What Defines Us

Glossary

We know that securing a great mortgage can be a daunting task, and we’ve built our business around providing an alternative, progressive approach.

Auto Property Valuation - No Appraisal Needed (CMHC Emili and FCT IAVM)

Property valuations are traditionally a lengthy yet essential aspect of the mortgage process. These evaluations determine the value of a given property based on numerous criteria such as proximity to public transit, stores and highly rated schools, and economic data. The resulting property value will impact taxes, financing, insurance and more.

An Automated Valuation Model streamlines this process, using advanced technology and machine-learning models to automatically analyze data from property records and listings to predict property values. This technology considers the property’s size, location, number of rooms, differentiating features, sale history, information on the neighbourhood, and more to present an accurate estimate.

AVMs are typically less expensive than an appraisal, require much less time to complete and will be free of bias and human error. They are especially beneficial in the initial stages of a deal to quickly determine key data points and value, and evaluate the best course of action. An appraisal can always be initiated down the road as an additional precaution, but an AVM is a convenient and rapid route to accessing data.

2nd Mortgage

A second mortgage is when a second loan is taken out, with a different lender, on an already mortgaged property. For the borrower, this means that they must make payments to their primary mortgage while also making payments to their new, second mortgage. Borrowers are evaluated based on their equity, property, credit score and income for this loan, and there are a few pros and cons associated with this type of financing.

Advantages:

Construction Mortgage

A construction mortgage allows you to fund your dream home from the ground up rather than mortgaging an existing house. These loans are shorter-term, typically one-year, and can be used to cover the cost of land, materials, labor, permits and more. There are a few different options for construction mortgages:

A progress draw mortgage or construction-only mortgage provides owners with funds from their mortgage in instalments to build their home, based on the construction process; funds are given out based on the percentage completion of the project. Before each instalment is disbursed, a home inspector is required to come by and evaluate the construction progress to grant funds accordingly.

A construction to permanent loan mortgage allows borrowers to fund the cost of building their home, and then have that loan converted to a permanent mortgage once the house is completed. Borrowers may choose this option in order to only have one set of closing fees to pay at the end of the construction process.

With completion mortgages, the owners have typically bought a house through a builder, and construction is already underway. Some lenders will ask for a down payment on the home, which can usually be paid off in instalments. Then the completion mortgage itself will allow the homeowner to pay off their remaining balance to the builder. Oftentimes, borrowers will look beyond the big banks to source a construction mortgage for a couple of reasons: banks usually can’t provide a specialized construction-financing team to focus on your needs, they tend to be more restrictive in their financing and repayment terms, and their rates are less competitive and may lock borrowers in, with an inability to adjust or access better options.

Bank Vs. Trust Companies

While banks provide a common route to source a mortgage, if they reject your application or you’re interested in sourcing an alternative option, you may turn to a trust company. Trust companies are typically owned by banks but can also be privately held and differ from banks in a few key ways.

Bank Vs. Credit Unions

Credit Unions offer an approach that is again different from that of banks and trust companies.

They are member-owned non-profits with less focus on making money and more on serving their members
Members usually enjoy lower fees and interest rates
They are sometimes established for specific populations, such as farmers or teachers, and can offer more flexibility with customized programs
They often lend to higher-risk borrowers, such as those with low credit
To join, there are usually a few eligibility requirements, such as buying a share

Private Lenders

Private lenders present another option for sourcing loans. These lenders can be one person, a group of people or a company.

Private lenders are the least regulated lenders in the marketplace and often heavily rely on mortgage brokers to source their funds
Their interest rates are much higher than banks, as they invest money from investors and banks to make a profit
They are usually used for short-term loans when borrowers are looking for a quick process to finance their property, if the bank has rejected their financing application, or for those with poor credit history
There is less documentation required, speeding up the approval process. Proof of income is usually not required
While the associated costs are higher, private lenders can be more flexible with loans and customize each loan based on different characteristics of the borrower

Home Equity Line of Credit Vs. Mortgages

While mortgages are very commonly used in Canada, a Home Equity Line of Credit offers borrowers an alternate financing route. HELOCs are growing in popularity, but there are many things to consider between the two options.

A Home Equity Line of Credit allows you to borrow against the equity in your home or other property you own. This revolving line of credit can be used to fund renovations or any other major expenses, meaning that you can withdraw only the funds you need at a given time and pay interest on that amount, rather than receiving the entire amount at once. Your home equity is calculated as the difference between the value of your real estate asset and your outstanding mortgage amount. HELOCs must not exceed 65% of a home’s value unless combined with your mortgage, in which case it must not exceed 80%.

Advantages of a HELOC:

Interest rates for HELOCs are lower than personal lines of credit
Doesn’t require you to break your existing mortgage, unlike other refinancing options
Borrowers can make lump sum payments against their principal without penalties
Like personal lines of credit, borrowers are only required to make interest payments on their outstanding balance

Disdvantages:

On the other hand, a mortgage is a loan secured by property that cannot be re-borrowed from; refinancing is the only option to tap into the money from your mortgage.

Advantages:

Disadvantages:

What are MFC’s?

Mortgage Finance Companies underwrite and administer mortgages for residential or commercial properties through brokers. MFCs are non-depository financial institutions and largely don’t fund loans themselves. Instead, they seek funding through securitization or big banks. MFCs usually offer a portfolio of options, including fixed-rate and adjustable-rate mortgages, refinancing, home equity lines of credit and more. They also generally service their mortgages with other MFCs that provide the same service.

1st Vs. 2nd Vs. 3rd Mortgages

A mortgage is a loan used to buy a house or property to avoid paying the full amount upfront. It is secured by collateral, which is the house you are buying. Mortgages are very common for homeowners, and many take this route when purchasing a property. But what about second or third mortgages?

Advantages:

Disadvantages:

A third mortgage is a loan based on the value of the borrower’s property. For the borrower, taking out a third mortgage means you have to pay off three mortgages simultaneously, with the first and second needing to be paid off in full first, before the third. Borrowers are evaluated based on their equity, property, credit score and income for this type of loan. While not everyone will be approved, those who are will receive additional access to funds through a third mortgage.

Individual Private Lenders Vs. Mortgage Investment Corporations

Private lending involves one lender or individual personally funding a mortgage. These lenders lend a set amount to borrowers and handle payment terms, receipts and collection. A Mortgage Investment Corporation is a registered investing firm that invests in a secured pool of mortgages. Lending through a MIC is a lower risk than privately lending, as your money is spread across multiple mortgages rather than all in one place. It also entails lower capital requirements, reliable returns and avoids idle funds. While lending privately can involve more risk and personal administrative work, lenders have the opportunity to enjoy higher returns, especially on second mortgages.

Syndicated Mortgage

A syndicated mortgage is an option when two or more borrowers invest in a single mortgage. This typically occurs for properties other than single residential homes, such as condos or commercial developments, to provide developers with funds to complete construction, especially if they aren’t able to source money from banks. Syndicated mortgages give investors the freedom to pick and choose projects to fund, and allows them to register their name on the title of the property, providing some security.

Syndicated mortgages are a higher risk than other loans, and in turn, their interest rates are also higher. This is due to the fact that there is no collateral in place, and the development may fall through. In that case, the property may foreclose, and the investor may not receive their money. There’s also always a risk of losing money to a scam by investing in a syndicated mortgage. There have been many instances of investors falling prey to unlicensed developers and unfair contracts, so it is essential to read the fine print.

BFS Requirements (Business For Self)

A growing percentage of Canadians are self-employed, and business for self mortgages are geared towards this group of borrowers. It’s more difficult for this demographic to get a mortgage, with higher than average expenses (resulting in a lower net income) and proof of income being more difficult to source. If you’re able to provide proof of income as a self-employed professional, you’ll be able to receive conventional mortgage rates and products. However, if you can’t, you’ll have to show good credit history and provide a minimum 10% down payment. To qualify for a BFS mortgage, borrowers will have to provide tax notices of assessment from previous years, business financial statements, revenue projections, credit scores, business licences and more.

It’s beneficial to work with a broker when sourcing a self-employed mortgage, to help you navigate the options and comprehend the terms. We have a pool of lenders, both on the Prime A side and Alternative B side, that understand the uniqueness of each borrower’s situation and the bigger picture to provide the best possible guidance throughout this process.

First-Time Home Buyer Requirements and Government Programs

There are many products and programs in place to support first-time homebuyers and help them break into the real estate market. These include:

The First Time Home Buyer’s Tax Credit gives a $5,000 non-refundable income tax credit on a home purchase, providing a credit of up to $750 in tax relief. This affords buyers the ability to recoup some costs associated with their home purchase, such as inspections or legal fees.

The RRSP Home Buyer’s Plan allows borrowers to tap into their RRSP for a loan of up to $35,000 tax-free to go towards a down payment. This is a great resource as making withdrawals from your RRSP is typically considered taxable income in other cases. As long as you begin repayment two years after borrowing over a fifteen-year period, it’s an effective way to access more funds.

In certain areas, buyers are charged a land transfer tax of 0.5%-2% of the property price when they buy a house. First-time owners may be eligible for the Land Transfer Tax Rebate, which provides a partial or full rebate on this tax. Some provinces also have their own tax credit programs in place to additionally offset fees for first-time buyers.

The GST/HST New Housing Rebate is for those who purchase newly built homes, renovate existing homes or rebuild after a fire. The GST portion of the costs associated with purchasing, renovating or rebuilding in these cases can be rebated to qualified Canadians.

Aside from these programs, there are other aspects of buying a house that first-time buyers should consider, such as a down payment, the money you must pay upfront for your home, which can range from 5% to 20% and higher, depending on the purchase price. There’s also mortgage default insurance, which is mandatory if your down payment is less than 20%. This provides protection to your lender should you become unable to make your payments; it provides insurance against borrowers with smaller down payments.

Finally, the Canadian government offers a First-Time Home Buyer’s Incentive, allowing first-time buyers to finance part of their home through a Government of Canada shared equity mortgage.

