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Frequently (and not so frequently!) Asked Mortgage Questions.

New to mortgages? Have questions but not sure where to start? We have the answers!

What is the best interest rate I can qualify for?

Your credit score holds significant sway over the interest rate you’re eligible for. As a borrower, the more risky you appear, the higher your interest rate will be. While the interest rate is a critical aspect of your mortgage, it’s not the most important factor. Nevertheless, it still carries considerable weight in determining your mortgage affordability. However, choosing the lowest rate option may result in missing out on pre-payment privileges or porting options. That’s why it’s crucial to assess your mortgage holistically, considering your current and future needs.

What credit score is needed to qualify for a mortgage?

In most cases, a score of 680 or higher is considered ideal for qualifying for a mortgage. A score above 700 will give you access to more favourable interest rates and a wider range of products available. While traditional or private lenders may provide mortgages to almost anyone, if your credit score is lower, your down payment size will become a critical factor. A substantial down payment can lower the risk for the lender, leading to lower interest rate options becoming available.

What happens if my credit score isn’t great?

There are five essential steps to improve a low credit score. 

  • Firstly, make sure to pay down credit cards to below at least 70% of their limits, as revolving credit, such as credit cards, has a greater impact on your credit score than other forms of debt.
  • Secondly, limit your use of credit cards, as running up a large balance and only paying it off monthly can hurt your score. Additionally, ensure that your credit limits are accurate and up to date, as this can affect how potential lenders view your creditworthiness.
  • Thirdly, keep old credit cards as older credit is considered better credit. It’s crucial to use these cards periodically and pay them off to prevent issuers from stopping updating your accounts, which can result in the cards losing their weight in the credit formula.
  • Finally, it’s important to address any errors or disputes that could negatively impact your score. Suppose, for instance, you encounter an inaccurate cell phone bill, and the company refuses to correct it. In that case, it’s essential to dispute this with the credit bureau.

What’s the maximum mortgage I can qualify for?

Consider using the My Mortgage Toolbox app, available on both the iStore and Google Play, to help you assess your affordability. This app offers a range of useful tools to calculate how much you can afford, estimate your monthly mortgage payments, and experiment with different payment frequencies. Moreover, you can get pre-qualified on the app and then obtain a formal mortgage pre-approval when you’re ready to begin shopping. By leveraging this app, you can establish a realistic budget and better understand the overall costs associated with your mortgage.

How much do I need for a down payment?

While the minimum down payment required to purchase a home is 5% for the first $500,000 and 10% on the amount over $500,000 of the purchase price, it’s recommended that you aim for a down payment of at least 20%. This is because having a larger down payment can help you avoid the cost of mortgage default insurance and, in some cases, can even make it easier to qualify for a better interest rate on your mortgage.

What happens if I don’t have the full down payment amount?

Assembling a down payment can be a challenge. Luckily, various programs are accessible that allow you to use alternative sources of down payment, including cash-back products, RRSP withdrawals, or financial gifts from an immediate family member.

Should I go with a fixed- or variable-rate mortgage?

Whether to choose a fixed or variable-rate mortgage depends on your individual risk tolerance. If you’re a first-time homebuyer or have a fixed budget, it may be wise to choose a fixed-rate mortgage, as it offers predictable payments over a specified period. However, if you can handle the fluctuations of a variable-rate mortgage, this could save you money in the long term. Another option is to choose a variable rate but make payments based on what you would have paid with a fixed rate. Additionally, there are 50/50 mortgage options available that allow you to split your mortgage into both fixed and variable portions.

How much will my mortgage payments be?

The cost of your monthly mortgage payment can vary depending on various factors, including the mortgage size, whether you’re paying mortgage default insurance, mortgage amortization, interest rate, and payment frequency. To preview different mortgage and payment scenarios, you can use the My Mortgage Toolbox app on both Google Play and the iStore. The app features several calculators that can help you determine different payment options.

What amortization will work best for me?

