Mortgage rates are at a historical low! If there’s a right time to make that first purchase or upgrade it is now! here are some terms to help you better understand what a mortgage is and what its composed of. … Continue Reading
In most cases, the hardest part of purchasing a home, especially for first time home buyers, is saving enough money for the down payment. If you are finding it difficult to save a down payment of 20% it’s unlikely that you would ever be able to purchase a home. That’s where CMHC mortgage loan insurance plays a key role.
Canada Mortgage and Housing Corporation (CHMC) is Canada’s national housing agency. In 1946 it was established as a government-owned corporation to address Canada’s post-war housing shortage. CMHC works to enhance Canada’s housing finance options, assist Canadians who cannot afford housing in the private market, improve building standards and housing construction, and provide policymakers with the information and analysis they need to sustain a vibrant housing market in Canada.
Mortgage loan insurance is required by law if your mortgage is more than 80% of the purchase price of your home. The lender makes all of the arrangements. Mortgage loan insurance protects the lender if you default on your mortgage. The mortgage loan insurance—CMHC and a private insurer offer it—pays back the lender. With the risk of losing their money removed, lenders have the confidence to make mortgage loans of up to 95% of the purchase price of your home.
The premium for mortgage loan insurance may be paid in cash when the loan is advanced, or the borrower may choose to add the premium to the mortgage loan principal amount and pay it off over the life of the mortgage. Most borrowers pay the premium off over the life of the mortgage. The amount of the CMHC Mortgage Insurance premium ranges between 0.50% and 7% depending upon how much of the purchase price/home value is financed with a mortgage loan. Premiums in Ontario and Quebec are subject to provincial sale tax which cannot be added to the mortgage amount.
CMHC offers mortgage loan insurance products on various property types including duplexes, condominiums, owner-occupied properties, manufactured or mobile homes, properties requiring renovations and much more. A CMHC insured mortgage provides you with down payment flexibilities – you can own your home with as little as 5% down payment. For those home buyers who have saved up a down payment, traditional mortgage loan insurance products require home buyers to provide the minimum down payment from their own resources, however gift down payments from immediate relatives are also acceptable. Additional sources of down payment are also available through CMHC’s Flex Down product. With Flex Down, homebuyers with a proven track record in managing their debt can provide the 5% down payment from a variety of sources, including borrowed funds or lender incentives, provided the funds are at arm’s length from and not tied to the purchase or sale of the property.
CMHC also offers mortgage insurance that helps homebuyers obtain a secured homeowner line of credit of up to 90% of the value of their principal residence, either at the time of purchase or if you want to refinance. The line of credit lets you draw funds up to your insured credit limit as often as you wish without the need to reapply and allows you the flexibility to pay as little as the monthly interest charges for a limited period of time. Full repayment is required within 25 years from the date the loan is insured.
Both new and resale homes are eligible for mortgage loan insurance, as long as the home is in Canada and it’s your principal residence. In addition, your total housing costs (including mortgage payments, property taxes, heating, annual site lease, and 50% of condominium fees if applicable) should not be more than 32% of your gross household income, and your total debt load (including your housing costs and other debts such as personal loans, car loans, and credit cards) should not exceed 40% of your gross household income. Other criteria may also apply and are subject to change. Please contact your mortgage agent to confirm availability and qualifying criteria.
CMHC Mortgage Insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
The mortgage process can be a stressful and sometimes frustrating process. The idea is to make the entire process go as smoothly as possible. What is most important? Be prepared before you sit down with your mortgage agent.
Here are some things you can do to help ensure successful results, as well as give you some control over your own loan process.
1. Take time to Straighten out your finances:
If you don’t have a grip on what’s coming in and what’s going out (and where, and why), you may be in for a rough time when you apply for a home loan.
2. Make sure to check your credit record:
Everyone’s heard the horror stories: Your best friend, your sister, neighbor, goes to buy a home only to discover the worst… that the credit report contains negative or inaccurate credit information. Instead of having a clean record, he or she has an $80,000 outstanding bill, that is not their own. The loan officer looks at the outstanding bill and gives you a choice: Clean up the credit problem or no loan. Some choice. And you’ve probably heard how difficult it is going to be to get your credit history cleaned up. Maybe so, but it’s important to try nonetheless.
Here’s what to do: First, order a credit report on yourself. You can contact Equifax By phone: (1 800 465-7166 ), or online at: www.equifax.ca
For less than $10, Equifax will send you your credit report. This is the same information lenders will receive. By getting a copy of your credit report before you apply for a loan, you’ll get a first look at any problems or discrepancies that have sprung up.
3. Gather The Information You Need Ahead of Time:
It’s a great idea to gather information ahead of time and organize it so that it’s easily accessible for you to review and have corrected. Now, you’ll also need complete copies of your past two or three tax returns plus a current pay stub, or a current profit and loss if you’re self-employed, you’ll be able to have that information on hand when you sit down with your mortgage agent.
