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Understanding Home-ownership in Canada: From Selecting to Paying off Your Mortgage

Home Ownership experience

Back in 2016, nearly two-thirds of Canadian families – 63% of them, to be exact – owned their homes. However, only 43% of these people had paid off their mortgage. Between 1999 and 2016, mortgage debt represented 66% of the overall increase in debt for Canadian citizens.

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If your dream is to own a home, you should know that purchasing a house can significantly boost your credit score. However, many people are interested in the homeowner’s lifestyle, but they are also worried about getting into debt. To help with this dilemma, here are some essential factors you should be aware of regarding home ownership in Canada.

Choosing Between Different Types of Mortgages

Even if you want to buy a house, it is crucial to be aware that you are not required to do so. The only way to do so is mandatory is when you apply for a mortgage loan. There are several different options available for mortgages in Canada – fixed-rate mortgages, variable-rate mortgages, and variable-rate mortgages with a fixed payment. Because of the higher interest rates associated with variable-rate mortgages, obtaining a fixed-rate mortgage loan for your first home is probably best.

Mortgage Payment Frequency

People who ask themselves, “Do I have to pay my mortgage in Canada?” should know this is a common question. Fortunately, there are several options available for scheduling your monthly payments. Monthly payment schedules include the following:

  • Weekly payments (1/52 of the total loan amount)
  • Biweekly payment schedule (1/26 of the total loan amount – half of a monthly payment)
  • Semi-monthly payments (twice per month – 1/24 of the total loan amount)
  • Monthly payments (1/12 of the total loan amount for twelve months)

Regardless of which schedule you choose, it is essential to know that your mortgage loan probably won’t be paid off by the time you retire. On average, Canadians who live in major cities will still have a mortgage balance of $110,000 after 25 years of making payments on their homes.

Amortization and You

The word “amortization” might sound intimidating at first, but it is nothing to worry about. Amortization means that part of your mortgage payment schedule goes towards paying down the principal amount of your home loan. The rest of your payments go towards interest charges. If you pay off your house by making lump-sum payments or by letting your mortgage loan terms expire, you will have to pay the penalty.

You may be wondering what would happen if you did not make a mortgage payment for a while. Unfortunately, this can lead to the loss of your home and other serious consequences that could ruin your financial stability. It would help if you tried to avoid this by setting up an automatic withdrawal schedule for paying your mortgage in Canada.

Obtaining a Mortgage in Canada

The only way you can obtain a mortgage loan in Canada is by applying for one with a financial institution or bank. Of course, this means that you will need to submit extensive paperwork and go through several different stages. Make sure that you provide the bank with all of your monthly income and banking information so they can determine whether or not you are eligible for a loan.

When it comes to receiving a mortgage in Canada, there is one thing you should know: the larger your down payment is, the better off you will be. Your credit score and history play a significant role when it comes to determining whether or not you are eligible for a loan. If you have several different types of credit accounts that are all maxed out, then the bank will probably reject your application.

Your credit history is even more critical if you apply for a mortgage with little money down. That is because the more significant the down payment you make, the lower your actual home loan amount will be. In addition, you should know that banks and other lending institutions typically require a minimum down payment of 5% to 10%.

Figuring Out Your Down Payment

One of the main concerns about home-ownership in Canada is that you have to pay a down payment. Banks might require you to pay as much as 20% of the purchase price before giving you a mortgage loan. To buy a home worth $500, 000 your down payment needs to be at least $100 000. However, it is essential to know that you can buy a house with less than 20% down.

Suppose you have a family member willing to invest in your house by becoming a part of the ownership structure called “equity sharing.” In that case, it might be possible to buy a home even without paying any money upfront. It is also possible to finance more than 80% of the purchase price by taking out a second mortgage loan.

How to Pay Off Your Mortgage Faster

One of the main benefits of home ownership is that you can access all sorts of financial assistance programs. For example, suppose you want to renovate your house and higher-quality materials than your budget allows. In that case, it might be possible for you to finance the purchase by taking out a home renovation loan.