Less than 20% Down Payment Requirement

A down payment is a lump sum paid towards the purchase price of your home. There is always a minimum down payment amount, depending on the purchase price of the home. Then, the mortgage covers the rest of the cost.

The minimum down payment amount for purchase prices of $500,000 or less is 5%. For purchase prices of $500,000 to $999,999, it’s 5% of the first $500,000 and 10% for the remaining amount above $500,000. For purchase prices of $1 million and higher, it’s 20%.

Regardless of the purchase price, if your down payment is less than 20%, you are required to buy mortgage default insurance. This insurance protects lenders against the risk that borrowers won’t be able to make payments. Some lenders will require borrowers to get mortgage default insurance even if they have a 20% down payment, usually if the borrower is self-employed or has a poor credit history.

Mortgage default insurance premiums or fees range from 0.6% to 4.50% of the amount of your mortgage. The larger your down payment is, the lower your premium will be.

The lower your down payment, the costlier your mortgage will be; if you borrow more, you’ll have to pay more interest with a high-ratio mortgage. Because of this, some buyers choose to wait and save more for a down payment before buying, while others opt to accept the higher costs in order to capitalize on a current real estate opportunity. If you have the money available, it’s usually better to put down a larger down payment to pay less interest overall, have a lower monthly payment and avoid mortgage default insurance. But in certain instances, such as if interest rates are very low and projected to rise or if housing prices are steadily rising, it can be strategic to buy sooner, regardless of your down payment amount.

Payment Frequency Differences

Taking on a mortgage involves making regular payments until you’ve paid off the loan. The size of these payments can vary significantly based on your mortgage amount, interest rate, amortization rate and payment frequency. Borrowers can select a payment plan that works for them, choosing between monthly, bi-weekly, accelerated bi-weekly, weekly payments or accelerated weekly payments.

With monthly payments, your payment is made once a month, on the same day each month, totalling 12 payments per year. For bi-weekly, the payment is made every other week for 26 payments per year. This is calculated by multiplying the monthly amount by 12 months and dividing it by 26 pay periods in a year. The accelerated bi-weekly plan is similar, but the payment calculation is made by dividing your monthly mortgage payment in half, so you end up paying slightly more than the bi-weekly amount. The same goes for weekly and accelerated weekly: weekly mortgage payments total 52 payments per year, calculated by multiplying your monthly amount by 12 and dividing by 52 weeks in the year. For accelerated weekly, the monthly amount is simply divided by 4, resulting in a slightly higher payment amount than the weekly plan.

Term Differences

Your mortgage term determines how long you are committed to your mortgage conditions, lender and rate. This can vary from six months to 10 years. Once your term is up, you must renew your mortgage until the remaining principal is paid off. Most borrowers will go through multiple terms throughout their amortization period.

A shorter-term mortgage has a term of 5 years or less. This allows you to choose between a fixed or variable interest rate, take advantage of lower interest rates when you sign up and have more flexibility if you want to move or refinance.

A longer-term mortgage has a term of more than 5 years. It allows you to lock in favourable interest rates for longer, although you will be restricted to a fixed rate, and you’ll have to pay a penalty if you want to sell your home before your term is up.

This penalty is known as a prepayment penalty. If homeowners want to break their mortgage term early, such as if they are moving or refinancing, they will be required to pay this substantial fee.

Guarantor Vs. Co-signor

Guarantors and co-signors both act to help ineligible or high-risk borrowers qualify for a mortgage.

A co-signor co-owns the property with the homebuyer. A homebuyer will use a co-signor if their income is too low to qualify for a mortgage on their own. The co-signor is equally responsible for the mortgage and ensuring timely payments; they must sign all of the documents and have their name on the title of the property. They are responsible for the loan, so lenders can collect full payment from them if needed.

A Guarantor also helps a primary borrower secure a mortgage, but usually because of credit issues rather than a lack of income. A guarantor won’t have the same property rights as a co-signer; their name is only on the mortgage and not on the title. They act to guarantee that mortgage payments will be made in full and on time. They are generally in better financial standing than the primary borrower. Guarantors are only responsible for paying off the loan if the borrower has exhausted all their repayment options.

In each case, co-signors and guarantors can be removed from the loan after a period of time, usually once the primary borrower has been able to improve their financial standing, although there may be a fee associated. If this happens before the primary borrower has improved their financial situation, they can apply for refinancing through a B, non-Prime lender. This would entail more lending flexibility but a higher interest rate.

Prepayment Penalty

A prepayment penalty is a fee charged to borrowers who want to pay off their mortgage before the maturity date, pay more than their repayment plan stipulates, break their mortgage or transfer their mortgage. Lenders charge these fees to regain some of the money they would have earned in interest from the borrower in the remaining years of their mortgage pay-off.

Prepayment penalties are typically charged one of two ways:

○ By calculating the sum of three month’s interest on the remaining amount
○ By calculating the IRD or interest rate differential: calculating the difference between the interest fees left to pay on your term between two interest rates. The lender usually uses the interest rate from the time you initially signed your contract and your current rate to make this calculation. This can also be calculated using the current rate for a term in similar length to yours and the current rate for a term in similar length minus the discount you were initially offered.

Some mortgages won’t even require this prepayment fee at all. Open mortgages let you prepay your mortgage at any time, without a fee. Due to this liberty, you’ll likely have to pay a higher interest rate.

A closed mortgage sets an annual prepayment, capping the amount you’re allowed to pay towards the principal amount of your mortgage each year. If you exceed this amount, you’ll be charged a fee. These mortgages have lower interest rates than open mortgages.

Every lender is different, and aside from these options, they may permit you to make additional mortgage payments or increase your payment by specific percentages, known as “prepayment privileges”.

Fixed Vs. Variable Mortgages

Fixed-Rate Mortgage

○ Your mortgage rate and payments will be the same for the entire term of your mortgage. The majority of Canadians choose this kind of mortgage
○ Rates are generally higher than variable rates
○ Allows you to lock into a rate and then forget about it without having to worry about fluctuations. This is also very conducive to budgeting and planning finances
○ When interest rates are low and thought to be at their lowest, it’s a good time to lock in a fixed rate

Variable-Rate Mortgage

○ Your mortgage rate will fluctuate with the Prime lending rate throughout the term of your mortgage. Your rate will be calculated as Prime plus or minus a specific amount ○ Offers generally less expensive rates over time but provides more uncertainty; significant increases to the Prime rate will substantially increase your payment amount ○ If interest rates are expected to fall and continue decreasing, it can be beneficial to choose a variable mortgage and enjoy continually lowered rates ○ Variable-rate mortgages do afford you the option to lock in a fixed-rate for the rest of your term if the Prime interest rate starts rapidly increasing, for example

A third option exists, known as a hybrid mortgage, with a combination of fixed rate and variable mortgages. This involves part of the loan being set up with a fixed interest rate and the other part at a variable interest rate.

Open Vs. Closed Mortgages

Amortization refers to spreading the cost of an asset over a period of time. The amortization period is the time it takes to pay off a loan through a series of fixed payments. So a mortgage amortization period is the number of years it will take to pay off your mortgage, or the total life of your mortgage. An amortization schedule outlines monthly payments, accounting for interest; a portion of each payment goes towards interest, while the rest pays down your principal. While your monthly payment stays the same, the amount paid to interest and your principal will change along the way. This is due to the fact that the more money you pay on your principal, the less interest you are charged.

A typical amortization period will be 20-30 years, with a maximum 30-year amortization period. The longer your amortization period, the more you’ll have to pay overall, with additional years of interest fees. There are a few ways you can decrease the length of your amortization:

○ Make accelerated bi-weekly or accelerated weekly payments, allowing you to pay a bit more towards your mortgage each year than if you pay monthly
○ Make a larger down payment to borrow less money from the start
○ Make use of prepayment privileges to increase your payment amount or make a lump sum payment

Amortization Options

Rent-to-Own Program

A rent-to-own agreement gives a renter the option to purchase the home they’re living in at some point in the future. In this scenario, a homeowner would rent their house to a tenant, who they would collect regular rental payments from. Once the rental term is over, the renter may purchase the house, depending on the contract.

With an “option-to-purchase” contract, they will have the option to purchase, and with a “lease-purchase” contract, they are obliged to buy the house. These contracts were established to assist those with poor credit in becoming homeowners and involve a few requirements:

○ Tenants are usually required to pay “option consideration” or “option money”, which is a deposit, usually 2-5% of the home’s asking price. This gives the tenant the option to buy the house at the end of their rental period.
○ Rent payments are a little different with these programs. The homeowner and tenant will come to an agreement on monthly payments, which will fund two things. The first part of the payment will go towards the rental fee, and the other goes towards the down payment on the house. The idea here is that once their lease is up, the tenant will have paid off enough of the down payment and increased their credit score enough to qualify for a mortgage, whereas they couldn’t have before.
○ Some homeowners like to establish an asking price for the home at the beginning of this program, whereas others will determine the price at the end of the lease. Tenants usually prefer to have the price locked in due to the ever-fluctuating real estate market.

For the seller, this type of contract is appealing as they are able to make a profit off their renter and collect a deposit fee upfront if the tenant chooses the option-to-purchase consideration. The tenant is usually responsible for repairs to the house, taking that responsibility away from the seller. There are some disadvantages for them, though, including the fact that the tenant may not choose to purchase the home at the end of their lease. In this case, they will have to go through the process of finding another renter and initiating a screening process, credit checks, etc. They’re also still on the hook for their mortgage and will have to keep up with regular payments.

For the tenant, there are a few pros and cons as well. With the option-to-purchase option, they can end their agreement at the end of their lease; they are not obligated to buy the house if they want to move, don’t like the neighbourhood, or for any other reason. They will also be able to improve their credit score by making monthly payments. In general, they’ll also be able to enjoy a more flexible way of buying a home, being able to gradually pay off a down payment and potentially locking in a favourable asking price at the beginning of their lease term. On the other hand, unlike typical apartment tenants, they will be responsible for maintenance and repairs and will lose their deposit if they don’t decide to purchase the house at the end of the term. They will also have to abide by the landlord’s rules and repayment requirements; some renters will end up paying more than the house is worth through rent payments coupled with down payment payments.

