conditions and sign up for "Manage Your Mortgage" program in the section "Mortgage and Buying Property".   ▲

Yes, it will! If you put in any amount on top of your minimum, monthly payments, the relationship between interest and principal will change immediately. Interest that you have to pay back will decrease, since the debt will decrease, and the amount going strait towards paying back your principle will increase. The monthly payments will not change, since fixed payments (fixed mortgage) and specific formula (variable mortgage) are agreed upon in the contract and are set for the duration of the deal - mortgage term (5 years, 4, 3, 2, 1 year, 6 months). That’s why be attentive when considering repaying parts of mortgage with additional funds.   ▲

Most often these kinds of situations occur regarding property tax. The government demands that the tax for real estate be paid on time, it’s very important. Some real estate owners pay taxes on the dwelling themselves - instalments are made till September of the current year; others pay along with the mortgage. Money received from property tax is put into special account and gets transferred to the government twice a year - in February and July. Meaning, before July the bank must transfer all the annual taxes to the government. Let’s say, the deal is closing in the second half of the year and the previous owner has already paid taxes on the property for the whole year. The new owner must return appropriate amount to the previous owner. Of course, this happens upon signing the contract with the lawyer. This is where there are unexpected costs that no one predicted. If the monthly payment on property tax is $350, then upon closing the deal in September the lawyer, besides costs of his services and land transfer tax, may ask another $1,050 ($350x3 months).   ▲

Almost everyone knows the following condition on buying mortgage: if the buyer’s down payment is less than 25%, then the bank will register mortgage insurance. This insurance is necessary and there are no ways to avoid it. In the recent years this program has went through major changes, so that now there is a reduction in insurance payments. Thus, starting from April 2007, those who have a 20% down payment, have permanent work or are self employed and show good taxable income (that is, after writing off all business costs) have an opportunity to receive mortgage without insurance. For everyone else the conditions are left as they were, at least for now. So to answer the initial question - perhaps you just didn’t fit into the new conditions.   ▲

Unfortunately this does happen. A lot depends on mortgage broker and his/her attentiveness to the current situation. The bank doesn’t care too much about what happens with your insurance, whether you are paying for the new one or not - it’s not the bank’s money at stake, but its clients. It’s important for the bank that the deal goes through and the insurance company gives go-ahead. Contrary to the bank, the buyer does care about the amount, time and cause of the costs. The only specialist with whom this question should be dealt with is the mortgage broker. The question is fairly complex, but I will try to explain some of the conditions.

If you have bought real estate, took mortgage for 25 years, lived in the house for 3 years and want to refinance or simply transfer the mortgage to another bank, or if you have sold and immediately bought a new property and have redone the amortization period for another 25 years, the insurance will have to be paid again for the full, new amount... Alternatively, if you are shortening the amortization period by number of years that have already passed (3 years), that is, taking the mortgage for 22 years, then the insurance will be taken for the money that you are taking on top of your original mortgage amount - Top-Up Premium.

One should be very careful when increasing amortization period. Upon lengthening amortization period to 30, 35 and 40 years, insurance have to be paid in full again. If insurance is required, but you only want to pay Top-Up Premium, then don’t forget to subtract from your desired amortization period the number of years that your mortgage term already existed (in our example - 40 years minus 3 years = 37 years).

If you want to increase existing mortgage amount (refinancing), then remember that Top-Up Premium is for the difference between new and old loan. Since with Top-Up Premium the rates are higher than with original insurance, a decision should be made each time - whether to take the new insurance all over again or pay only for Top-Up Premium.

Top-Up Premium

The most difficult situation to make calculations for is when you are refinancing as well as extending the amortization period. Top-Up Premium will be taken from the difference between new and old loan mortgage amount, plus an additional insurance will be taken from the total mortgage amount (old mortgage and new requested sum), for lengthening the amortization period. For every 5-year extension, insurance total is increased by 0.2% of the mortgage amount. Thus, if amortization is extended by 15 years, the insurance is 0.6% of the new, total mortgage amount, which is a substantial sum. However, this is still usually more advantageous than paying insurance for the whole mortgage all over again.   ▲

Everyone knows that with real estate purchase and a small down payment, mortgage insurance is necessary. If one is refinancing the property to increase the mortgage amount or simply extending the amortization period, even when not changing the mortgage amount, then instead of paying for insurance all over again it’s possible to pay specific additional amount - top-up insurance premium.

Top-Up Premium - additional insurance payments that are charged by insurance companies for, so called, high ratio mortgages upon refinancing (increasing mortgage total, extension of the amortization period) so that insurance doesn’t have to be paid in full once again for the whole mortgage amount.

To make the above clear, here are a few examples.