A mortgage’s standard amortization period is usually 25 years, but shorter or longer options are available. Choosing a shorter amortization period can result in becoming mortgage-free earlier, reducing the amount of interest paid over the life of the mortgage, and building equity in the home sooner. However, shorter periods mean higher monthly payments, which may not be the best option for those with irregular incomes or buying a home for the first time with a large mortgage. It’s critical to consider your financial situation and future goals when deciding on an amortization period.

How can I maximize my mortgage payments and own my home sooner?

Many mortgage products provide prepayment privileges that enable you to pay up to 20% of the principal (the actual value of your mortgage minus the interest payments) per year, which can help to decrease the length of your mortgage. Another way to shorten the time it takes to pay off your mortgage is by opting for accelerated bi-weekly mortgage payments instead of semi-monthly mortgage payments (24 payments per year). With accelerated bi-weekly mortgage payments (26 payments per year), you’re paying off your mortgage faster and saving a considerable amount of money over the term of your mortgage. This is because you make one additional monthly payment per year. In addition to these increased payment options, many lenders allow you to make lump-sum payments on your mortgage (up to 20% of the original borrowed amount each year).

If I have mortgage default insurance, do I need mortgage life insurance?

Certainly, mortgage life insurance is a type of life insurance policy designed to pay off the outstanding balance of a homeowner’s mortgage if they pass away. It provides peace of mind and financial security to the homeowner’s family or dependents in case of an unexpected event. On the other hand, mortgage default insurance is required for homebuyers with a down payment of less than 20%. It protects the lender’s assets in case of default on the borrower’s part. It’s important to note that mortgage life insurance is intended to safeguard the homeowner’s family or dependents, while mortgage default insurance is meant to protect the mortgage lender.

Is my mortgage portable?

Portability is usually available for fixed-rate mortgages, allowing you to transfer your current mortgage rate to the mortgage amount on your new property. The new balance is then calculated using the current rate. However, with variable-rate mortgages, portability is usually not an option. You’ll be charged a three-month interest penalty if you choose to break your existing mortgage. Whether or not this charge is reimbursed with your new mortgage depends on the lender. While porting can prevent penalty charges when you sell your existing property and buy a new one, it’s important to consult with your mortgage professional about specific conditions before making any changes.

How much will I have to pay for closing costs?

To account for closing costs such as property transfer taxes, lawyer/notary fees, survey costs, appraisal fees, title insurance, and a home inspection, it is generally advised to set aside 1.5% to 2% of the purchase price on top of your funds for your down payment.

How do I get the best mortgage product and rate upon renewal at the end of my term?

To ensure that you receive the most favourable mortgage product and rate upon renewal, it’s recommended that you seek the assistance of your mortgage professional. By having them review your current mortgage product and financial situation and explore options available in the market, you can potentially save a significant amount of money. Failing to do so and simply accepting a renewal offer from your existing lender could result in missed opportunities for better rates and terms.

What steps can I take to help ensure I don’t fall victim to title or mortgage fraud?

Red flags for mortgage fraud:

  • You’re offered money to use your name and credit information to obtain a mortgage.
  • You’re asked to include false information on a mortgage application.
  • You’re asked to leave signature lines or other important areas of your mortgage application blank.
  • The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing.
  • The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution. 

Ways to protect yourself and your family from title fraud:

  • Always view the property you’re purchasing in person; check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable.
  • Make sure your representative is a licensed real estate agent.
  • Be cautious of real estate agents or mortgage brokers with a financial interest in the transaction outside the standard commissions. 
  • Ask for a copy of the land title or go to a registry office and request a historical title search; in the offer to purchase, including the option to have the property appraised by a designated or accredited appraiser.
  • Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used in criminal activities. 
  • Ask to see receipts and photos for recent renovations; when you make a deposit, ensure your money is protected by being held “in trust.”
  • Consider the purchase of title insurance. This can be purchased through your lawyer as part of your closing.

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