Farm Properties including Hobby Farms

As a significant percentage of Canadians are involved in farming and agriculture, there are financing options specifically tailored to these populations. There are many expenses and logistics that go along with running a farm, so the mortgage approval process and mortgage terms are usually a bit more complicated and lengthy.

When buying a rural property, there are a few mortgage options.

An Acreage Mortgage is for a plot of unused land that cannot be used to generate a profit. These mortgages are usually for those who want to save money and buy outside of cities, either unused land or land with a home already built. This type of mortgage follows the standard rules: borrowers will have to make a minimum 5% down payment and will have to purchase mortgage default insurance if their down payment is less than 20%.

With farm mortgages, the land in question will be used to generate a profit. Because of this, they usually require a down payment of 25% or more, as lenders face a higher risk based on all the unknowns, costs and risks associated with farming; borrowers are more likely to be unable to keep up with payments than a typical borrower living in a home. Borrowers are often only able to mortgage a certain amount of their land, usually the first 10 acres. They will have to pay for the rest out of pocket unless they are prepared to make a larger down payment.

For farm and acreage mortgages, it’s essential to have the property appraised at the beginning of this process. This will take into account the existing homes or structures, the size of the land, the location, the septic system and water potability so the lender can assess if the property is worth their investment. Water and septic are much more important factors in rural properties, as they aren’t connected to municipal systems and must be taken care of by the homeowner. Because of this, lenders will ask to see a water potability certificate, septic certificate and well drillers certificate before approval. Municipal zoning will also have to be taken into account to determine what the land’s approved use is. If a property is zoned as “county residential,” it is not approved for farming purposes. If it is “agriculture,” then farming is permitted. The borrower will still have to have their farming activity approved by the municipality, though.

The Canadian Agricultural Loans Act program helps farmers and co-operatives that are looking for mortgages with the purpose of farming or another type of agriculture. Through this program, intended to help borrowers establish new farms or improve existing ones, grants single farm operations loans of up to $500,000 for the land, equipment or buildings. Agricultural co-ops can receive a loan of up to $3 million for the organization. This government-backed program provides assurance for lenders, too: up to 95% of the net loss from one of these loans will be covered by the government.

Rural Properties

Buying rural property is very different than buying within a city; it may be more cost-efficient, but it’s usually more difficult to secure a mortgage. There are specific mortgages in place for properties in rural areas, called rural mortgages. These mortgages are higher-risk for lenders as they don’t require a large down payment upfront, and the properties can be harder to resell. Unlike city homes, rural homes have a remote location that not all buyers are interested in; it can take much longer to sell these kinds of properties. So if the borrower is unable to make their payments, the lender would have to repossess the property and pay the carrying costs until they can find a buyer. Before a borrower is approved, a lender will evaluate many aspects of the property, such as the land, structures, water potability, location, proximity to a town or city and ability to resell.

Rural mortgages can be quite expensive for borrowers. As they are considered to be higher risk, they cost more than a standard mortgage.

As with conventional mortgages, you can choose between a fixed-rate or variable-rate rural mortgage.

Fixed-Rate Mortgage

What do the GDS/TDS Ratios Mean?

An ‘assignment’ refers to a transaction where a seller sells their rights to a property before they take possession. The seller isn’t selling the property in this instance, as they don’t own it yet. They are selling their rights and obligations of the Agreement of Purchase and Sale and the promise to purchase it; the new buyer will be stepping into the original buyer’s shoes. The original buyer is the Assignor, and the new buyer is the Assignee.

A common circumstance in which assignments take place is with pre-construction condos. As the timelines are quite long, and there will be a long period between the initial investment and move-in date, buyers often sell their interest in the property. This could happen if they relocate, move, or require a different piece of real estate. It may also occur due to financial reasons if the original buyer can no longer afford the property.

The Assignee has no power in renegotiating the contract; they are adopting it from the original purchaser as it stands and will have to pay the same deposit that the Assignor paid. The Assignor and Assignee will have to negotiate a sale price together. There may be additional conditions for this kind of sale from the builder, such as requiring an assignment fee or requiring approval on the assignment. Builders may also prevent sellers from marketing or advertising the assignment at all. This, of course, makes it more difficult to find a buyer. But there are realtors who specialize in assignments and are tapped into databases of interested buyers.

With assignment sales, there are technically two closings: first, the closing between the Assignor and the Assignee, and second, the closing between the Assignee and the builder. In the first, the Assignor gets their deposit and their profit (or loss) from the Assignee. In the second, the Assignee pays out the remaining cost of the property to the builder, as well as land transfer taxes, and receives the title of the property.

The alternative option to assigning is reselling: waiting until construction is completed and then putting your property on the market. Some of the advantages of assigning vs. resale are:

Assigning

○ Receive your deposit and profits sooner
○ Avoid paying HST and land transfer tax
○ Find a different real estate opportunity that works better for your life
○ Get out of an unfavourable real estate investment

Resale

○ Be able to market your property freely and tap into a larger pool of buyers
○ Have a better sense of the market value of your property, as it is fully completed and registered
○ Doesn’t require a specialized realtor or a complicated process

Assignment Purchase Financing

The alternative option to assigning is reselling: waiting until construction is completed and then putting your property on the market. Some of the advantages of assigning vs. resale are:

Assigning

Resale

What are the Commercial Lending Guidelines?

A commercial mortgage is a mortgage on commercial real estate, instead of a residential property. Commercial properties include offices, retail, construction, farm land and industrial properties, as well as residential investment properties that are either purely residential or residential-commercial mixed.

The timeline on these mortgages is much lengthier than a conventional loan; they take sixty days to one year to close. The qualification criteria are also much more rigid. Lenders will evaluate:

○ Credit history: lenders are less likely to approve applicants with a weak credit history than for conventional loans
○ Type of business: lenders are more or less likely to approve applicants based on the type of business they plan to own
○ Down payment: commercial mortgages typically require a higher down payment or 20-30. While you can’t get mortgage insurance on a purely commercial property, you can get it for a commercial-residential mixed property, with a down payment as low as 15%.
○ Debt service ratio: the ratio of income compared to monthly loan payments will be an important consideration in approving applicants
○ Business performance: applicants who already have an operating business will need to share financial projections, business plans and the profitability of the business

Acceptable Forms of Down Payment

Your down payment doesn’t have to come out of your savings account; there are many acceptable sources of funds you can use. These include:

○ Gifts from immediate family members (parents, grandparents, siblings, or children)
○ Personal savings with a 90-day history
○ Personal loans, line of credits or credit cards, under the insured Borrowed Down Payment Program only (See Borrowed Down payment Purchase program (less than 20% down))
○ Sale from a property
○ Sale from a property
○ Investments
○ RRSP/RRIF (See Self Directed RRSP program)

How Much of a Down Payment do I Need?

The minimum down payment amount varies from property to property, depending on the purchase price of the house. The minimum down payment amount for purchase prices of $500,000 or less is 5%. For purchase prices of $500,000 to $999,999, it’s 5% of the first $500,000 and 10% for the remaining price above $500,000. For purchase prices of $1 million and higher, it’s 20%.

The size of your down payment has significant immediate and long-term impacts. Firstly, it affects the price of the home you can afford. Make use of our mortgage affordability calculator (Link to calculator here) to determine the maximum home price you can afford based on your maximum down payment amount. Your down payment will also determine what your monthly mortgage payments will look like and how much insurance (if any) you will have to pay.

Mortgage insurance is required for high-ratio mortgages, or those with down payments of less than 20%, to provide protection for the lender.

What Do Lawyers Do, and When Should You Get One?

Real estate lawyers are essential players in the process of buying or selling a property. They draw up and file paperwork, help you determine the best course of action, make sure your rights are protected, and generally help move the process along. Look for lawyers who have experience dealing with the type of property in question, are familiar with the location and have ample experience in real estate law.

For homebuyers, lawyers conduct a title search, manage the financial transactions, register the home in your name and draw up the required paperwork, such as a Statement of Adjustments.

If you’re selling your home, your real estate lawyer will draft the deed for the buyer, calculate and manage closing costs and other financial transactions, conduct a title search to make sure there are no errors and create a Statement of Adjustments document.

A lawyer plays a similar role if you are refinancing: they conduct a title search on your behalf, manage the financial transactions and register your new mortgage amount. They also manage the required documents, such as the Trust Ledger Statement.

Prime Vs. Near Prime Vs. Alternative (or A, B or C lenders)

‘A’ lenders refer to traditional institutions to source a loan: banks, credit unions and so on. They usually service borrowers with reliable income and a good credit score. Because banks are federally regulated, if you apply for a mortgage through them, you will be stress tested. This means that applications will be tested to determine whether they can afford to pay interest at the five-year average rate or at a rate two percentage points higher than the average. Stress tests are intended to eliminate risky borrowers or those who won’t be able to make regular payments while providing additional protection for the banks. Because credit unions are federally regulated, they aren’t required to stress test, although some will opt to do so.

‘B’ lenders include banks outside of the major banks and other institutions that offer more flexibility in their financing. They service borrowers with lower credit scores or less reliable income. Because they offer more accessibility, their conditions and interest rates are usually higher than ‘A’ lenders.

Private lenders can be individuals and unregulated financial institutions. These lenders also aren’t required to stress test, and it’s generally much easier to get approved for a mortgage through this route than with a bank or a traditional lender. As with ‘B’ lenders, though, private lenders’ conditions and interest rates are usually higher to compensate for the flexibility they offer.

Whatever lending route you take, there are a few key things to consider and ask your lender. Make sure you know the penalty for missing a mortgage payment, what your prepayment privileges are, your interest rate, your monthly amount and any other specific terms and conditions that may impact you down the road.

