Mortgages are often the biggest debt that individuals incur in their lifetime and they usually take between 15 and 30 years of monthly payments. So, what is a mortgage? Mortgages are financial transactions wherein debtors charge their personal or real properties to creditors as security for their debt. The term is usually used for property purchases. The properties are then returned to the debtors on condition that they pay the debt within the stipulated period. In Canada, you have to pay a down payment upfront before you can get a mortgage. The down payment is subtracted from the total mortgage amount. For loans equal to or less than $500,000, the down payment is 5% of that amount. For amounts above $500,000,
the excess amount is multiplied by 10% and the figure added to $25,000. Before you can qualify for a mortgage, the lender requires you to go through a pre-approval process. This is where a mortgage broker like us comes in because issues like the applicable interest rates, the loan duration, and how much you qualify for are discussed at this stage. You can get a fixed-rate or a variable-rate mortgage. Variable-rate mortgages are more popular in Canada since they allow for the fluctuation, either upwards or downwards, of the interest rate based on how the economy is doing. We will also help you choose between a fixed and a variable payment option. Fixed payment options are whereby you make a fixed monthly payment irrespective of interest rate changes while variable payment options are
dependent on the Canadian Central Bank interest rates. There are also “convertible” variable-rate mortgages where the creditor can shift to a fixed rate. We always advise our clients to go for fixed rates since this shields them from financial pressure. If you already have a mortgage and the mortgage term is near, a mortgage broker will help you negotiate for a lower interest rate. This could be after 1, 3, or 5 years within the amortization period.
A mortgage broker works for a borrower to facilitate the process of searching for the best mortgage product. Mortgage brokers do all the legwork and use their networks to get the best interest rates and other loan terms. Mortgage brokers are licensed by the Financial Services Authority of Ontario (FSRA), subject to working for a licensed brokerage, getting Superintendent, FSRA-approved mortgage agent education, serving as a mortgage agent for at least 2 years, paying licensing fees, and meeting age, Canadian residency, and other requirements.
Fixed rate mortgages, as the term suggests, have fixed interest rates for the duration of the loan (the mortgage term). The term can range anywhere from 6 to 10 years. This means over the years, most of the payment will be going towards covering the principal. On the other hand, a variable rate mortgage has an interest rate that fluctuates with changes in the Bank of Canada's Prime Rate.
You can make a down payment using gifted money, but most lenders specificy that the money can only come from a family member while others have limits on the percentage of the down payment that can be gifted. In case of a gift, you will be required to write a letter stating this is a true gift, and not a loan, and it must be signed by the donor. At Approved Mortgage Brokers, we will help you find out if your gifted funds can be used as a down payment.
When you come to Approved Mortgage Brokers, we will give you a checklist of the documentation that lenders require. Once we have the documentation, you can get your mortgage in as little as 24 hours.
You should not take a mortgage that you cannot afford. Lenders consider the debt service ratio to determine how much a borrower can spend on a home. The debt service ratio is set up by the Canada Mortgage and Housing Corporation (CMHC). You will not get a mortgage if it will drive your Gross Debt Service Ratio (GDS) above 39% or the Total Debt Service Ratio (TDS) above 44%. In other words, lenders consider other debt that you may have and ensure that 44% of your monthly income does not go to your debts.