In addition, you might be able to take advantage of the tax relief offered by the Canada Revenue Agency. For example, if you make a down payment of more than 20%, you might qualify for a refund on your taxes over several years.

Another way to pay off your mortgage faster is to invest in a tax-free savings account. Regarding other ways to pay off your mortgage faster, it is essential to know that the longer your amortization period, the more you will have to pay in interest.

In Conclusion

If you want to buy a home without worrying about getting into debt or paying a down payment, it might be a good idea to get in touch with a mortgage specialist. It is also possible for you to improve your credit score to access different types of loans. In addition, there are several different financial assistance programs available when it comes to home-ownership in Canada.

If you have any query related to Mortgage, home equity, home-ownership, home loan or refinance then visit our website home page or Call us directly at 1-855-567-4898 (toll free).

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How Financial Institutions Calculate your Mortgage Payment

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If there is one thing we have all learnt since we were kids, it must be that prices can be deceiving. As children, when we buy something we like, the cost on the shelf could be different from the cost on the counter because of the sale tax. However, we didn’t know that those tiny unexpected increments prepared us for the concept of interest and principal amount.

Every economy’s financial institutions thrive on the concept of interest. Since a mortgage is one of the services, financial institutions offer, the idea of interest is an integral part of it, and it, along with the principal amount, makes up the mortgage payment. So, what is this mortgage payment?

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Mortgage payment runs on the concept of interest and principal. It is the actual money off your mortgage and the interest you pay your mortgage lender for borrowing you the money you need to buy a house. There’s more; find out all about it as you continue to read.

What is Mortgage Payment

Your mortgage payment is a combination of the principal mortgage payment and the interest. There is not much to say about the principal amount, as it is the actual value of the mortgage itself, with interest being the cost you pay to your financial institution for giving their money to help you get the house you want.

Your principal amount is essential, and it determines the interest you will pay during the cycle of your mortgage payment. You see, your mortgage lender charges you interest on the principal amount that you owe. So, the more you continue to pay down the amount you owe, the more interest you will gradually reduce.

This means that the earliest period of your mortgage is usually the most expensive, as you haven’t made a considerable payment on the principal amount itself. Although if you can make those early days relatively inexpensive if you have enough cash to pay as your initial deposit or down payment. Your interest would be lower when you do this, as you have made headway with the principal amount.

Your mortgage payment comprises monthly payments that you will pay until the mortgage term runs out. The payment depends on the interest rate that the bank offered you, and you accepted it at the beginning of the mortgage. Although you may want to finish paying before the agreed term, it would cost you as mortgage lenders require you to pay a pre-payment penalty or charge if that happens.

Now, since the principal amount is precise as it is the amount you truly need, how about the interest you have to pay, and why do mortgage lenders charge interest anyway? The truth is, interest is how mortgage lenders make their money for providing you with the cash you need.

As you can see, you need to have an idea about how your mortgage lender determines the interest rate you pay. Don’t worry. We promise not to bore you with the mathematical calculations, but you will know what you need to know about interests before you apply and sign for a mortgage term.

How your Financial Institution Calculate your Interest

You might wonder why there is a semblance in interest rate after getting offers from multiple lenders. It does look unfair. It is like the whole Canadian mortgage system wants to fleece you of your hard-earned money.

We can tell you that they aren’t trying to fleece you of your money. In fact, you and your lender have something in common. You both are borrowing money. Shocked? Don’t be. We will make it more straightforward now. Picture this. Your mortgage lender is borrowing money from the government, and as your mortgage lender is charging you an interest rate, the government through the bank of Canada is charging your lender.

Mind blown? Yeah. The interest rate the government charges the bank is the Prime rate, and it is one of the factors that determine the interest rate your mortgage lender charges you. The other factors are;

  • Your Credit Rating
  • Principal Amount.
  • Whether the rates are fixed, variable or hybrid
  • Amortization length
  • Payment Schedule

Credit Rating

Your credit rating comprises your credit report and credit score. Lenders examine these two before they decide to lend you the money you need for your mortgage. These two also determine your interest rate, should mortgage lenders decide to give you the money you need. The poorer your credit rating, the fewer chances you will get a mortgage and the higher your chance of getting an expensive mortgage.