65% Loan to Value Mortgage

Both ‘A’ and ‘B’ lenders offer more flexibility for qualifying ratios for mortgages that are 65% or less of the value of the property. They can make more exceptions and alter their qualifications for lower-income borrowers to qualify for higher mortgages, for example, if the ratio is capped at 65% of the value of the property.

This isn’t as applicable to private lenders, as they usually don’t require information on income to qualify. But they may still offer better rates, conditions and fees for borrowers when the LTV ratio is below 65%.

Standard Vs. Collateral Charge Mortgage

A ‘charge’ is something your lender will register when you get a mortgage. It secures the mortgage against your property, so you can’t make any changes to the title without them knowing. There are two ways to register a charge on a mortgage: a standard charge or a collateral charge.

Standard Charge Mortgage:

Assumable Mortgages

An assumable mortgage is an agreement where a mortgage is transferred from the existing homeowner to the new homebuyer; the homebuyer assumes the outstanding mortgage in place for the property. This usually occurs when the existing mortgage has attractive rates and interest rates are generally rising or have risen. The purchaser will still have to go through the mortgage application and qualification process, and the lender will have to approve the transfer. Once approved, they will have to pay the difference between their purchase price and the outstanding amount of the mortgage. Then, they will assume the monthly mortgage payments.

Portable Mortgages

A portable mortgage refers to taking your current mortgage and moving it to a new property. This can occur when the borrower sells their home and moves to a new one, and allows you to maintain your rates and terms. There’s usually no fee for transferring your mortgage in this way and lets you avoid paying additional mortgage closing costs on your new home, as well as the administrative hassle of securing a new mortgage. If your new house is more expensive than your original one, you’ll have to borrow more money, resulting in what is called a blended mortgage, with a combination of your existing rate and current rates. Not all mortgages are portable, so it’s important to consider whether you want this option before choosing a mortgage product.

There are some downsides to consider with portable mortgages, though. You can only port your mortgage once, and you’ll still have to ensure that your new home meets your lender’s criteria; you’ll have to requalify for your current mortgage with them, based on your new property. If you don’t requalify, you may have to break your mortgage and cover all the associated fees. As mentioned, you may have to take on a blended mortgage if your new home is more expensive, and these loans generally have less favourable terms.

Bare Land Condo/Strata

Bare land condo, or vacant land condo, is unused land that can be used to build a condominium.

They offer lower condo fees than traditional options, as maintenance tasks like snow removal and grass cutting may be the responsibility of the owner rather than the building. They also afford buyers more personalization: bare land condo buyers can customize the interior of their homes, as well as making changes to the exterior, as construction has not yet commenced.

Beacon/Credit Score/Credit History

Canadians should aim for a minimum score of 650 in order to access most borrowing products and be considered low risk. But, of course, you should always aim to increase your score to the ‘excellent’ range of 750-900. The minimum score to be approved is between 620 and 680, depending on the lender in terms of a mortgage. The type and size of the mortgage will also impact the minimum score you need; lenders may require a higher credit score for larger loans. Lenders may also require borrowers to have a stress test to determine if they’ll be able to keep up with payments in the future. A few other factors also play into your credit score that a lender may evaluate during your application process, such as income, expenses, debts, gross debt service ratio, total debt service ratio and employment.

If you’re worried about your credit or any of these other factors, you can get pre-approved for a mortgage, so you know in advance exactly how much you can afford. While this won’t guarantee you a mortgage, it gives a good base understanding of how much you’ll be borrowing. This process requires various documentation, such as proof of identity, residency and employment, a record of your finances, and information on your assets and debts.

There are a few key strategies to increasing or maintaining a high credit score:

1. Make your payments on time: stay up to date or early on your payments to demonstrate a sense of financial responsibility.
2. Spend responsibly: spending only a small percentage of your credit limit is an effective strategy for good credit health. Rather than maxing out your card, limit your spending and use your card in a responsible manner. You can always ask for a credit limit increase if you need more access to funds.
3. Pay off your debt: paying down your debt with regular, timely payments is an essential factor to maintaining good credit.
4. Limit your applications: every time you apply for a credit card or loan, lenders will pull your credit report, which is known as a “hard inquiry,” and will decrease your score. The more applications you initiate, the further your score will drop and the more your reputation as a borrower will be impacted, as creditors will see your history of constantly applying and potentially being denied.
5. Review your credit report: keeping tabs on your report is important to stay updated on your score and to make sure all the information is accurate; there could be errors that have an impact on your score or borrowing abilities.

Alternatively, a low score can result from the opposite of these best practices, including missing or late payments, applying for too many loans or products, unresolved errors in your report and more. But as long as you demonstrate responsibility and commit to growing your credit score over time, you’ll undoubtedly be able to enjoy the many benefits it can offer.

How to Get a Mortgage with Bad Credit

While conventional lenders such as banks have strict credit score requirements, borrowers with poor credit can turn to a number of alternative options to source a mortgage. Trust companies, credit unions and subprime lenders are all more flexible when it comes to borrowers with low credit. While they may be able to provide you with more options, keep in mind that you’ll likely have to pay much higher interest rates and fees in return.

If you want to avoid these higher rates, there are a few other things to do. Firstly, you can wait to apply for a mortgage until you’ve built up your credit score. You can do this by making payments on time, spending responsibly, paying off debt, limiting new loan applications and reviewing your credit report. Waiting until your score is higher will afford you a mortgage with much lower interest rates and could save you a lot in the long run.

Another option is to get a co-signor or a joint mortgage. A co-signor is a third-party that signs the mortgage along with you and is equally as responsible for your monthly payments. A joint mortgage usually involves two or more people who live together signing a joint mortgage. In each case, the other person’s income and credit score will also be evaluated, thereby strengthening your application.

There are a few key strategies to increasing or maintaining a high credit score:

Blanket/Inter Alia Mortgage

An Inter Alia mortgage covers two or more properties; a single mortgage is drawn up and is secured against each property in question. Usually, this type of mortgage is used when a homeowner isn’t able to qualify to purchase a new home before selling their existing one. An Inter Alia mortgage allows them to get mortgage financing by setting up a blanket mortgage over multiple properties, to provide additional security for the lender. Once the existing property sells, the mortgage will only be registered against the new home.

Bridge Loan

A bridge loan is a short-term loan used to fill the gap between two closing dates. It is commonly used by homeowners who buy a new home before selling their current home or just have different closing dates. A bridge loan provides the finances needed to cover the cost of the new home before the borrower has access to the funds from the sale of their existing home. This gives homeowners the flexibility of choosing their own closing dates without having to have them line up perfectly. In order to qualify, you must have a firm sale on your current house. The loan amount will be equal to the down payment needed for your new home, and it cannot exceed the amount of remaining equity in your current property.

COVID-19

Holding Company/Business Co title

The COVID-19 pandemic has been difficult on Canadians in terms of job security and financial position. It has been especially hard on homeowners, who have had to worry about covering costs and the state of the real estate market. There are a few programs in place, initiated by the Canadian government and lenders, to lighten the financial burdens and stresses of the last year.

– Employment Insurance
– The Canada Recovery Benefit
– Canada Recovery Sickness Benefit
– Canada Recovery Caregiving Benefit

Aside from government programs, some lenders may offer a bit more flexibility during these difficult times. Ask your lender about Mortgage Payment Deferral Programs, which allow homeowners to apply for a maximum of six months of mortgage payment deferrals. This allows you to put off some of your payments, including principal and interest, for immediate relief without paying more in the long run.

Closing Costs

Closing costs are a part of every real estate transaction; they are the costs you are required to pay when your new home closes. They range from 1.5 to 4% of the purchase price. In addition to closing costs, there are a few other fees you should expect to pay and budget for in the home buying process.

– A home inspection and report, which is an important part of the home buying process, involves a fee of approximately $500, depending on the property
– A deposit is required when you make an offer on a property and goes towards your down payment. There is no standard amount for a deposit, and it will be negotiated between parties, but it demonstrates your commitment to buying the home and that you have access to the necessary funds
– Mortgage default insurance is an additional fee home buyers have to cover, but it is only required if you put a 20% or lower down payment on a property
– The buyer must also pay land transfer tax, which is calculated as a percentage of your purchase price. This varies by city and province.
– You should expect to pay various legal fees to cover the creation of all official documents by the real estate lawyer.
– Title insurance is required by most lenders to provide protection against a potential ownership dispute and will cost you an additional $100-$300.
– If you have mortgage default insurance, you must pay provincial sales tax on it as an additional closing cost – Your property insurance must be instated as of your closing day. This involves monthly or annual payments.
– You’ll also need to begin paying property taxes and may have to reimburse the previous owner if they have already pre-paid taxes for the year. Going forward, you’ll have the option of paying for a year at a time or setting up monthly payments.

There may be additional, less common closing costs the homebuyer will have to cover, depending on the type of property they are purchasing. These include a septic tank inspection fee, water tests for homes with wells or an Estoppel Certificate fee if you’re buying in a condo or apartment. If the previous homebuyer has any pre-paid costs on the house, such as utilities, you may also need to reimburse them.

The lender typically pays for the home appraisal. This provides an estimate of the value of your home and gives the lender a sense of its resale value.

Condos

A condominium, or ‘condo,’ refers to an individual unit in a larger building. They are growing in popularity and construction across Canada and have a few distinct features that set them apart from other real estate properties.

Condos include many common areas. Because there are many units in one building, residents will share a common gym, party room, rooftop, garage, and more. All residents will be required to pay monthly condo fees, which are pooled to cover any shared expenses the building may have, such as renovations, maintenance, security, insurance or savings for unforeseen events. The more high-end the building and its amenities are, the higher the condo fees usually are. There is typically a condo board in place that manages the money and decides how to allocate it. Though condo boards aim to spend money wisely and save for the future, there are sometimes unexpected, large costs that must be covered and require additional funds from tenants. These are called assessments and will usually be added to your monthly fees as an additional charge. An assessment may come up if the elevator needs to be repaired or the roof needs to be replaced.

