Questions And Answers
- How much do I need for a down payment?
- What is the minimum down payment needed for a home?
- Can I use gift funds as a down payment?
- How can you use your RRSP to help you buy your first home?
- How much mortgage can I afford?
- How does bankruptcy affect qualification for a mortgage?
- How will child support affect mortgage qualification?
- What is mortgage loan insurance?
- What is a Mortgage Agent?
- What is a pre-approved mortgage?
- What is a fixed rate mortgage?
- What is a variable rate mortgage?
- What are closing costs?
- What is title insurance?
- What is a home inspection?
- What is an appraiser?
- What is a conventional mortgage?
- What is the difference between Term and Amortization?
- Should I wait for my mortgage to mature before renewing?
- How can you pay off your mortgage sooner?
- 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?
- How can I save money on my mortgage?
- Do You Sell Our Information to Anyone Else?
- What happens if I am not satisfied with a mortgage offer?
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.
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How does bankruptcy affect qualification for a mortgage?
Depending on the circumstances surrounding your bankruptcy, some lenders can consider providing mortgage financing after 2 years of discharge for Owner-occupied purchase for Conventional mortgage situations only.
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How much do I need for a down payment?
According to the guidelines of the Canadian Mortgage and Housing Corporation (CMHC), one must have a minimum down payment of at least 5% of the total cost of the prospective property. With a down payment between 5 - 19.99%, one's mortgage is deemed "high-ratio".
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What is the minimum down payment needed for a home?
A minimum down payment of 5% is required to purchase a home, subject to certain maximum price restrictions.
Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed.
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Can I use gift funds as a down payment?
Most lenders will accept down payment funds that are gifted from family as an acceptable down payment. A gift letter signed by the donor is usually required to confirm that the funds are true gift and not a loan. Mortgages with less than 20% down must have mortgage loan insurance provided by CMHC, Genworth, or AIG.
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How can you use your RRSP to help you buy your first home?
Today, about 50% of first-time homebuyers use their RRSP savings to help finance a down payment. With the federal government's Home Buyers' Plan, you can use up to $25,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you are using must be on deposit for at least 90 days. You will also need a signed agreement to buy a qualifying home.
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What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth, 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% and up depending upon your down payment & amortization, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.
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What is a Mortgage Agent?
A Mortgage Agent is an independent Real Estate financing professional who specializes in the origination of residential and/or commercial mortgages. Typically, they do not fund or service the loan itself, but instead, they act as an Agent or Manager for capital sources who act as loan wholesalers.
A Mortgage Agent is also an independent contractor working, on average, with 40 lenders at any one time. By combining professional expertise with direct access to hundreds of loan products, a agent provides consumers the most efficient and cost-effective method of offering suitable financing options tailored to the consumer's specific financial goals.
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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 60 to 90 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 from your own resources', for example.
Most successful 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 homebuyer should take before beginning the buying process.
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What is a fixed rate mortgage?
The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 10 years. This offers the security of knowing what you will be paying for the term selected.
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What is a variable rate mortgage?
A mortgage in which payments are fixed to bank prime rates, which can fluctuate several times a year. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest.
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What are closing costs?
On the day one actually purchases their new home they are required to pay certain costs associated with this endeavor. In addition to one's down payment, the prepaid property tax and homeowner's insurance premiums there will be other fees to consider:
- Survey Charges.
- Land Transfer Taxes.
- Attorney Fees and Disbursements.
- Garbage Disposal Fees.
- Title Insurance.
- Fire Insurance.
Your real estate transaction may be subject to GST! Check with your real estate agent for this.
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What is title insurance?
Protecting purchasers against loss is accomplished by the issuance of a title insurance policy, which states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.
Title insurance differs significantly from other forms of insurance. While the functions of most other forms of insurance is to guard against future events (such as death or accidents or in the case of property, fire or flood), the primary purpose of title insurance is to eliminate risks and prevent losses caused by events that have happened in the past. To achieve this goal, title insurers perform an extensive search of the public records to determine whether there are any adverse claims to the subject of real estate. Either those claims are eliminated prior to the issuance of a title policy or their existence is exempted from coverage.
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What is a home inspection?
A home inspection is an examination of the structure and systems: heating and air conditioning, plumbing and electrical, roof, attic, insulation, walls, floors, ceilings, windows, doors, foundation, and basement. If the inspector finds problems, it does not mean you cannot sell your house, but you can be certain a buyer inspection will find them too. Finding problems before you list your property can avoid accusations of misrepresentation, low offers, and even lawsuits. A home inspection can also help sellers comply with new, tougher disclosure laws enforced in many states.