Principal Amount

We have explained this bit about the principal amount earlier on under a previous heading. In summary, the higher your principal amount, the higher your interest. To prevent this, deposit a handsome fee as your down payment.

Whether the Rates are Fixed, Variable or Hybrid

Majorly, your lender would offer you two types of mortgages. Your financial institution could provide you with a fixed-rate or variable mortgage. Fixed-rate mortgage benefits you when your interest is low, as your financial institution will maintain that rate till the end of the mortgage. However, fixed-rate mortgages rarely have low-interest rates. The reason for this is simple.

Your mortgage lender bears risk by fixing the rate for you. Your lender is saying that they will maintain that rate no matter the economic situation.

On the other hand, a variable rate is a rate in flux. Your mortgage lender or financial institution starts with one rate, and during the term of your mortgage, that rate will change. The rate will change due to economic conditions or any other conditions. So, as a borrower, you would be taking on more risks. Fortunately, variable rates have low rates.

There is one more. The hybrid rate combines the qualities of fixed and variable rates. An aspect of your mortgage will have a fixed interest rate. The other part would have a variable interest rate. So, you have the benefits which those two rates offer. For instance, you will be partially protected against an increment in rates. Likewise, you will enjoy some advantages when rates fall.

Payment Schedule

Your payment schedule covers how much time you want to make your mortgage payment. You can choose to have an accelerated payment, which gives you the power to make an extra payment annually. This additional payment comes in the form of a 13th-month payment. You can escape paying more interest this way.

Your Amortization

Your amortization is the time-frame it takes you to complete your mortgage payment. As your amortization increases, your payment reduces. On the other hand, you will pay more interest the longer it is.

Conclusion

As you can see, financial institutions use specific metrics to calculate your interest. You often determine how favorable these calculations will be  when you pass these metrics.

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How to Pay Off Your Mortgage Faster

How to Pay Off Your Mortgage Faster

Whether it’s an essential milestone like retirement or a lasting legacy like leaving as much as possible as inheritance, everybody has their reasons for wanting to pay off the mortgage faster. You’ve probably heard mortgage debt in Canada is record-high – the average amount hit a record $355,000 in 2021 – so it’s time to start thinking about mortgage debt reduction.

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Why Pay Off Mortgage as Quick as Possible?

There are many reasons for paying off a mortgage debt as quickly as possible. First and foremost, of course, mortgage debt in Canada is at historic heights and growing fast: more than 20% of mortgage holders had amortization periods of 25 years or more. So if you’re looking to secure your financial future, putting extra effort towards mortgage debt reduction is an excellent place to start.

It can also make your retirement planning easier. Let’s say you have the traditional mortgage debt of $100,000 at 5% interest over 25 years. That means your mortgage payment would be about $582 – but that doesn’t include any interest. Now let’s say you switched that mortgage debt for an even $100,000 at 2.5% over ten years. Your mortgage payment is about $867 – but this time with interest. The interest payments are double the mortgage payments on the 25-year mortgage.

But mortgage debt is also mortgage stress. By signing the mortgage agreement with the maximum amortization period of 25 years or more, you may be putting yourself under unnecessary financial pressure. If your mortgage payment takes up most of your monthly income for two-and-a-half decades, it may be challenging to build retirement savings, especially if mortgage rates keep rising.

By trying to pay off your mortgage faster, you can free up money that may be better spent on other things – like retirement savings down the line. But how do you go about paying off the mortgage faster? It’s all in the math.

Calculating How Long it Will Take You to Pay Off Mortgage

The mortgage calculator is the first place to start when figuring out how long it will take for mortgage debt in Canada. For example, suppose you input all of your mortgage information – mortgage balance, interest rate and mortgage payment amount – into a mortgage calculator like this one. In that case, you can see exactly how much time and money it would take for you to pay off the mortgage.