Aside from finances, condo boards can have power over other decisions. This will vary from building to building, but some condos may have to approve any renovations or new tenant applications.

Many people use the terms ‘condo’ and ‘apartment’ synonymously, but they are actually quite different. A condo you can own, whereas an apartment you can only rent. Choosing between the two will depend on a number of things. Condo owners are able to build equity in their property over time by paying down a mortgage rather than paying a landlord, and have the ability to make changes or renovations to their unit. Apartment owners have more freedom to move when their lease is up and have fewer upfront costs to pay. It all depends on what your goals and life plans are.

There are a few things to consider when evaluating buying a house or a condo as well.

Condos
– Are usually more affordable and better suited to first-time buyers
– Typically more centrally located in major cities than houses
– May not offer as much privacy
– Renovations or changes may require board approval
– Communally funded maintenance

Houses
– Are usually more expensive but allow owners to build more equity over time
– Are usually less centrally located and may require a longer commute
– Offer more privacy and larger outdoor space
– Afford owners complete control over renovations and changes to their property
-Maintenance or upkeep fees fall solely on the homeowner

Obtaining a mortgage for your condo can be a bit different than for a traditional house due to the many common resources in the building. Your lender will likely evaluate the condo complex as a whole when reviewing your application, considering the costs and health of the building.

Cottage/Recreational Property Financing- Type A and Type B definitions here as per Sagen’s U/W guidelines

Secondary Home (Type A)

• Foundation must be permanent and installed beyond the frost line. This includes concrete / concrete block or preserved wood foundations, or post / pier foundations on solid bedrock.
• Must be zoned and used as residential, rural, or seasonal. Mixed uses or rental pooling is not accepted.
• Freehold or condominium title. Co-ops or interest ownership is not accepted.
• At minimum, property must have a kitchen, 3 piece bathroom, bedroom, and common area.
• Remaining economic life must be 25 years.
• Year-round road access on reasonable quality public roads, serviced by the local municipality.
• Privately serviced roads are allowed, provided there is a maintenance contract in place. • Property must be winterized with a permanent heat source. For example, heating can be baseboard, forced air, water radiator, radiant, coal, propane, geothermal heat pumps, or heat pumps.
• Good quality construction with no signs of deferred maintenance.
• Water source: well, municipal serviced, and cistern. Water source must be drinkable. Lake or river water is acceptable, provided the property has its own filtration system. For example, a reverse osmosis system.
• Property must have electrical power. Alternative energy sources may be considered on a case-by-case basis such as solar power, wind energy and generators.
• There must be good market appeal in the area with no adverse influences / neighborhood nuisances.

Vacation Home (Type B)

All Type A property requirements apply to Type B, except for the following:
• No permanent heat source is required. For example, a wood stove, fireplace, stove or heat blower is acceptable.
• Foundation may be floating. For example, sitting on blocks.
• Seasonal road use is acceptable. This means the road does not have to be ploughed during the winter.
• Water source needn’t be drinkable. However, there must be running water in the home.
• Property may be accessible only by boat.
• Holding tanks may be considered provided it is common for the immediate area and meets all municipal/provincial requirements (e.g., CSA approved holding tank).
• Water source needn’t be drinkable. However, there must be running water in the home.
• Property may be accessible only by boat.
• Holding tanks may be considered provided it is common for the immediate area and meets all municipal/provincial requirements (e.g., CSA approved holding tank).

Cottage/Recreational Property Financing- Type A and Type B definitions here as per Sagen’s U/W guidelines

CMHC Green Home

Vacation Home (Type B)

CMHC Green Home

Homeowners who build energy-efficient homes may qualify for funding from the Canada Mortgage and Housing Corporation. This program, called Green Home, aims to encourage energy-efficient construction by providing a maximum of 25% in premium refunds. The refunds are calculated as a portion of the mortgage insurance premium. Eligible homeowners must finance their home purchase, construction or renovation through CMHC.

Building an energy-efficient home is both environmentally friendly and cost-efficient for the owner. It allows you to reduce greenhouse gas emissions by lowering overall energy use while also lowering your utility bill.

Homes that don’t abide by the CMHC guidelines but still wish to qualify for the Green Home refund must be inspected and approved by an NRCan Energy Advisor. They will be given an EnerGuide rating, measured in Gigajoules per year, which expresses the energy efficiency of a given home.

Sagen Energy Efficient Housing Program

Those with Sagen-insured mortgages who wish to buy an energy-efficient home or condo, or renovate an existing home to boost efficiency, are able to receive a partial premium refund of 15% or 25%. Eligible borrowers must apply within two years of their mortgage closing date, and their energy-efficiency documentation can be no more than five years old. Applicants’ homes are required to meet all energy efficiency requirements as of the date of application for mortgage insurance to be eligible.

Debt Servicing or DSR

Your debt service coverage ratio calculates whether your income is sufficient enough to pay off your debts. This evaluation is often used by lenders to determine if borrowers will be able to pay back a loan and generate a favourable return on investment.

To make this calculation, you will need to know the monthly net operating income (NOI) and the total monthly payments towards your debts (debt service). The NOI is divided by the debt service to determine the DSR.

The minimum DSR that lenders require in order to approve a loan is usually 1.20. Anything below this will make it sufficiently more difficult to be approved for financing.

Digital Signing

More and more, digital signatures have become commonplace in the real estate industry; using digital signing is essential for any business to keep up with this new technological world and maintain efficiency. While they save parties a significant amount of time from having to manually sign and review documents, they also offer many other benefits.

First, they provide more security, as the digital document cannot be lost or destroyed and can easily be traced in the future. They also protect against fraud or forgery that can occur much more easily on paper documents, and are legally valid around the world. Digital signing also promotes sustainability, an important element of corporate responsibility, by not requiring excessive paper. This also saves businesses money in the long run by avoiding printing costs.

Equity Lending or Net Worth Lending

An equity mortgage offers a non-traditional approach to lending, by focusing solely on the equity of a home and its marketability, rather than considering credit, income and more as qualifying criteria.

Equity lending allows borrowers to access money based on their net worth without requiring traditional proof of income or documentation, high credit scores or perfect credit history, or low debt ratios.

This solution is designed for borrowers who may have a hard time getting approved for a loan but are low-risk in that they have the funds to pay it off.

There are some asset requirements for equity or net worth lending, including a minimum amount in liquid assets and $1 in liquid asset for every $1 in mortgage for those who need to borrow above a standard qualified amount. Eligible assets include GICs, publically traded stocks, savings bonds, chequing and savings accounts, TFSA, RESP, mutual funds, equity in an existing property being sold, retirement accounts, ESOP, RRIF, and more. There will also be various other requirements that will vary from lender to lender.

First-Time Home Buyer’s Incentive

The First-Time Home Buyer Incentive is designed to make the home buying process more accessible to first-time buyers. It provides borrowers up to 10% of the purchase price to go towards a down payment, lowering the overall mortgage price and interest fees. While this is an attractive program to many new buyers, it is important to fully understand all of its stipulations.

Firstly, not everyone is eligible for the program. To qualify, you must:

– Have never owned a home before, have gone through a divorce or common-law partnership breakdown, or have not lived in a home that you owned in the past four years.
– Have a household income of less than $120,000, including investments
– Be able to pay the minimum 5% down payment. You won’t be able to put down more than 20%, though, as only mortgages with CHMC insurance are eligible for this benefit.
– Be borrowing less than four times your total income. The maximum you’ll be able to borrow is $480,000, as the maximum eligible income is $120,000, and those with lower incomes will only be able to borrow less.

Secondly, this incentive is a government loan, which must eventually be paid back. Homeowners receive the incentive as a shared equity mortgage with the government; the Canadian government lends buyers 5% of the purchase price for existing homes and 10% for new ones. Then, either when they sell the house or after 25 years, borrowers must repay this amount. For repayment, homeowners must pay back either the 5% or 10% that they initially borrowed, with today’s market value in mind. So their initial loan will be calculated as a percentage of their property’s fair market value at the time of sale or the 25-year mark. The government shares in equity growth or losses through this mortgage, so you’ll owe more than you borrowed if your home is worth more at the time of repayment and vice versa.

The amount you owe could dramatically increase over the lifetime of your loan, based on the growth and health of the real estate market, so this repayment is something borrowers must remember and budget for.

Income

You must have a steady and adequate income to be eligible for most mortgages to prove that you’ll be able to sufficiently repay your loan and other debts. But income is not just as simple as your wages; there are many elements that are taken into account for an income calculation.

The first thing to consider is the classification of income you have. Most commonly, borrowers will have employment income, meaning that they work for a company. Usually, lenders will require that they have been employed with the same employer or in the same industry for one year. If your income is more irregular than this, such as seasonal employment or tips, they will usually require a longer record of proof to qualify. Bonuses or commissions can also count towards income, but the more regular they are, the better; lenders are more likely to approve steady bonus amounts. If you are self-employed, you must share a two-year average record of your net taxable income on your tax returns to qualify. Alimony or child support can make up a maximum of 1/3 of your total income. Investment income can also be included if you can demonstrate that it has provided consistent income over the span of a few years. Pension and disability income and other documented forms of income are usually accepted as well.

You may not be able to qualify for a mortgage based on your income if you are unemployed, not employed in Canada, have started a new career or are on probation, are newly self-employed within the last two years, are on maternity leave and don’t have a clear date to return to work, have held your current position for less than two years without guaranteed hours, have a high amount of debts, owe taxes to the government, have a separation or divorce that has not become legalized yet, and more.

Interest-Only Mortgage

An interest-only mortgage only requires you to pay off the interest owing on your loan, rather than paying this off in addition to paying off the principal amount you borrowed. Because you’re only paying interest, your monthly payments will be much lower than a traditional mortgage, but you’ll pay more over time.

These mortgages have a few specific uses, such as for borrowers who have irregular income. In this case, the borrower will only have to keep up with lower interest payments when their income is down and can pay off larger sums of the principal when income is up.