4. Know The Current Lending Guidelines:
Get a current copy of the lending guidelines. If you are applying for a high ratio Mortgage, the federal Canada Mortgage and Housing Corp. (CMHC) must insure these loans. The protection is for the lender, not for you. Mortgage insurance can be expensive: it can range up to 2.5 per cent of the value of the loan. You have to insure the entire loan, not just the amount that is above 80 per cent of the purchase price. That means the insurance premium for a $140,000 mortgage would be $3,500. Most lenders will let you roll the insurance premium into your mortgage. If you do, though, you’ll end up paying a good deal of interest on the insurance fee as well.
One advantage to this type of financing is that CMHC-insured mortgages become open after three years. All that’s required to pay off your mortgage at that point is to pay a penalty of three months’ interest. (An open mortgage means you can pay it off or refinance at current rates at any point.)
5. CMHC’s 5 Per Cent Down Program:
If you are a first-time buyer, you can put as little as 5 per cent down with an insured mortgage — provided you earn enough income to qualify. The amount of money you can borrow under this plan depends on where the house is located. Contact CMHC for more information about your specific situation and location.
These loans must be insured, and while you can choose any term you wish, your income must be able to meet the payments required under a three-year term.
6. Choose a Conventional Mortgage:
Conventional mortgages require a down payment of 20 per cent of the home’s appraised value. If you’re looking at a house with a price tag of $200,000, that means you need to come up with $50,000 of your own money. But if you don’t have that much saved, you may still be able to purchase that property.
Although it may seem that the lender’s primary job is disqualifying mortgage applicants, the reverse is true: The lender wants to qualify as many applicants as possible (lenders make their money by approving loans) but are restricted by the rules and regulations of a larger, more powerful body.
If you understand up front what your lender is going through, it may help smooth the process.
7. Qualify your lender:
Just as you shop for a real estate broker and a new home, it’s very important to shop for a lender, your Mortgage Agent can help you. Loan products, services, style, and personal attention vary greatly. Look for a lender that is best qualified to meet your needs.
For example, if you’re self-employed, and you’ve only been self-employed for a year, you may find it more difficult, even though you may have paid every bill on time in your life. The reason for that is that lenders need to see that you’ve been self-employed, maintaining an income for at least two years, and have the tax returns to prove it. At this point, your choices would be to wait until you’ve been self-employed for two years, or go with a sub-par loan (also known as a B or C loan in the lending industry).
One of the highest financial priorities of Canadian homeowners is to pay off the mortgage as quickly as possible. The faster you pay off your mortgage, the less money you’ll spend on interest & the more equity you are building in your home. The majority of our lending institutions provide you with the following options to help you create your own amortization schedule by paying off the mortgage much sooner:
* Prepayment options of up to 15% of the total mortgage amount on an annual basis without penalties
* You may also increase each payment by up to 15% without penalties.
* Double up your mortgage payment on any scheduled payment date without
penalties
Pay-Off Tips:
* Use your salary bonuses and tax refunds to pay down your principal. More Canadians are becoming aware that, since mortgage interest is not tax-deductible in Canada, (as it is in the US), you are making mortgage payments of both principal and interest with money that you’ve already paid tax on – “after tax dollars”. This makes it even more important to eliminate the drainage of disposable income as soon as possible!
* Keep your payments the same if interest rates drop if you have a variable mortgage as fixed rates do not change throughout the term of your mortgage
* Choose accelerated bi-weekly payments to get a “free” principal reduction equivalent to one full mortgage payment every year – painlessly. Unless you are paid weekly it makes little sense to make weekly payments. All you’d be doing is making a smaller payment, and deferring the difference for a week.
* Choose a shorter amortization period – but do keep in mind that a higher amortization term allows your first five years of expected scheduled payments much lower, allowing you to adjust to being a first time home-buyer. The amortization period can be changed when the term of your mortgage is up. Even if you start out with an extended amortization period, the above pre-payment privileges help you reduce your selected amortization period.
* Use your RRSP-driven tax rebate religiously as a mortgage prepayment method. Even if you can only prepay annually, make sure these funds are set aside for that purpose. Many Canadians will borrow (at prime) to buy an RRSP to ensure the maximum rebate. When applied to the mortgage principal, this refund is a “gift that keeps on giving”. Combining the refund with the tax-free interest earned on the RRSP over the subsequent years will quickly outpace the short-term interest costs of the RRSP loan
Today’s rate special: 3.99% Five Years Fixed
(Applicable Under Quick Closing Program. Special conditions may apply.)
Today’s Fixed Rates
Term | Bank Rate | Our Rate
1 Yr | 4.50% | 3.50%
3 Yr | 5.20% | 3.90%
5 Yr | 5.55% | 4.05%
Today’s Variable Rates
Five Yrs Convertible: 3.30%
Five Yrs Open: 3.50%
Home Equity Line of Credit: 3.50%
(Above Rates are Based on Current Prime Rate of 2.50%)
Brought to you By: Debbie Gomes-Andrade
Mortgage Agent
Lic.# M08010945
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