If you have bought real estate, took mortgage for 25 years, lived in the house for 3 years and want to refinance or simply transfer the mortgage to another bank, or if you have sold and immediately bought a new property and have redone the amortization period for another 25 years, the insurance will have to be paid again for the full, new amount... Alternatively, if you are shortening the amortization period by number of years that have already passed (3 years), that is, taking the mortgage for 22 years, then the insurance will be taken from the money that you are borrowing on top of your original mortgage amount - Top-Up Premium.

One should be very careful when increasing amortization period. Upon lengthening amortization period to 30, 35 and 40 years, insurance have to be paid in full again. If insurance is required, but you only want to pay Top-Up Premium, then don’t forget to subtract from your desired amortization period the number of years that your mortgage term already existed (in our example, 40 years minus 3 years = 37 years).

If you want to increase existing mortgage amount (refinancing), then remember that Top-Up Premium is for the difference between the new and old loan. Since with Top-Up Premium the rates are higher than with original insurance, a decision should be made each time - whether to take the new insurance all over again or pay only for Top-Up Premium.

The most difficult situation to make calculations for is when you are refinancing as well as extending the amortization period. Top-Up Premium will be taken from the difference between new and old loan mortgage amount, plus an additional insurance will be taken from the total mortgage amount (old mortgage and new requested sum), for lengthening the amortization period. For every 5-year extension, insurance total is increased by 0.2% of the mortgage amount. Thus, if amortization is extended by 15 years, the insurance is 0.6% of the new, total mortgage amount, which is a substantial sum. However, this is still usually more advantageous than paying insurance for the whole mortgage all over again.   ▲

As soon as a mortgage is registered, neither mortgage broker nor the bank employee, who made the decision about giving credit (mortgage underwriter), have the a chance to find out anything for the client nor ask something the bank on behalf of the client. For example, if you have decided to change payment frequency, to transfer from monthly to weekly payments and etc, we will gladly suggest what you should do and guide you in the right direction, but normally we won’t be able to help you beyond that.   ▲

Starting from 15th of October, 2008, the government has changed the conditions of the mortgage industry and now majority of the banks offer a maximum amortization period of 35 years. However, if you have the will you can find financial institutions that will offer 40 year amortization period upon 20% or greater down payment. This is necessary in order to avoid insurance companies, CMHC and Genworth Financial, which insure mortgages with a 35-year or shorter amortization period.   ▲

In 2006, CMHC announced about new possibilities in the mortgage industry, including the option to buy interest-only mortgage, where one pays only the interest for the first 5 or 10 years. After the end of this interest-only period, payments will be recalculated to include principal and the interest, and the instalments will proceed as usual. The conditions upon which you receive the interest-only mortgage are the same as for the regular mortgage - the buyer is assessed regarding his ability to pay back interest and principle. Everything sounds great, but this is not the best option - of course monthly payments will be smaller, but the mortgage itself will not be paid off.

In the interest-only program, as well as in almost any other mortgage, it is possible to put in additional funds, without penalties, to cover the principal. Moreover, there is an option of coming back to regular payments (paying interest and principle simultaneously) prior to termination of the 5 or 10 year term.   ▲

Let’s estimate. For example, a family has bought a property for the first time. The property costs $400,000 and the family’s own money is enough to cover only 10% down payment. As a result, monthly payments are $2,241.36 (at, let’s say, 5.5% interest). The numbers are derived from a 25-year amortization period, and the required mortgage insurance is $7,000. If the family takes the mortgage for 40 years, then monthly payments will decrease to $1,889.50 - by $351.86 lower than before. Amazing!!!??? But... the interest over these 40 years will increase by $232,388.68 - completely detrimental.

If you keep the 40-year amortization period, yet keep paying $2,241.36 a month, and not $1,889.50 (you have the right to increase your monthly payments), then you will pay the bank exactly the same amount as with a 25-year amortization period. You might ask - why take longer amortization period and put in higher monthly instalments? You have a choice! If you want, pay $2,241.36, if you want, pay $1,889.50; as you know financial uncertainty is always possible. Or maybe you purposely want to pay less so that some money is left over for something else. After your mortgage term has come to an end it’s possible to change all conditions - pay off the whole mortgage without a penalty (to shorten the amortization period to any amount).

There are other factors that can and should be taken into account. Advantageous - very few plan to own the same property for the whole 40 years. Old property is sold - done, this mortgage ceases to exist along with all its conditions. Thus, if today you want to own a property of choice, but pay for it as less as possible, then a long amortization period might be the choice for you. There is a disadvantage as well – the required insurance increases. In our example of 10% down payment, the insurance jumps from 2% to 2.6% - additional $2,160 over the initial insurance amount. Divide this amount over 40 years and you get additional $11.05 on top of your monthly payments.

And now a situation where the down payment is more than 20-25% - there is no required mortgage insurance. Call, consult and choose what fits you best today.   ▲

If a 40-year amortization period is chosen, but right away the monthly payments are as high as with a 25-year amortization period, no additional interest will be paid to the bank.