But unless this kind of mortgage is specifically suited to your needs, it’s usually a risky and expensive option. These mortgages are usually only offered by alternative lenders because of this. Interest-only mortgages don’t allow you to build equity in your home through regular payments as traditional mortgages do, so it will be more difficult to pay off your mortgage if you need to move.

The reason they cost more, in the long run, is that they take longer to pay off. Each month that you are making an interest-only payment is additional to the amount you’d pay on a traditional mortgage, as you aren’t paying off any of the principal and extending the amortization period of your loan.

Even though you’ll only be paying interest some of the time, your interest rates will be higher, as this mortgage is higher-risk for lenders. So this will also contribute to you paying more over time, as compared to a traditional mortgage.

Instead of taking this route to save money in the short run, borrowers can save for a larger down payment to reduce their mortgage size, opt for a mortgage with a longer amortization period to decrease monthly payments, or just buy less expensive property. All of these options will be less expensive and less risky for borrowers.

Insurance Premiums

If your down payment is less than 20%, you are required to buy mortgage default insurance, also known as CMHC insurance. This insurance protects lenders against the risk that borrowers won’t be able to make payments. Some lenders will require borrowers to get mortgage default insurance even if they have a 20% down payment, usually if the borrower is self-employed or has poor credit history.

Mortgage default insurance premiums or fees range from 2.8% to 4.0% of the mortgage amount and are paid for by the borrower at the start of their mortgage. While it involves an additional cost for borrowers, it makes the real estate industry more accessible; it provides lower mortgage rates to borrowers who otherwise may not be able to purchase homes, as it insures against heightened risk for lenders.

In Canada, borrowers can apply for mortgage default insurance through the Canada Mortgage and Housing Corporation, Genworth Financial, and Canada Guaranty. To apply, you must:

– Be purchasing a home for less than $1 million and have a down payment of less than 20%
– Have a maximum mortgage amortization period of 25 years
– Have a 5% down payment for the first $500,000 of the price of your home. If your purchase price is higher than $500,000, 10% is required on the remaining amount up to $999,999.

Due to the impacts of the COVID-19 pandemic, as of July 2020, borrowers must also have a credit score of 680 or more, have a GDS ratio of less than 35, have a TDS ratio of less than 42 and not borrow funds to cover their down payment to be eligible for this insurance.

What is the Interest Adjustment?

An interest adjustment is an additional closing cost that certain buyers will have to cover. It is a payment to cover the interest generated on your mortgage loan between your closing date and first mortgage payment. If you close on the 20th of the month and your first mortgage payment isn’t until the 1st of the next month, your interest adjustment will cover the interest accrued in that time. This can either be paid to your lender on closing day or be withdrawn from your account on the interest adjustment due date, which is one day before your first scheduled mortgage payment. It’s a relatively small cost, but you can avoid it by trying to close on the day of your first mortgage payment.

Leased Land

Leased land refers to a situation where a buyer owns a home or building but leases the land it is on. The land and home are owned separately, and the homeowner only owns the structure. Land leases can be a maximum of 99 years, though the home can be bought and sold throughout that period.

There are three key types of leased land properties. The first is commercial developments, built by developers as planned communities who want to continue to manage the land, such as retirement communities. Land belonging to Indigenous communities is also sometimes leased, letting buyers own houses in the area, but allowing the local community to still retain ownership of the land. Finally, public institutions may also have land lease property, such as universities.

There are many upsides and downsides to this type of investment:

Pros:

– Home prices are much lower and more affordable, as the land isn’t included
– Mortgage payments are usually lower than conventional properties due to the lower purchase price
– Property taxes are lower as you don’t own the land

Cons:

– Houses on leased land will still have a conventional mortgage, but some lenders are less willing to fund leased land properties, especially if the lease is about to run out
– Land lease properties are often established in groups and may share common amenities or services like lawn mowing or communal buildings, which will require additional fees for the homeowner
– Once the mortgage is paid off, you will still have to continue paying the lease for the land
– These properties usually require a larger down payment as they are unconventional and less secure
– Resale of the home may be more difficult, as the lease term will be much shorter

In addition to these considerations, it’s also important to consider how much time is left on the lease you’re interested in, as it may impact your mortgage. If the lease is almost up, you run the risk of losing the land if the owner decides not to renew the lease.

Micro Condos

Micro condominiums are 500 square feet or smaller, growing in popularity in crowded, expensive city centres. Buyers will still be able to mortgage this type of property, and their monthly payments will be lower based on a lower purchase price. But while this is an attractive arrangement for buyers, lenders are more hesitant to fund these properties; there are usually more restrictive lending options for smaller units, and some lenders require a minimum of 600 or 700 square feet for financing. It’s partly because micro condos are still emerging in the industry, and they are a step away from the typical condos and regular financing that lenders are used to. These properties are also often bought as investment properties, creating further issues and complications around financing as they present a higher risk. If you can’t get approved for a mortgage on a micro condo through a conventional lender, you can always turn to a ‘B’ lender for more flexibility, although your interest rates will be much higher. But as condo sizes are generally on a decline, lenders and banks may become more accepting of funding micro condos over time as this trend continues.

Military DND Mortgage

A DND mortgage is a residential mortgage administered by the Canadian Armed Forces and is provided by a Canadian institutional lender. To be eligible for this type of mortgage, you have to be personnel in the Canadian military and require housing during your period of service. Because members of the military often move frequently, this mortgage is designed to offer flexibility to their needs while providing some of the benefits of conventional financing. So when a DND mortgage homeowner must relocate, this program covers and assists with many of the moving costs, resale costs, bridge loan negotiations, and new home financing. A DND mortgage is also portable. Additionally, the mortgage prepayment penalties that conventional borrowers are responsible for may be covered by a DND mortgage program.

These mortgages are offered at both fixed and variable interest rates. Interest rates are often offered at reduced rates for qualifying borrowers as a benefit of being a military employee. To apply, you’ll have to be a Department of National Defence employee, provide proof of your need to relocate, cover CMHC rates as applicable, and meet other lender-specific conditions.

Prepayment Options

A mortgage prepayment is any additional payment towards your mortgage, in addition to your regular monthly amounts. With open mortgages, you’ll have the freedom to pay off your loan as much as you’d like, whenever you’d like. It’s an attractive option in terms of flexibility but involves much higher interest rates in return. Closed mortgages don’t offer as much freedom as lenders want to retain their interest earnings from your loan, but there are still usually a few options for prepayment available.

Monthly prepayments allow you to increase your monthly mortgage payments by a certain percentage, defined by your lender. Lump sum payments allow you to pay defined lump sum payments towards your mortgage principal. Lump sum payments usually have to be lower than 25% of your mortgage amount.

Borrowers can also opt for accelerated payment plans to pay down their mortgage faster. With monthly payments, your payment is made once a month, on the same day each month, totalling 12 payments per year. For bi-weekly, the payment is made every other week for 26 payments per year. This is calculated by multiplying the monthly amount by 12 months and dividing it by 26 pay periods in a year. The accelerated bi-weekly plan is similar, but the payment calculation is made by dividing your monthly mortgage payment in half, so you end up paying slightly more than the bi-weekly amount. The same goes for weekly and accelerated weekly: weekly mortgage payments total 52 payments per year, calculated by multiplying your monthly amount by 12 and dividing by 52 weeks in the year. For accelerated weekly, the monthly amount is simply divided by 4, resulting in a slightly higher payment amount than the weekly plan.

There are also opportunities to combine your mortgage with your chequing account so that every deposit pays down your loan. This provides more freedom to borrowers to make payments as they go, rather than adhering to a monthly schedule. The downside to this route is that each withdrawal from your account increases your amount owing on your mortgage and may be more difficult to budget with.

Types of Property

In the real estate industry, there are many different types of properties to choose from. They include:

Single Family Homes

– Are built on a single lot – Usually offer private outdoor space and more privacy
– Provide freedom in making renovations or changes
-Usually have a better resale value
– Require more maintenance than communal buildings, and the homeowner is the sole party responsible for any costs

Condos

– Individual units within a building, usually in more urban areas
– The homeowner is not solely responsible for maintenance or repairs; costs are shared among all residents
– Offer many shared amenities to tenants, such as gyms and pools
– Condo boards or associations require regular fees from residents to pay for maintenance or repairs
– The board may have control over other elements of the building, such as requiring that renovations or new tenants be approved
– Condos offer less privacy than detached homes

Townhouses

– Are usually multiple floor properties with one or more shared walls
– Usually offer an outdoor space or deck
– Provide more privacy than a condo, but less than a single-family home
– Are more affordable than a single-family home
– Sometimes are part of homeowners associations and have joint maintenance fees
– Usually don’t have shared amenities

Cooperatives

– A communally owned building – Usually less expensive than conventional condos
– Maintenance and upkeep are managed and funded communally
– There is a shared financial responsibility among all of the tenants, posing a higher risk
– It may be harder to get a loan for a co-op

Multi-Family Home

– A house with two to four units
– Units can’t be purchased individually – there is one sole owner for the entire property
– Can be successful as investment properties by living in one unit and renting out the rest
– Great for multi-generational families
– Each unit is much smaller than a single-family home
– Offer less privacy than a single-family home
– Landlords are solely responsible for all the maintenance fees

Land

– Raw, undeveloped land – Offers unlimited freedom in construction opportunities
– Usually requires a larger down payment and may be more difficult to source a loan for, as there is no guarantee of an increased resale value
– May require utilities to be installed or brought to the land – Requires building and construction permits

Qualifying Rate

A qualifying rate or stress test helps determine how much you can afford to borrow based on unforeseen future circumstances and worst-case scenarios. It accounts for income losses, heightened interest rates, or poor investment performance. Stress tests offer protection to homeowners to make sure they’re not taking on more than they can manage, and to lenders to ensure a secure investment.

