Choosing the right mortgage
The basic features to consider when selecting a mortgage include:
Conventional or high-ratio
A conventional mortgage is a loan for no more than 75% of the appraised value or purchase price of the property, whichever is less. The remaining amount required for a purchase (25%) comes from your resources and is referred to as the down payment. If you have to borrow more than 75% of the money you need, you'll be applying for what is called a high-ratio mortgage.
Here's how a high-ratio mortgage works:
You can purchase with $00 down payment if you have excellent credit history or you must have at least a 5% down payment when you buy a home. Any purchase where the down payment is between 0% and 24% is considered a high-ratio mortgage, and the mortgage must be insured by the Canada Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Company (GEMICO). The insurer will charge a fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical fees range from 1.00% to 3.25% of the principal amount of your mortgage. This amount can be paid up front or added to the principal portion of your mortgage. A Mortgage Specialist can help you determine the exact amount.
Fixed rate or variable rate
When you take out a fixed-rate mortgage, your interest rate will not change throughout the entire term of your mortgage. As a result, you'll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term. With a variable-rate mortgage, your rate will be set in relation to TD Prime¹ at the beginning of each month. In other words, it may vary from month to month. Historically, variable-rate mortgages have tended to cost less than fixed-rate mortgages when interest rates are fairly stable. When rates change, your payment amount remains the same. However, the amount that is applied toward interest and principal will change. If interest rates drop, more of your mortgage payment is applied to the principal balance owing. This can help you pay off your mortgage faster.
Short term or long term
The term is the length of the current mortgage agreement. A mortgage typically has a term of six months to 10 years. Usually, the shorter the term, the lower the interest rate.
A short-term mortgage is usually for two years or less. A long-term mortgage is generally for three years or more. Short-term mortgages are appropriate for buyers who believe interest rates will drop at renewal time. Long-term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. The key to choosing between short and long terms is to feel comfortable with your mortgage payments. After a term expires, the balance of the principal owing on the mortgage can be repaid, or a new mortgage agreement can be established at the then-current interest rates.
Open or Closed
Open mortgages can be paid off at any time without penalty and are usually negotiated for very short terms.² They are suited to homeowners who are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before maturity.
Closed mortgages are commitments for specific terms. If you want to pay off the mortgage balance, you will need to wait until the maturity date or pay a penalty.
For clients who are self-employed and are unable to qualified for a mortgage due to insufficient salary earnings. This product allows you to purchase a home or use the equity on your principal residence or investment property to borrow up to 90% of the appraised value of the subject property.
For clients that have been declined by major banks are able to obtain 1st or 2nd mortgages through private lenders as an alternative.
New Immigrant program
For applicants who are new to Canada who wish to purchase, but don't have established credit history or employment status.
How much can I afford?
Buying a home could be the largest purchase of your life. That's why you want to be sure that you own a home that's compatible with your financial situation.
The simplest way to determine this is to compare your gross income to your total debt.
What is a down payment?
Very few homebuyers have the cash available to buy a home outright.
Most of us will turn to a financial institution for a mortgage the first step in a potentially long-standing relationship. But even with a mortgage, you will need to raise the money for a down payment.
The down payment is that portion of the purchase price you furnish yourself. The amount of the down payment (which represents your financial stake, or the equity in your new home) should be determined well before you start house hunting.
The larger the down payment, the less your home costs in the long run. With a smaller mortgage, interest costs will be lower and over time this will add up to significant savings.
Compare how an average homeowner saves over $25,000 in interest costs on a $100,000 home by making a down payment of 25% versus the minimum down payment of 5%. (for $00 down payment. Please refer to your Mortgage Specialist for additional information. Some conditions applied)
How can you acquire a home with $0 down payment?
Most lenders now offer insured mortgages for new and resale homes with $00 down payment. Mortgages must be insured to cover potential default of payment, Ask us for further Details
How can you purchase a home with as little as 5% down?
Most lenders offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages - as low as 5%. Low down payment mortgages must be insured to cover potential default of payment, and their carrying costs are therefore higher than a conventional mortgage because they include the insurance premium.