Thus, if the buyer found a property for $400,000, then with a $300,000 mortgage and 25-year amortization period, monthly payments will be $1,831.17 (5.5% interest). This amount goes towards paying off interest and principle, $1,359.50 goes towards interest and $471.67 goes towards principle. The last two values change from month to month, since mortgage decreases and more money goes towards paying off the principle and less towards the interest. This applies to every month (see the table below). In 5 years (60 months) bank will be paid $77,433 in interest, while the loan will shrink by $32,437.

Amortization Schedule 1

Grand Total:    Interest - $77,433.02    Principal - $32,437.18

If a 40-year amortization period is taken, instead of the 25-year, then monthly payments may be $1,534.68, instead of $1,831.17. The difference is $296.49. Within our monthly payments, $1,359.50 goes towards interest and only $175.18 goes towards principle. Thus, what we put towards principle is less by $296.49 - the difference in payments between 25 and 40-year amortization period. Please note, the bank took exactly the same interest as if we were registered under the 25-year amortization period. This makes sense, since we own the bank exactly the same amount. Mortgage amount is the same, however starting from the first month we decrease this total my a smaller amount - the mortgage amount that we still own after each month is a little bit larger than with the 25-year amortization period, thus in the second month our interest will be a little higher. This happens every month and as a result, with the 40-year amortization period, over 5 years (60 months) the interest will be $80,033.72, which is $2,600 more than in the first table, and the principle will be lowered only by $12,047.08. This difference of $2,600 is not that large once we take it apart. Divided by 5 years (60 months), it turns out that on average we over pay the bank by $43, at the same time avoiding $296 that go with the larger monthly payments.

Amortization Schedule 2

Grand Total:    Interest - $80,033.72    Principal - $12,047.08

If you pay $1,831.17 a month, instead of $1,534.68, then automatically your amortization period will shorten to 25 years, even though in your mortgage contract it says 40 years for paying off the debt. This happens because you pay off the loan following exactly the 25-year amortization period; consequently the interest will be the same as with a 25-year amortization period. See Schedule 1.   ▲

This happens and you should not be afraid to show your Notice of Assessment, this has nothing to do with checking your income. There are special programs for those who are self-employed, where there is no need for proof of income, but some banks request that you send them a copy of NOA, just to make sure the buyer does not have any outstanding tax obligations .   ▲

Yes, any person or family without a status in Canada has the right to buy real estate. A lot of banks don’t offer such an option and there are special conditions that must be fulfilled. For example, down payment must be no less than 35% plus some other nuances. Specific circumstances should be discussed with a mortgage specialist.   ▲

Some banks allow one missing payment a month. It’s necessary to read the contract to make sure that this is allowed. For example, ING BANK allows, under certain conditions on mortgages with 20% or greater down payment, to miss one payment and return it any time without any penalties.   ▲

Yes, you can, but after taking the loan the house must be build no later than October 1st of the following year. At the least, the moving in date must be recorded as prior to October 1-st. It’s often the case that construction gets delayed and moving in before October 1-st becomes impossible. What then? Everything is fine as long as the moving in date was originally set prior to October 1-st of the year following the year the money was borrowed. Even if in practice you move in much later, it’s ok, you will just let the government know about the delay.   ▲

This question is often asked by those who make their first purchase. It’s hard to believe, but your mortgage payments are for the time that you have already lived on your property, not a month ahead. Thus, if the closing is on October 10th, November 1st will be interest adjustment date and December 1st you, for the first time, will pay for mortgage. From October 10-th to November 1-st you will not be living in your house for free, yet you won’t have to pay your mortgage yet. During this period the bank will ask you to pay the interest from the total mortgage amount - this period usually lasts from closing date to the first day of the following month - this latter date is what’s called the Interest Adjustment Date. Turns out that the first full month that you live in your new property - 1-st November to 1-st December - will be covered by your first instalment.   ▲

A single property can have more than one mortgage. If there is more than one property, then there can be only one mortgage per property. If any one of the properties has more than one mortgage, that property won’t be paid for anymore and the property is put for sale. After the sale, the money goes to everyone who has contributed towards mortgage. Who ever gave the money first, will receive it first, then its second lender’s turn, etc. Consequently, bank giving the first mortgage is risking less as compared to the bank giving the second or third mortgage. Accordingly, the interest banks offer is affected by the risk they are taking.   ▲

As a rule, during discussion of mortgage conditions there are misunderstandings. There are first, second or third mortgage - usually all on one property. Second mortgage has a higher interest than the first, as there is an increase in bank’s risk of loosing money, in case of buyer’s inability to pay back. However, with the second real estate purchase the buyer gets a first loan - first mortgage, and not a second mortgage, as there are no other debts on this property. Accordingly, the interest will be regular and not increased.   ▲