To conduct the test, your bank will determine if you’ll still be able to pay off your mortgage, even if your mortgage rate increases during your term. This is determined by your ability to pay off a mortgage based on the Bank of Canada qualifying rate, which takes an average of 5-year fixed rates from the major ‘A’ lenders into account, and is typically higher than the most competitive rates on the market. If you’re able to afford this rate, meaning your income is sufficient enough, and your debts are low enough, you’ll pass the stress test.

If you aren’t able to manage increased mortgage rates, you may need to consider other options, such as saving a larger down payment and reducing the amount of your loan or choosing a home with a lower purchase price.

Raw Land

If you’re interested in purchasing raw land, otherwise known as vacant land, for residential use, there are specific financing options in place. These options are generally more expensive though for a number of reasons.

First, there are many and more costly fees involved. As with a traditional property, you’ll have to pay for an appraisal and various legal fees, but they may be higher due to transportation costs as your land is likely in a rural area. You’ll also likely have to cover the brokerage fee, as lenders don’t cover this for raw land mortgages. In addition, there will be fees for land transfer tax, HST and GST.

Raw land properties usually require larger down payments depending on their intended use. If your land is in a rural area and you don’t have finalized building plans, the required down payment could be 30-50% of the land’s value, depending on its location and accessibility. You’ll be able to pay a smaller down payment if your land is in an urban or suburban area and you already have plans to develop it immediately. In this case, your down payment will likely be between 20-40%. If your land is in an urban or suburban area, but you don’t yet have building plans, your down payment will be more like 30-35%.

Down payments for raw land properties are higher as there is more risk to the resale value and opportunities. If the lender has to foreclose on the property, it may be quite difficult to find another buyer. There are also other factors that play into down payment requirements. The more expensive the land is, and the more rural it is, the larger the down payment will likely be.

Buyers can usually turn to banks to help finance land purchases of up to 160 acres at the Prime rate plus a certain percentage. If you are buying a property larger than 160 acres, you may require a more specialized loan if you plan to have an agricultural or commercial development. As always, if you’re not able to get approved by a bank, you can turn to alternative or private lenders.

Shelter Costs: Costs of Owning a Home

Aside from monthly mortgage payments, there are many additional costs that go along with owning a home. Some will be regular, while others will be more rare, but are important to budget for as a homeowner.

Utilities cover your heating, water, power and sewage costs and are essential to run your home. These will vary greatly depending on the type of property, the size and age of your home, location, and more. Utilities are paid monthly, and it’s a good idea to ask for an estimate on their cost ahead of time, so you know what to expect when you move into a new home.

If you live in a condo, you’ll likely have to pay condo fees. These usually cover utilities, so you won’t have to pay extra for those services, as well as maintenance of common areas or services. These will vary widely from building to building and are paid monthly.

Property taxes are determined by the local municipality and used to fund communal services, such as garbage collection and road maintenance. Property taxes are billed annually and are calculated as a pre-determined percentage multiplied by the market value of your house.

Home insurance is usually required by mortgage lenders to protect borrowers against theft or damage to the home. Home insurance payments or ‘premiums’ are based on the level of coverage you’re looking for and your specific property. Your premiums will be higher, for example, if you live in a more dangerous neighbourhood or in an area that is more prone to flooding, if your house or belongings are more expensive, if your roof is older, and more. This insurance can either be sourced from an insurance broker, an insurance company agent, or from an insurance company directly and is either paid monthly or annually.

Home technologies, such as internet and cable TV, will also have to be factored into your monthly budget, as well as their installation charges.

You’ll also have to consider maintenance fees for your house, such as snow removal, landscaping, plumbing and more. With home maintenance comes unexpected repairs or damage, such as replacing the furnace or buying a new washing machine. Planning ahead and saving for these larger expenses can pay off in the long run. As a rule of thumb, home maintenance costs around 3% of your home’s value per year if you have a new home and 5% if you have an old home.

Aside from all of these costs, it’s important to set money aside to save for major purchases and the future, or just to pay off your debts.

Sliding Scales

A sliding scale is sometimes used in the mortgage industry to calculate the minimum down payment required to offset the lender’s risk in a certain situation. This tool is generally used for larger mortgages when the lender is facing a larger risk with the bigger loan. The minimum down payment is 20% for houses with a purchase price over $1 million, and the sliding scale is usually used to determine the minimum amount for houses worth $1.25 million and more. Lenders typically provide loans of 80% on the first $1 million, then 50% on the remaining amount from there.

Variable-Rate and Adjustable-Rate Mortgages

Variable-rate mortgages are not the only type of mortgage with fluctuating interest rates. Adjustable-rate mortgages also have interest rates that change depending on the Prime rate.

With ARMs, your interest rate automatically increases or decreases based on the Prime rate of your lender throughout your mortgage term. This allows you to maintain your amortization schedule by constantly adjusting your payment amounts to keep up with interest rates and Prime rates. As it is so flexible, it can allow borrowers to tap into lower interest rates as soon as they become available.

While variable-rate mortgages also have fluctuating interest rates, they can only change at the beginning of a mortgage term; the rate and monthly payments remain fixed for the entire mortgage term. If the Prime rate decreases during your term, you’ll still pay the same amount, but more of that payment will go towards paying off the principal and less towards paying off interest, and vice versa. Because of this, your amortization period may be longer or shorter than expected, based on how rates have changed since the beginning of your mortgage term.

With either of these options, you always have the opportunity to switch to a fixed-rate mortgage if you want to lock in a favourable rate and opt for a more consistent solution.

What are Mobile, Manufactured and Modular Homes?

Aside from the most common types of real estate, there are also mobile, manufactured and modular homes that you can buy. Mobile homes are factory-made and transported to the property. While they can use metal tie-downs, they are usually intended to be moved. They also have to be manufactured before June 15, 1976, to be considered a mobile home, based on the U.S. National Manufactured Housing Construction and Safety Standards Act.

Manufactured homes are very similar to mobile homes: they are built in a factory and then brought to their property, although they are usually set up with some kind of foundation and not meant to be moved in the future. They also have to be built on or after June 15, 1976, to be deemed a manufactured home.

Modular homes are again factory-made before being transported to a specific piece of land, although they resemble traditional homes more than mobile or manufactured homes do; they use a permanent foundation and can have basements. Modular homes are usually delivered in pieces, hence their name, which must be assembled onsite.

While these three types of homes are generally more affordable than traditional single-family homes, they may still require financing, which may be challenging. There are a few options to consider to fund this type of home:

Power of Attorneys and Estates

A Power of Attorney in real estate is a document giving an individual the power to make decisions about your property and finances in the event that you can’t make those decisions yourself. It must be in writing and signed by you, the property owner, and two witnesses, in order to be legal. The attorney is usually a close friend or a family member, and their power depends on how much you grant them and when. They could buy or sell real estate, pay your bills or make investment decisions on your behalf. Many people will choose to have their Power of Attorney come into effect only when they are older and unable to make decisions anymore, in which case they must clearly outline this. Unless otherwise stated, your POA will remain binding until you die.

Your attorney for property must be 18 years old or older and mentally competent. You can designate multiple attorneys, alternate attorneys in case something happens to your primary choice, or trust companies to act as your attorney. This may be a good option for those who want a third party to manage their finances rather than a family member.

To give POA for property, you must be 18 years old or older and mentally competent. You must also have a solid understanding of the property you own and its value, and what it means to give power of attorney, as well as the potential consequences.

Tax Arrears and Notice of Assessments

Staying up to date on your income taxes is incredibly important in itself but can also impact your mortgage eligibility.

If you don’t pay your taxes, the CRA may put a claim on your assets, called a Super-Priority Claim, allowing them to seize and sell your house. This is an extremely unfavourable situation for you but also for mortgage lenders, as they will be in second place after the CRA to be paid back, assuming there is enough money to do so. Because of this, it is very difficult to receive a mortgage from conventional lenders if you are not up to date with your income tax payments.

For self-employed individuals, your Notice of Assessment, or NOA, will be a crucial document for this process, as it either confirms that the CRA approves your tax filing or outlines any discrepancies for you to rectify. Mortgage lenders will want to see this document to ensure your taxes have been paid and to assess your income to determine your mortgage amount. If you don’t claim very much personal income as a self-employed person, you can opt for a Stated Income Mortgage, where documentation other than your NOA is considered in your mortgage application.

Managing your taxes can be overwhelming for newly self-employed individuals, but it is vital that you stay on top of it and keep money aside for payments, or else you may fall behind and won’t be able to qualify for a loan down the road.

Pre-Qualifications, Pre-Approvals and Rate Holds

A mortgage pre-qualification is the initial process of applying for a mortgage and estimating how much you can expect to be approved for. It requires providing your lender with information on your income, assets and debt. It is not an in-depth process and doesn’t consider credit rating; it is an initial assessment of your financial standing and options.

Mortgage pre-approval comes after pre-qualification and involves a deeper dive into your finances. It will tell you how much you can afford to borrow, and therefore the price of the home you can afford to purchase. This process requires you to provide an official application, credit rating, and other financial and personal documents to your lender. A pre-approval may supply you with a rate guarantee for a certain amount of time. Mortgage pre-approvals are beneficial to have before beginning your home search, as you’ll receive a conditional commitment for a certain loan amount in writing and know exactly how much you can afford. It may also be helpful to have this information ahead of time to show the owner of a property you want to purchase, as it can set you apart from other interested buyers in a potential bidding war.

This process usually takes a few days, depending on your situation and the complexity of your finances, and provides approval for a set period, usually 90-120 days, pending that your financial situation stays the same.

A rate hold allows a borrower to lock in a rate for their fixed-rate mortgage for a set amount of time, usually 60, 90 or 120 days. This option can be advantageous, as borrowers will still receive their set mortgage rate if rates increase during the hold period. If rates decrease, borrowers will be able to access the new, lower rates available. You can either get a rate hold with a bank or a mortgage broker. A bank will lock in the current mortgage rate for your specified amount of time, which you will be entitled to until the hold period is up. Mortgage brokers, on the other hand, usually secure a variety of rates with different lenders, each with different rate holds, in order to secure you the best deal. Getting a rate hold does not guarantee approval on your mortgage application, so it can be beneficial to also get a pre-approval ahead of time.

