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Peter Mazzuchin
Real Estate Broker, Investor, Author, B. Comm

Keller Williams Real Estate Associates, Brokerage
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Ron Kirby - Mortgage Planner

Frequently Asked Questions

What are the sources for mortgage financing?

There are a wide range of financial institutions that are involved in the mortgage industry in Canada. Some of these include:

  • Chartered Banks, Loan Corporations
  • Trust Companies, Credit Unions
  • Finance Companies, Pension Funds
  • Life Insurance Companies, Private Individuals

Your Mortgage Architect Planner will select the mortgage lender who’s right for you!

Will I need mortgage insurance?

A mortgage is a large debt and should be life insured, for your family's peace of mind. Some lenders include life insurance as part of their cost; others will let you insure the mortgage yourself. But Mortgage Architects always recommends mortgage insurance in some form.

How much will it cost me to have a Mortgage Architect Planner?

For most people the Mortgage Architect Planner provides a free service. They receive their fee from the lender providing your mortgage.

Will this fee increase the cost of the mortgage?

No because the lender either has to pay its own sales staff to originate mortgages or it can pay a broker – it’s all the same.

What is the best term to consider?

Usually the shorter the term the lower the rate. However many people prefer the comfort of a longer-term mortgage and as an example we have provided a historical tracking of the five-year rates. This is another area where your Mortgage Architect Planner can help.

How does my amortization affect the amount of interest I pay?

The amortization period has a dramatic effect on the amount of interest paid over the length of the mortgage. Consider the example of a $150,000 mortgage with an interest rate of 6.20%*

  • With a 25 year amortization the monthly payments are $977.61
  • With a 20 year amortization the monthly payments are only increased by $107.57 to $1085.18. The savings in interest would be $32,843.40
  • With a 15 year amortization the monthly payments are increased by only $298.03 to $1,275.64. The savings in interest would be $63,669.38

* The example assumes the interest rate will remain constant through the whole amortization period.

What difference does payment schedule make?

Most mortgages have very flexible payment alternatives. Weekly, bi-weekly, or monthly payments are most common. These choices also have a great effect on the overall interest payments.

Consider the example of a $150,000 mortgage with an interest rate of 6.20% over a 5 year term.

 PaymentRemaining balance at end of term
Weekly$244.40$129,285.80
Bi-weekly$488.81$129,327.89
Monthly$977.61$135,132.08

How does the 5% Down Payment Program Work?

Under the 5% Down Payment Program, the minimum down payment of 5% of the purchase price or appraised value, whichever is less.

The down payment must be from customer’s own resources or an outright financial gift from immediate relatives.

If the minimum equity requirement is being met by way of a financial gift, the funds must be in the possession of the borrower at the time of application.

Borrowers are also required to demonstrate at time of application the ability to cover a closing cost equal to at least 1.5% of the purchase price.

Maximum purchase price can range from $125,000 to $300,000. Your Mortgage Planner  will confirm the maximum in your market area.

Maximum GDSR= 32% (i.e. Principal + Interest + Property Taxes + Heating Costs must not exceed 32% of Gross Income).

Maximum TDSR= 40% (i.e. Principal + Interest + Property Taxes + Heating Costs + Monthly Obligations including Credit Cards & Loans must not exceed 40% of Gross Income).

Minimum loan term for CMHC is 6 months with loan qualification based on the current 5 year rate.

GENCOR (GE Capital) currently has no minimum term requirement.

The mortgage loan insurance premium is 3.75% of the mortgage amount. (Premium can be added to the mortgage or paid separately).

Credit history must be in good standing.

How does the Home Buyers’ Plan (HBP) work?

Each purchaser may borrow up to $20,000 from their RRSP under the Home Buyers’ Plan. (The funds must have been in the RRSP for at least 90 days prior to withdrawal to be eligible under the program)

Provided you buy or build a qualifying home and meet all of the conditions for making a withdrawal under the Home Buyers’ Plan, you can use the particular funds you withdrew under the Home Buyers’ Plan for other purposes. (Not only down payment and closing cost, but for any other purpose you choose.)