You may or may not want to make the repairs and you can always adjust the selling price or contract terms if the problems are major. This information will also help you determine what type of financing will or will not be available for your home. You can find home inspectors under Professional Services section.
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What is an appraiser?
A real estate appraiser is an impartial, independent third party who provides an appraisal -- an objective report on the estimate of value of real estate. The appraisal is supported by the collection and analysis of data. Most licensed appraisers will provide an advance estimate of the cost to perform the appraisal, and many will commit to a fixed fee for the appraisal. It is always wise to obtain a written contract for services that includes a description.
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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 loan insurance.
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What is the difference between Term and Amortization?
The "term" of the mortgage should not be confused with the "amortization". The amortization of the mortgage refers to the entire length of time that it will take for the mortgage to be paid and the house to be "free and clear". The term is the period for which your current payment obligations are valid. In other words, you may choose a five-year term and a 25-year amortization. This would mean that your interest rate, your payments, and your pre-payment options would be the same for the next five years. At the end of these five years, you would re-negotiate the term, and the amortization would now be 20 years. Fixed rate mortgages can be "closed" or "open".
Open Mortgages
Allow one to pre-pay some, or all of, their outstanding mortgage obligation at any time, without penalty. Generally, open mortgages have a six-month, and a one-year term option with higher interest rates than closed mortgages of the same term length.
Closed Mortgages
Generally, closed mortgages are offered in terms ranging from six months to ten years. Generally, closed mortgages offer more stringent pre-payment options subject to various pre-set regulations. For most people, such pre-payment options can be vital to reducing the amortization of one's mortgage and should be properly discussed with one's lender/agent.
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Should I wait for my mortgage to mature before renewing?
Lenders will often guarantee an interest rate to you as much as 90 days before your mortgage matures. Moreover, 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. In addition, if rates drop before the actual maturity rate, 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 with the lender or another lender. Or contact your local Mortgagebrokers.com agent. If you do not you may end up paying a much higher interest rate on your renewing mortgage than you need to.
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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:
- electing a non-monthly or accelerated payment schedule
- Increasing your payment frequency schedule
- Making principal prepayments
- Making Double-Up Payments
- Selecting a shorter amortization at renewal
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What are the costs associated with buying a home?
Primarily, you have to make sure you have enough money for a down payment - the portion of the purchase price that you furnish yourself.
To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.
Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price).
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What should the length of my mortgage term be?
The length of mortgage terms varies widely - from six months right up to 10 years. As a rule of thumb, the shorter the term, the lower the interest rate the longer the term, the higher the rate.
While four or five year mortgages are what most home buyers typically choose, you may consider a short-term mortgage if you have a higher tolerance for risk, if you have time to watch rates or are not prepared to make a long-term commitment right now.
Before selecting your mortgage term, we suggest you answer the following questions:
- Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
- Do you believe that interest rates have bottomed out and are not likely to drop more? If that is the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
- Are you looking for security as a first-time homebuyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
- Are you willing to follow interest rates closely and risk their being increased mortgage payments following a renewal? If that is the case, a short mortgage term may best suit your needs.
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What are the monthly costs of owning a home?
You will have financial responsibilities as a homeowner.
Some of them, like 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 homebuyers, 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 or amortization.
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 homeowner, you will be responsible for all utility bills including heating, gas, electricity, water, telephone, and cable.
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.
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How can I save money on my mortgage?
The simplest way to accomplish this is to decrease your principal; thus, decreasing your interest obligation. There are a number of very feasible approaches to performing this task:
Increase Payment Frequency - Instead of paying monthly, consider paying bi-weekly. This simple step is very feasible for most working Canadians who are paid bi-weekly. It can cut your mortgage amortization by up to five years, and can save you tens of thousands of dollars.
Prepay - Use every advantage that the term of your mortgage offers you to prepay your mortgage. One way to do this would be to use your RRSP tax refund to make a yearly pre-payment.
Increase Payments - Round up your bi-weekly payment.
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Do You Sell Our Information to Anyone Else?
We will not sell one's information under any circumstances. Furthermore, due to the personal nature of the information that we receive, only one of our lending experts, his /her supervisor, and the prospective lending institutions will see it.
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What happens if I am not satisfied with a mortgage offer?
Do not accept it. You have no obligation to accept any of the offers that are made to you by Mortgagebrokers.com or any of our affiliated lenders.
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