Mortgage Refinance or Renewal

If you want to refinance your mortgage, you must take out a new loan to pay down your initial mortgage loan.

You’ll want to consider all your options when refinancing by comparing rates and terms with various lenders and the terms of your original loan. Ensure that you evaluate the up-front fees and prepayment penalties of refinancing too. Otherwise, there are a few pros and cons with refinancing.

Pros:

– Access lower interest rates, and therefore lower monthly payments, if your credit score has improved or market rates are down since you initially took out your mortgage
– Access equity in your home
– Change your mortgage rate
– Change your loan term. If you shorten your loan term, you can usually qualify for a lower interest rate, saving you money in the long run

Cons:

– If you decide to extend your loan term, you’ll end up paying more interest over time
– If you cash out some of your home equity, you’ll have to borrow more with your new mortgage loan, thereby likely raising your monthly payment amount
– You may not be able to secure a better rate or terms with your new loan, depending on your credit score and the market rates

There are three methods of refinancing:

A Rate-and-Term loan provides a new interest rate and/or loan term from your original mortgage without changing the overall loan amount. This is suitable for those who want to access a lower monthly payment amount or want to switch their loan terms.

A Cash-Out loan allows you to cash out some of your home equity, creating a higher loan amount and higher monthly payments and interest rate. This is suitable for those who have expenses to cover and need access to cash.

A Cash-In loan allows you to pay more up-front and reduce your mortgage balance. Doing so can allow you to access a lower interest rate or avoid having to pay mortgage insurance, and is suitable for those who have a lump sum they want to put towards their principal amount.

To qualify for any of these options, lenders will take into account your credit score, income and employment, payment of your existing mortgage, home equity, the value of your property, current debts and more.

Rentals (all on LenderSpotlight)

Buying an investment property or a property you intend to rent out to generate income can be a successful investment. Sourcing a mortgage for this type of property, however, can be more difficult than for your primary residence.

The first thing to consider is how many units your building has. If there are 1-4 units, it will be considered residential, while 5 or more units is considered commercial in terms of zoning. It is simpler to qualify for a residential investment property mortgage than a commercial mortgage.

You must also decide whether you’ll be living in one of the units or renting them all out. If you live in a unit yourself, your building will be deemed ‘owner-occupied,’ which requires a lower minimum down payment. If your home is owner-occupied, the minimum down payment is 5% for 1-2 units and 10% for 3-4 units, whereas it is 20% for 1-4 units not owner-occupied. As with traditional mortgages, you’ll be required to obtain mortgage default insurance if your down payment is less than 20%. Additionally, if you put down less than 20%, your maximum amortization period will be 25 years. But if you have a larger down payment, you may be eligible for a 30-35 year period, regardless of whether it’s owner-occupied or not.

While some smaller-scale lenders don’t offer investment property mortgages, you should be able to secure standard mortgage rates and terms for your investment property through conventional lenders, as long as you can make the minimum down payment and meet the criteria. Qualifying criteria include providing proof of income, proof of existing tenants, the Agreement of Purchase and Sale, and the zoning document that determines whether your property is residential or commercial. Your Gross Debt Service Ratio and Total Debt Service Ratio will also be evaluated to ensure that you’ll be able to make your monthly payments.

Reverse Mortgages

A reverse mortgage is specifically designed to help retirees or seniors access their home’s equity without having to sell the property. With this loan, the homeowner receives some of their home equity in the form of cash payments from their lender, without mandatory interest and principal payments. It is essentially a loan taken out in instalments that uses your home as security and also as the asset that will eventually help pay back the loan. To qualify, you must be a Canadian homeowner, 55 years old or older. Lenders may also consider the equity in your home, the location of your home, and the appraised value of your home.

As you take out this loan, of course, your unpaid mortgage balance will increase. This increase may be slightly counterbalanced if your home also appreciates in value. This money will have to be repaid when the owner sells the home or dies, but offers immediate funds and flexibility. This option is especially attractive to retirees, as you don’t need a source of income to qualify, as with second mortgage loans or Home Equity Lines of Credit. Through this option, the lender doesn’t take any ownership of your home; you will remain the sole homeowner and will be responsible for all payments and maintenance fees.

Other things to consider:

– Reverse mortgages have higher interest rates. You may be able to access a lower rate if you take out your equity in a lump sum, though
– These loans reduce your home equity, which may impact your plans for distributing inheritance
– Funds from this mortgage are tax-free and don’t impact your eligibility for Old-Age Security or the Guaranteed Income Supplement
– You may have to pay up-front fees for this loan, such as a home appraisal and application fee

Spec Homes

Spec homes are brand-new, builder-made homes that are constructed before there is a buyer in place. These homes are often attractive to buyers who want a new, never-before-lived-in home but don’t have the time to wait for it to be built. It also allows buyers to avoid the complicated, lengthy and expensive process of building something from scratch. If one of these homes has all the finishes and features that you are looking for and would have chosen yourself, it can be a great, streamlined strategy for purchasing a new home.

Student Housing

Student housing properties can also be financed, although this poses a bit of a challenge compared to conventional mortgages; student rentals have more of a perceived risk.

While lenders usually approve borrowers based on their qualifications, they may also take the property appraisal into consideration. It is beneficial to have the appraisal completed for your lender, regardless of whether you’ve been pre-approved or approved for the loan already.

You’ll likely also have to put down a larger down payment, up to 35%, to account for the higher perceived risk to the lender. If you are purchasing this property for your child to live in while they are in school, the conditions of your mortgage may additionally change, which your advisor will be able to help you with.

If you’re able to source a mortgage and find respectful tenants, student housing can be a great investment for the owner, providing income through monthly rent.

Mortgage Switch or Transfer

A mortgage switch, or a transfer mortgage, involves shifting your current mortgage from one lender to another. Unlike refinancing, where all the terms of your mortgage are reset, with a mortgage switch, the only things that change are your term and interest rate. This is an ideal solution if you want to take advantage of lower interest rates in the market or are unsatisfied with your current lender but aren’t interested in changing any other terms of your mortgage.

If you break your mortgage, there will likely be a penalty, but the savings you’ll receive by switching to a lender with better rates will often more than make up for it. You can also opt to avoid this penalty by switching at the end of your mortgage term. Other costs that you’ll have to consider and may have to cover include an appraisal fee, an assignment fee to transfer the mortgage, a discharge fee to discharge your old mortgage, and various legal fees.

While there are many reasons why someone may decide to switch their mortgage, there are two primary scenarios in which it makes the most sense:

1. Lower Mortgage Rate Switching to another lender can afford you a lower mortgage rate and the opportunity to avoid thousands of dollars in interest charges over the duration of your loan period.

2. Better Terms and Conditions It can be beneficial to switch your mortgage when another lender can offer you more advantageous terms and conditions and repayment options. This could help you pay down your mortgage more quickly and save you from having to pay additional interest in the long run. You may also be able to enjoy greater flexibility if your new lender allows you to adjust your monthly payment amount more frequently.

To qualify for a mortgage switch, you’ll need to choose a lender and submit a mortgage application. You’ll have to provide them with documentation, including proof of income, proof of property insurance, proof of homeownership and a copy of your mortgage renewal from your current lender. Once approved, your new lender will get a payout statement from your old lender, with all the details of your loan.

There are a few cases in which switching your mortgage isn’t possible. This includes if you have a collateral mortgage, in which case you’ll have to hire a real estate lawyer to help you get out of the contract with your current lender. If you want to make changes to your mortgage loan amount or amortization period, you’ll have to refinance with your existing lender rather than switching to a new one.

Title Insurance

Title Insurance provides buyers and lenders with insurance against title defects. This form of insurance aims to protect homeowners from any losses or damages that may result from title defects, such as title fraud, zoning or survey issues, legal coverage or registration errors. These title defects significantly impact the ability of owners to sell their property or take advantage of its equity. There are some important exclusions from title insurance policies, though, such as environmental contamination, multi-unit properties, water potability and more. But simply requiring a one-time payment, title insurance affords buyers peace of mind against many unforeseen risks.

How to Increase Your Credit Score

Your credit score is a number between 300 and 900 that reflects all your credit transactions. The lower your score, the more of a borrowing risk you are considered by lenders, whereas you’ll be regarded as more creditworthy the closer to 900 you are. Your credit score is evaluated and impacted every time you apply for a credit card, mortgage and other loans; you may not be approved for certain products if your score is too low, or you’ll have to pay higher interest rates to compensate.

Canadians should aim for a minimum score of 650 in order to access most borrowing products and be considered low risk. But, of course, you should always aim to increase your score to the ‘excellent’ range of 750-900. The benefits of having a higher score include enjoying lower interest rates, receiving access to higher credit limits and loans, and generally having a higher chance of approval for future products. There are a few key strategies to increasing or maintaining your credit score:

1. Make your payments on time: stay up to date or early on your payments to demonstrate a sense of financial responsibility.
2. Spend responsibly: spending only a small percentage of your credit limit is an effective strategy for good credit health. Rather than maxing out your card, limit your spending and use your card in a responsible manner. You can always ask for a credit limit increase if you need more access to funds.
3. Pay off your debt: paying down your debt with regular, timely payments is an essential factor to maintaining good credit.
4. Limit your applications: every time you apply for a credit card or loan, lenders will pull your credit report, which is known as a “hard inquiry,” and will decrease your score. The more applications you initiate, the further your score will drop and the more your reputation as a borrower will be impacted, as creditors will see your history of constantly applying and potentially being denied.
5. Review your credit report: keeping tabs on your report is important to stay updated on your score and to make sure all the information is accurate; there could be errors that have an impact on your score or borrowing abilities. Alternatively, a low score can result from the opposite of these best practices, including missing or late payments, applying for too many loans or products, unresolved errors in your report and more. But as long as you demonstrate responsibility and commit to growing your credit score over time, you’ll undoubtedly be able to enjoy the many benefits it can offer.