Low down payment mortgages are often referred to as National Housing Act (NHA) or High Ratio mortgages. Both Canada Mortgage and Housing Corporation [CMHC] or GEN Worth Financial Canada [GEN] offer default insurance.
With all low down payment insured mortgages, you are responsible for:
· appraisal and legal fees
· an application fee for the insurance
· the payment of the mortgage default insurance premium (although the amount of the premium may be added to the mortgage amount).
Ways to pay off your mortgage sooner
There are ways to reduce the number of years to pay down your mortgage. You'll enjoy significant savings by:
· Selecting a non-monthly or accelerated payment schedule
· Increasing your payment frequency schedule
· Making principal prepayments
· Selecting a shorter amortization
How to use your RRSP to help you buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to help finance a down payment. With the federal government's Home Buyers' Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.
To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home.
Even if you have already saved for your down payment, it may make good financial sense to access your savings through the Home Buyers' Plan. For example, if you had already saved $20,000 for a down payment - and assuming you still had enough "contribution room" in your RRSP for a contribution of that amount you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan.
The advantage? Your $20,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered growth. So be sure to ask your financial planner whether this strategy makes sense for you, given your personal financial situation.
What are the costs associated with buying a home?
First and foremost, 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 25% or more. However, you can qualify for a low down payment insured mortgage with a no down payment or as low as 5%. Secondly, you will require money for closing costs (up to 1.5% of the basic purchase price).
If you want to have the home inspected by a professional building inspector - which we highly recommend - you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound. Usually the inspector will provide you with a written report. If they don't, then ask for one.
You will be responsible for paying the fees and disbursements for the lawyer or notary acting for you in the purchase of your home. We suggest you shop around before making your decision on who you are going to use, because fees for these services may vary significantly.
There are closing and adjustment costs, interest adjustment costs between buyer and seller and (depending on where you live) land transfer tax - a one-time tax based on a percentage of the purchase price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in place by the closing date. And you will be responsible for the cost of moving.
Remember, there will be all kinds of things you'll have to purchase early on - appliances, garden tools, cleaning materials etc. So factor these expenses into your initial costs.
A Cashback mortgage option can be applied to any of the costs listed above.
How can decreasing my amortization period reduce my interest costs?
If you choose a shorter amortization period, you can save a lot of money and live mortgage-free sooner.
Just take a look how much you will save on your total interest costs on an $80,000 mortgage amortized over 15 years versus the same mortgage amortized over 25 years.
What is Cashback?
Cashback gives you cash that you can use towards anything you want! Use the money for renovations, closing costs, furniture, appliances, or anything else you choose. You can even apply it to your mortgage as an immediate prepayment of the principal. That could potentially save you thousands of dollars in interest. However, If you decide to sell your home or pay out your mortgage prior to maturity date you will be obligated to repay the bank part or the whole cash back.
To find out more about Cashback contact us.
What are the monthly costs of owning a home?
Needless to say, you'll 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 home buyers, this is the largest monthly expense. The actual amount of the mortgage payment can vary widely since it is based on a number of variables, such as mortgage term or amortization.
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.
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.
As a homeowner, you'll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
Have your mortgage pre-approved before you look for a home?
It makes a lot of sense!
Once you apply for a pre-approved mortgage, you'll know how much you can reasonably borrow to buy a home. It tells you what your payments will be, and it defines a realistic price range for your financial situation.
· With a pre-approved mortgage, you can lock in at today's rates.
· If rates go down before you complete the purchase, you will automatically get the lower rate for the term you selected.
This protection could save you a substantial amount of money if interest rates fluctuate while you're house shopping. With a pre-approved mortgage, you're much better prepared to shop for a home:
· You'll have a clear idea of what you can afford in terms of price, down payment, legal fees and other expenses
· You'll be able to make an offer when you find a perfect home.
Because you have all the financial facts in hand, your purchase commitment is far more likely to be one you can live with comfortably.