You may be surprised at how much difference it makes if you try to pay off the mortgage faster. For example, the mortgage calculator shows that paying $100 more per month on a mortgage amortized over 25 years saves about five years and gives you savings of over $35,000 in interest.

Trying to pay off your mortgage debt as quickly as possible means you should never take on more debt than you need. That’s why it’s important to understand mortgage qualification and refinancing, which means making sure that your mortgage payments will fit into your budget, even if mortgage rates rise.

3 Ways to Pay Off Your Mortgage Faster

Now that you understand mortgage qualification and refinancing, as well as mortgage debt reduction in Canada, it’s time to decide how you can start paying off your mortgage debt as quickly as possible. There are a variety of strategies people use to try and pay off their mortgage faster – some with more success than others.

  1. Increase the Amount You Pay Each Month

That is one of the easiest and most effective mortgage debt reduction strategies. Increasing the amount you pay each month over time will significantly reduce your mortgage balance – even if mortgage rates rise. For example, increasing the amount you pay by an extra $100 per month reduces your mortgage term by six months to 8 months on mortgage debt of $180,000 at 6%.

  1. Increase the Frequency of Your Payments

This strategy can be effective in many cases. But there are a few mortgage qualification considerations to keep in mind before you start paying your mortgage off faster using this method:

  • It would help if you had a mortgage payment schedule with a set due date. If your mortgage payment is due on the 15th of each month, for example, you’ll only be able to increase the frequency every other month – unless you pay two mortgage payments in one month.
  • You can’t change your mortgage payment schedule. So, for example, if your mortgage payment is due on the 1st of each year and there are 365 days to pay off your mortgage, you can’t increase the frequency every year – unless you pay more than 365 mortgage payments in a single year.
  • This strategy works best on mortgages amortized over 25 years or more that have little mortgage debt stress on borrowers.
  1. Finance Your Mortgage Debt Reduction

A few mortgage debt consolidation loans can help you pay off your mortgage faster. For example, you can consolidate all of your high-interest credit card debt and other high-interest debts into a mortgage loan on which you’ll make monthly payments with a lower interest rate.

One of the most common ways to reduce mortgage debt is taking a mortgage debt consolidation loan. However, mortgage debt consolidation loans may not be the best option for you if:

You have good credit and can get approved for other types of mortgage refinancing options, such as a line of credit mortgage or variable-rate mortgage, at similar interest rates. Then you can pay off your credit card debts without consolidating them into a mortgage.

You have a mortgage amortized over 25 years or more and can increase your mortgage payments to pay down the mortgage faster. However, you may be better off simply increasing the amount you pay each month since mortgage debt consolidation loans usually have higher interest rates than fixed-rate mortgages.

Closing Thoughts

That’s what you need to do. To recap, there are several ways to reduce mortgage debt, including:

  • Increasing the amount of money you pay monthly
  • Start paying more frequently
  • Financing your mortgage debt reduction

If it’s the right mortgage debt reduction strategy for your situation, mortgage debt reduction is a strategy that can save you mortgage interest and help you pay off your mortgage faster.

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Mortgage Affordability in Canada – How Much Mortgage Can You Afford?

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With interest rates at historic lows, now is a great time to purchase a home, but it could also be a potentially dangerous situation. Stretching your mortgage debt service ratios beyond what is comfortable is tempting, but the risk of doing so will depend on mortgage interest rates. Canadians, in general, have mortgage debt service ratios that are well into the comfort zone, but for some consumers, it is a different story.

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Mortgage Debt Service Ratios in Canada: The National Picture

We have seen a sharp increase in mortgage lending due to lower interest rates over the last few years. As a result, mortgage credit has been growing at 5.5% per year on average, with mortgage debt service ratios in Canada remaining somewhat stable. The mortgage debt service ratio is the proportion of household income dedicated to mortgage payments or rent of a rental property. Banks want to ensure that mortgage borrowers can afford their mortgage payments before approving the loan.