This program is available to the first time home buyer only. (You are considered a first time home buyer if, at any time during the period beginning January 1, 1995 and ending 31 days prior to your withdrawal in 1998, you did not own a home while you occupied it as your principal place of residence)

This information is current throughout 1999. And the program has been extended indefinitely.

Repayment of the funds back to your RRSP can be made over 15 years. (The repayment period starts in 2001 and ends in 2015)

If the amount is not repaid in a year, that year’s repayment amount will be added to your income and taxed.

In order for the home to qualify it must be located in Canada and intended to be used as your principal residence.

This program may be used in connection with the 5% down program.

If you have any questions about the HBP program you can call the General Enquiries section of your local tax services office. You can find the address and telephone number listed under “Revenue Canada” in the Government of Canada section of your telephone book.

What information is required to be Preapproved for a Mortgage?

If you are applying for a preapproved mortgage, have following information ready to give to your Mortgage Architect Planner:

  • Have your employer give you a letter on company letterhead outlining your name, position, gross annual income, and number of years employed with the company.
  • If you are self-employed, you will need three years financial statements, and tax returns (together with official assessment from Revenue Canada).
  • Social Insurance Numbers.
  • At least 3 years history of residences and employers.
  • Know your banking information (i.e. institutions name, address, type of accounts, account numbers)
  • Know your assets and their value (i.e. cash amounts, stocks, bonds, RRSPs, car).
  • Know your liabilities (i.e. car loan, credit card balances).
  • Also, be sure and advise your Mortgage Architect Planner about any past credit problems you may have had.
  • Finally, write down a list of questions you would like to have answered.

What costs will I have to pay on closing?

To avoid any surprises on closing, a good rule of thumb is to set aside an amount equal to 2-3% of the purchase price to cover expenses like these:

  • The Offer
  • The Deposit: Part of your down payment, a deposit is due upon acceptance of your offer.

Prior to Closing

  • Home Inspection: Prepared by a qualified inspector to assess the property for defects and poor maintenance.
  • Appraisal: Prepared by an appraiser chosen by the lender, by CMHC or GENCOR if the mortgage is insured by either company.

Closing Costs

  • Legal Fee/Disbursements: Your lawyer will quote his fee for closing the purchase and mortgage(s) plus an approximation for his disbursements, which includes registration fees, courier costs, photocopies, etc. Ask for an estimate.
  • Land Transfer Tax: See the chart enclosed in this package to calculate the Land Transfer Tax which is due on closing and reflected in the “Statement of Adjustments” which your lawyer prepares prior to closing day.
  • Interest Adjustment: Monthly mortgage payments are due on the first of the month. Unless the closing date is the first of the month, you must prepay the amount of the interest accruing up to the 1st day of the following month, the Interest Adjustment Date.
  • CMHC or GE & PST: If your mortgage is insured by CMHC or GENCOR the insurance premium will usually be added to the mortgage so it is not a cash requirement on closing. However, the premium is subject to 8% PST, and the tax must be paid on closing.
  • Prepaid Expenses: If the Vendor has prepaid any other expenses such as utilities, water and sewage taxes, oil in tank or taxes, he must be compensated. This will be reflected in the Statement of Adjustments.
  • Property Tax Hold-back: If the lender is collecting and paying property taxes you may be required to pay to the lender an amount to ensure sufficient funds are available to pay the next installment of property taxes when due.

Other Fees: Occasionally, a lender or the broker will charge a fee for providing the mortgage. If so, these costs should be disclosed to you at the time the Statement of Mortgage is issued to you.

If you have any questions that are not listed here, please email us and we will respond to your email as quickly as possible:

ron.kirby@mtgarc.ca

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