After the bank receives your final offer to purchase, your mortgage can be quickly processed, subject to satisfactory property appraisal .A pre-approved mortgage puts you under no obligation and is available to you at no cost.
Fixed rate or variable rate
When you take out a fixed-rate mortgage, your interest rate will not change throughout the entire term of your mortgage. As a result, you'll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term.
With a variable-rate mortgage, your rate will be set in relation to Prime at the beginning of each month. In other words, it may vary from month to month. Historically, variable-rate mortgages have tended to cost less than fixed-rate mortgages when interest rates are fairly stable.
When rates change, your payment amount remains the same. However, the amount that is applied toward interest and principal will change. If interest rates drop, more of your mortgage payment is applied to the principal balance owing. This can help you pay off your mortgage faster.
Can you take your mortgage with you if you move?
Most Banks have portability option lets you transfer the terms and conditions of your current mortgage to your new home, subject to a credit review and property appraisal when you make the new home purchase. Please note the mortgage portability option cannot be used in combination with the assumable mortgage option.
How often can you refinance?
There is no maximum for how many times you can refinance. But you must qualify each time you apply. For more information, contact a mortgage specialist.
Refinancing To Use The Equity In Your Home
Thinking of renovating your home? Want to consolidate debt? We make it easy to use the equity in your home to help achieve these goals. It's a lower cost way to borrow allowing you to access additional funds by adding them on to your existing RBC Royal Bank mortgage.
With refinancing option you can borrow up to 90% of the appraised value of your home, minus the remaining mortgage balance (CMHC/GEN Worth Financial Canada fees may apply).
You're in Complete Control
With the refinance option, you can use the money whenever you want, for whatever you want, including:
· Renovating your home
· Purchasing another property
· Buying a car or boat
· Paying for your child's education or purchase rrsp for your retirement
Consolidate and Save
The refinance option allows you to refinance your mortgage to consolidate your debt - including high interest credit card balances and loans - at a lower rate of interest. There are some costs associated with this option.
Just imagine how much you'll save. Plus, you'll enjoy the added convenience of having all your debt in one place, where you can pay it off each month.
Saving for a Down Payment
Saving enough money to buy a home can seem overwhelming, but you may be able to get your down payment faster with a savings or investment plan. A down payment is the amount of money needed up front to buy a home.
Personal Bank Accounts
Open a bank account at a Bank and set aside money specifically for your new home. Make a habit of paying into this account on a regular basis, just as you pay your monthly bills. Remember, you will need cash (or a certified cheque) for the down payment and the closing costs associated with buying a home.
GIC (Guaranteed Investment Certificate)
As the money in your bank account grows, or if you already have money set aside, you may want to invest in a GIC (Guaranteed Investment Certificate), where you can choose from a variety of terms at competitive rates of return. If you think you'll be tempted to dip into the funds before you're ready to make your down payment, choose a non-redeemable GIC that locks the money away for the duration of the certificate.
Using RRSPs Towards Your Down Payment
· Registered Retirement Savings Plans are a good way to secure your financial future while enjoying tax benefits today. You may also be able to use your RRSP savings towards the purchase of a home. As a first-time buyer, you may also be eligible for the government-approved CIBC RRSP Home Buyers' Plan.You and your eligible spouse may withdraw up to $20,000 each from your existing RRSP for at least 90 days. You don't have to pay income tax on the funds, as long as you repay the total amount to your RRSP over the next 15 years. And your payments don't have to start until the second year after the withdrawal.Talk to your Mortgage specialist to find out if the RRSP Home Buyers' Plan is a viable option for you.
· Set up a bi-weekly automatic savings plan.
How much money do you need to make a down payment?
You can buy a house with $00 down payment or for as little as 5% down, but remember that the larger the down payment, the easier the other expenses will be to manage. We encourage you to calculate what you can afford to work out what's best for you. Once you're ready to put an offer on a property you'll need part of your down payment as a deposit, so remember to keep some funds easily available and accessible.An ideal down payment would be 25% of the purchase price of the home. We recommend a down payment of at least 10% of the purchase price.