The mortgage debt service ratio is a mortgage regulation. The government uses it to determine Canada’s maximum mortgage amount and mortgage qualification. It also plays a role when considering housing affordability in Canada for would-be home buyers, especially in today’s low mortgage interest rate environment.

Mortgage Debt Service Ratios: The Details

A couple of years ago, TD Bank researched mortgage debt service ratios in Canada. They found that most Canadians had mortgage debt service ratios within comfortable limits; however, there were some exceptions. 

For instance, the Bank said that many homeowners take on too much money relative to their income levels. That could be problematic if interest rates increase significantly over the next few years and mortgage payments become more and more un-affordable for consumers.

Gross Household Income vs Net Household Income

Banks consider total gross household income when determining mortgage affordability in Canada. That is because mortgage payments are a significant portion of an individual’s monthly spending.

Mortgage lenders use the net household income figure for mortgage affordability, but these two figures can be very different. Gross household income, for instance, does not include deductions such as RRSP contributions, charitable donations and other write-offs. For this reason, it may not accurately reflect what consumers spend at the end of the year on expenses like mortgage debt service ratios.

The minimum down payment required by various Canadian Provinces is another crucial factor in mortgage affordability. It determines how much money you will need before shopping for your new home or condo.

GDS Ratio and TDS Ratio

GDS (Gross Debt Service) and TDS (Total Debt Service) ratios are mortgage loan affordability metrics that lenders use to determine whether or not mortgage interest rates will be manageable for mortgage borrowers. In general, mortgage lenders want to know that your minimum monthly payments on housing costs, including mortgage principal and interest, property taxes and heating costs combined, won’t exceed 32% of household income. The Bank of Canada has also emphasized that the maximum affordable mortgage debt service ratio should be 40% when gross income is under $100,000.

Your Credit Score Will Affect Mortgage Rates

Your mortgage affordability or qualification will depend on your credit score and mortgage rates. As mortgage interest rates increase, your monthly mortgage payments will also increase. That means it’s even more critical to know Canada’s mortgage rules before starting your home or condo shopping process.

Down Payments in Canada

Down mortgage payment of at least 20% is typically what mortgage lenders require in Canada. However, some mortgage down payment assistance programs are available for first-time home buyers. Moreover, suppose you can’t afford the “mortgage debt service ratio” rule. In that case, your mortgage lender may still approve your mortgage loan request if you have vital compensating factors, such as excellent credit history and a long employment record.

It’s also important to note that mortgage guidelines vary across Canada. Therefore, it’s essential to know your province’s minimum mortgage down payment requirements before starting your home or condo shopping process. In addition, while interest rates play a role in housing affordability in Canada, not all consumers will qualify for the same mortgage interest rates or get approved for loans with the same terms and conditions.

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How to Make Your Mortgage More Affordable

A mortgage calculator helps determine your monthly payment based on the purchase price of the home you are interested in. In addition, this mortgage affordability calculator will ask about your gross household income and down payment, mortgage interest rate and amortization period to determine how much money you need to borrow.

Increased borrowing power may allow you to buy a bigger home or condo. However, it may also mean that mortgage rates in Canada become unaffordable for mortgage borrowers who aren’t prepared to manage their mortgage payments at higher interest rates. Therefore, it’s essential to consider all possible outcomes before getting into “affordable” mortgage debt, which could negatively affect many aspects of your financial well-being in the long term.

Your net household income helps calculate mortgage affordability, including the mortgage debt service ratio; however, other factors are essential. For example, your net income is $5,000 per month, but you spend $3,000 on mortgage payments and another $2,000 to cover property taxes and heating costs. 

These additional expenses might limit your true mortgage affordability. Calculating the TDSR helps consumers understand their maximum mortgage amount based on their monthly housing expenses before making mortgage shopping calculations.

Your credit score will also play an essential role in determining the mortgage interest rate you qualify for as well as whether or not you can get approved for a mortgage loan at all. The higher your credit score is in Canada, the more likely you will qualify for mortgage debt at a better interest rate. A mortgage qualification letter from your mortgage lender is required in Canada before homeowners can close on a mortgage loan.

