Know About Your Mortgage Options
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Know About Your Mortgage Options
Mortgage Types
Conventional
The buyer can borrow up to 75% of the purchase price or the value of the property, whichever is less. The buyer has to pay 25% down. A conventional mortgage cannot exceed 75% of the value of the property.
Insured or High-Ratio
A buyer can borrow up to 95% of the purchase price of the property. The down payment can be as low as 5%. You can use money from your RRSP, a line of credit or receive a gift from relatives for your downpayment.
Mortgage Options
First Mortgage
Usually, the only financing required. Gives borrowers the best rate of interest.
Second Mortgage
A higher interest loan that provides borrowers with additional financing if their first mortgage does not meet their total financial requirements.
Open Mortgage
Allows borrowers to repay all or part of the total amount of their mortgage at any time without penalty. Because of flexibility, it’s ideal for borrowers who plan to sell their homes in the near future or who want to switch from a short-term mortgage, at high-interest rates, to a long-term when mortgage interest rates fall.
Closed Mortgage
Usually has a lower interest rate available but lacks the flexible features of other mortgage options. A good choice for those who want the security of knowing their
monthly payment is fixed for a longer term. Prepayment options are available but they are subject to conditions ( usually a penalty of 2-3 months of interest payment)
Variable Mortgage
Usually has the lowest interest rate available ( prime rate minus 0.50% to 0.75%) but lacks the security feature of the closed mortgage. If you think that the interest rates will go up significantly you can switch to a closed mortgage at any time with no penalties. A good choice for those who keep an eye on the interest rates. Prepayment options are available but they are subject to conditions ( usually a penalty of 2-3 months of interest payment)
Portable and Assumable Mortgage Options
Flexibility if borrowers move. Borrowers can take the mortgage to their new home or can transfer it (usually with the consent of the lender) to the purchaser of their old home. This is an attractive option if the rate on the existing mortgage is lower than current rates.
Mortgage Pre-approval
A pre-approved mortgage lets you know how much you can afford before you start looking at homes. You’ll know the maximum amount of financing for which you qualify, and therefore, the price range in which you’ll be shopping. This is a benefit when making an offer because one half of the financing condition has been met, only the house needs to be appraised.
By starting early, you can compare rates at different banks and compare the interest rate guarantee period and terms (pre-payment, accelerated payment).
In addition, your interest rate is guaranteed for up to 90 days or until closing, whichever comes first. You can shop worry-free, knowing you’re protected if rates increase during this period. If rates are lower when your purchase closes, the mortgage will be based on the current rates in effect.
Obtaining a Pre-Approved Mortgage is fast and easy. Having documents available which confirm your down payment, income and employment status will sped up the process. Your mortgage specialist will provide you with professional advice and will customize a mortgage to meet your individual needs and resources.
Your mortgage specialist will then issue you a certificate which states that you’ve qualified for a loan at a guaranteed maximum interest rate and the maximum amount of financing available to you.
How Much Mortgage Can You Manage?
Lenders use a formula known as the Gross Debt Service Ratio (GDS) when determining the maximum loan they’re prepared to offer you. The loan will not be more than 35% of your gross (before tax) monthly income and would cover mortgage principal and interest, property taxes, plus if applicable, secondary financing and 50% for condominium fees. Only assured income sources are taken into account. Variable income, such as tips, bonuses or overtime earnings are omitted. Two income households can use a combined or “family” income figure.
Other debts such as car payments or credit card balances, will be taken into account in a formula known as the Total Debt Service Ratio (TDS). No more than 42% of your gross (before tax) income can be allowed to your housing cost and other monthly expenses.
A lender will use the lower of the two amounts when determining the amount of income available for housing costs. An amount for monthly property taxes must be subtracted to determine the final amount available for mortgage payments.
ESTIMATING HOW MUCH YOU CAN AFFORD
Calculate your Gross Debt Service Ratio (GDS)
Take your total monthly gross (before tax) income
$______________
Multiply it by the maximum GDS Ratio (35%) x 0.35
This is the maximum amount available for your mortgage payment (principal and interest), property taxes, and 50% of condo fees if applicable.
$______________
Example: Tony and Sue have a gross family income of $80,000 per year or $6,667 per month. No more than $2,333 ($6,667 x 35%) can be applied to housing costs.
Now calculate your Total Debt Service (TDS)
Take your total monthly gross (before taxes) income
$______________
Multiply it by the maximum TDS Ratio (42%) x 0.42
Total amount available for mortgage payments (principal and interest), taxes and regular monthly expenses (e.g. credit cards, car payments, personal loans)
$______________
Subtract your regular
monthly expenses – $______________
Amount available for
mortgage pymt. = $______________
Example: Tony and Sue have two car payments totalling $575 per month, a student loan of $150 per month and a credit card payment of $175 per month. They can apply $1,900 of their monthly income to housing costs ($6,667 x 42% = $2,800 – $900 = $1,900)
The amount of your total mortgage will be influenced by the current rate of interest. For example if the monthly mortgage payments for $100,000 mortgage at the required qualification 5.25% interest on 5 years fixed term mortgage is $596.00 per month. To qualify for $300,000 mortgage your total monthly income before taxes has to be (3 X $596.00) X 100/32 = $5,587.50 per month.
To Find out more about your Mortgage Options, fill and submit the form on this page. In the “Notes” box include a code “buyers guaranteed programs”
VIP Buyers Guaranteed Programs
1. If within one year, you are not happy with the purchased property, we’ll SELL IT FOR FREE. You pay only the buyer’s agent portion of the commission* (Conditions apply)
2. If we don’t SAVE you at least 1% on your home purchase price, on completion date we’ll pay you back 10% of our net commission* (Conditions apply)
3. Our services are COST FREE for you. Our commissions are paid by the sellers.
To find out how you benefit from our Buyers FREE Real Estate services, go to FREE Buyers Services
Your referrals are greatly appreciated and very well rewarded. For information on how to earn $500.00* or more visit our “Referral Program” page.
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