In Conclusion

Mortgage rates in Canada affect mortgage affordability. Your mortgage payment is based on the total amount of mortgage that you need to borrow and the mortgage interest rate charged by your lender. To determine mortgage qualification and how much you can afford, mortgage lenders will also ask about your gross household income and down payment.

It’s important to note that different mortgage interest rates apply based on how many compensating factors a consumer has (such as excellent credit history and a long employment record). Still, education on mortgage debt service ratios is essential to understanding how much mortgage you can afford.

We are available to walk you through all mortgage processes and help you pick and acquire the most suitable loan.

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Reverse Mortgage in Canada: Pros and Cons

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Most Canadians tell themselves that they won’t have to worry about anything once they pay off their mortgage. However, even if you pay everything off, you might find yourself strapped for some cash in retirement. Thankfully, there’s a solution for that.

A reverse mortgage can let you tap your home for cash in your later years. One interesting thing about reverse mortgages is that it allows you to hold on to your home – and all of the memories you created there – for as long as you want. It’s no wonder Canadians have been flocking to reverse mortgages in recent years.

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Statistics released by Home Equity Bank show that Canadian homeowners are now carrying more than $5-billion worth of reverse mortgages. That’s the most significant amount of mortgages in the country ever.

If you’re considering a reverse mortgage, it’s essential to understand the ins and outs of the loan. That will allow you to make a smart decision about whether or not a reverse mortgage is right for you.

What Is a Reverse Mortgage?

A reverse mortgage allows homeowners aged 55 years and older to turn their homes into an income stream in retirement. You can do this by taking out a line of credit or a lump sum payment. If you have equity built up drawing money from it to fund your living expenses is entirely tax-free.

Many people wonder what happens to their homes when they pass away. Will the bank come after the house? Unfortunately, the answer is no – that’s a common myth about reverse mortgages.

The bank will not take away your property with a reverse mortgage when you pass on. The loan is designed to be repaid out of your estate. If you don’t have enough money to repay the loan, the balance comes out of your house’s equity.

If there’s no equity available in your home after you die, the bank will lose its investment completely. That means senior homeowners are responsible for any loss.

Is Reverse Mortgage Right For You?

You can easily profit from taking out a reverse mortgage. However, these loans aren’t for everyone; they can become very costly if you’re not careful. Here are the most noticeable pros and cons of reverse mortgages.

Pros of Reverse Mortgage

●     Helps You to Become Debt-Free

Reverse mortgages allow you to pay off your traditional mortgage. That means that not only are you debt-free, but you’ll also have money freed up for personal expenses and emergencies.

●     Allows You to Live in Your Home

Since a reverse mortgage allows you to hold on to your home, it means you can live in the home for as long as you want. No landlord will ever be able to kick you out, no matter how late the rent is.

●     Increases Retirement Income

By using a reverse mortgage to turn your home into an income stream, you can live off of the money as a source of retirement income. In this way, you don’t have to rely on investment income from your RRSP or savings account.

●     Provides Access to Cash for Home Repairs/Upgrades

A reverse mortgage allows owners to tap into their home equity for whatever they may need the money for, including repairing or upgrading their home. While a traditional mortgage requires you to save up for a down payment before getting the loan, reverse mortgages allow you to access your equity immediately.

●     Tax-Free Money Draws

If you have an existing mortgage, a reverse mortgage can help you get more money out of it sooner rather than later. If the interest on your mortgage is close to the tax-free limit, you can take out a lump sum payment and use that money for living expenses. This way, you’ll get more cash in your pocket come retirement time.

Cons of Reverse Mortgage

Can Affect You Financially in Your Later Years

A reverse mortgage could have an impact on your finances when you’re in retirement. Even if you make regular payments through a lump sum payment plan, this isn’t always enough to cover all of the fees and interest charges associated with a reverse mortgage. As a result, you may find yourself paying off the loan well into your 80s – and this can be a lot of money to lose.

Inflation Could Rise by More Than Your Payments Will

If you choose a reverse mortgage plan that provides monthly payments, consider how inflation will impact those payments over time. For example, inflation could make money go further every year, but your monthly payment may not.

Interest is Expensive on Reverse Mortgages

Reverse mortgages are known for being very expensive in terms of the interest rates they charge. So, if you’re using a reverse mortgage to pay off your existing mortgage, keep in mind that the new one will come with much higher interest charges than what you initially paid.

Closing Thoughts on Reverse Mortgages

A reverse mortgage isn’t for everyone. However, reverse mortgages can be a smart way to pay off traditional mortgages and turn your home equity into an income stream. You just need to fully understand the pros and cons associated with these loans before making a decision on them.

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Best Commercial Mortgage Rates You Can Find in Canada

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When it comes to getting housing units in Canada, the most sought-after option is a house mortgage from the bank or mortgage broker. You can get a mortgage to finance your residential home and commercial property.

A commercial mortgage is similar to what you have for a residential mortgage; the only difference is that this mortgage is taken for non-residential buildings commonly referred to as commercial property. Commercial property covers many facilities that cannot be financed under the residential mortgage plan.

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Commercial mortgage rates are determined by the type of properties and their use. There is no fixed rate for a commercial mortgage as it differs for different properties and the mortgage company involved. In this article, Best Mortgage Online will provide you with the right information about the best commercial mortgage rates you can find in Canada.

Commercial Mortgage vs. Residential Mortgage

As introduced above, the type of property involved sets the major difference between a residential and commercial mortgage. While the residential property is usually sought after by regular home buyers or small real estate investors, commercial property is normally meant for real estate investment corporations, partnerships or limited companies.

The commercial property is usually used for business purposes against homes solely used for residential purposes. As you might have imagined, the rates set for a commercial mortgage are typically higher than a residential mortgage, as well as the repayment conditions. However, the repayment period is usually longer than those allowed for a residential mortgage.

In the case of residential mortgage, qualification is usually based on credit scores, personal income etc. But, for a commercial mortgage, the property you are taking out a mortgage for usually serves as collateral till the loan is paid back. It also requires you to have a higher down payment than residential properties. The down payment for commercial property can be as high as 25 – 35% of the cost.

What Counts as Commercial Property?

To be clear about how rates for commercial mortgages are calculated, it is necessary to differentiate between what type of property qualifies for a commercial mortgage and how it is different from a residential one.

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The common commercial properties that can be financed in Canada include the following:

  • Multi-Family residential property (5 units and above)
  • Mixed-use properties
  • Office buildings
  • Industrial buildings
  • Warehouses
  • Retail plazas
  • Medical buildings
  • Farmlands
  • Shopping malls
  • Construction projects

These commercial properties under this form of mortgage come with specific Loan-to-Value up to 85% depending on the property type. Properties such as farmlands or vacant spaces can have an LTV as low as 50%. Still, the more functional the property is, the higher the LTV provided by the mortgage company.

Commercial Mortgage Rates in Canada

A commercial mortgage company in Canada can help you get the best mortgage for properties at the lowest rate possible. Asides from this, the process of getting a commercial mortgage might be a bit more complicated with a lot of paperwork. Still, you can easily do this with the assistance of a commercial mortgage company.

When it comes to commercial mortgage rates, there is no one-size-fits-all solution. Instead, the rates depend on the type of property to be financed and the borrower’s financial status. For instance, stable properties connected with borrowers with good credit scores carry better rates than riskier properties with borrowers with not a great credit score.

Commercial mortgages are often based on BBB corporate bonds. Mortgage lenders apply a risk premium to the business loan based on its risk. As a result, riskier borrowers must pay a greater premium, whereas low-risk borrowers’ rates will be closer to a BBB corporate bond yield. On the other hand, these rates are often higher than CMHC-insured commercial rates, which pose the least risk to lenders.

On average, in Canada, the conventional rate for commercial mortgage rate for five years is between 4.3% – 8.3%, while a five-year rate for Canada Mortgage and Housing Corporation (CMHC) is between 3.2% – 5.3%. Additionally, CMHC insures business mortgages against failure. This safeguards mortgage lenders by ensuring that they are compensated if a business borrower fails on the mortgage.

How to Apply for Commercial Mortgage?

Although different mortgage companies have different regulations when applying for a commercial mortgage, there are still basic similarities. For example, the following steps are often required to apply for a commercial mortgage.

  1. Put your business finance in order: One sure thing a potential lender will be looking out for is the viability of your business in terms of profitability and income history. This gives the lender a sense of credibility and the ability to repay the mortgage. Therefore, before applying, you should ensure that your finance is in order.
  2. Determine the type of mortgage you want: Even for commercial mortgages, different service plans are still dependent on the property type. Therefore, before applying for a mortgage, it is best to look at the different plans available and pick the most suitable one for your intended purpose.

Some of the points of consideration include the repayment plan, interest rate, location of the property, production or repair time, and recurring costs like operational fees, legal fees etc.

  • Put together your business documents: Time is of the essence during application for a commercial mortgage as there are most likely other interested parties bidding for the same property. Therefore, it is advantageous to have all the required documents beforehand to beat the competition.

Typical examples of documents required during this stage include; a well-articulated business plan, updated financial statements, details about the commercial property and other useful documents or information about your business.

  • Make an offer: Commercial mortgage is quite a serious investment. It is usually capital intensive and carries a higher risk than a residential mortgage. Therefore, it is best to make an offer with your mortgage company to get the best possible mortgage conditions suitable for your company.

Conclusion

The commercial mortgage requires more capital than a residential mortgage; it is only granted for specific types of properties. It also requires different or additional requirements with varying rates and conditions. The rates on commercial mortgages are generally higher; mortgage companies insured by CMHC have a rate between 3.2% – 5.3% for five years.

For ease of getting a commercial mortgage, it is recommended that you have all your documents – financial statements, business proposals etc. – handy before applying. You should also apply early enough to ensure ample time for proper application review.

At Best Mortgage Online, we can assist you in getting the right information to prepare you for a commercial mortgage. Contact us with the button below.

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Mortgage Refinance

When Is the Right Time to Refinance Your Mortgage in Canada

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If you look at the latest state statistics, you can see that home-ownership has been rising in recent years. At the moment, nearly 3/4 of families in the country have a fixed mortgage rate.

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With prices of homes soring, many people have to build up equity in their homes. However, they still may feel they’re cash-squeezed. If that is the case for you, refinancing your mortgage may be an excellent strategy to lower the total monthly payments.

But is it the right time for you to refinance your mortgage? That’s what we’re going to try and answer.

The Basics of Mortgage Refinancing in Canada

If you’re like most Canadians, your existing mortgage is on a closed, five-year term and of a variable rate. That means that the interest on your loan is not fixed for the duration of the borrowing period. Instead, it’s subject to changes in market trends, and at times, this could result in higher monthly payments.

At the same time, if you have a five-year closed mortgage at 3%, today, it might be worth refinancing into a new loan that is also for five years but has an interest rate of just 2%. That’s because your existing equity in your home could qualify you for a lower interest rate on your next mortgage.

By refinancing your current mortgage, you could lower your monthly payment by as much as 20% or even 25%. You can also take advantage of an offer to agree to a fixed interest rate for the next five years.

Many Canadians are refinancing their mortgages simply because they feel this is the best time. As a result, interest rates are rising, but not enough to offset all of your savings.

If you’re thinking about refinancing your mortgage, perhaps these tips might help you decide when is the right time for you to refinance.

When To Refinance Mortgage When Interest is Rising

One of the best times to refinance your current mortgage is when interest rates rise. You might even be able to secure a better interest rate on your new mortgage as well as lower monthly payments if you have equity in your home.

In many cases, those who completed a refinance at the right time didn’t take no for an answer from lenders during their initial attempt.

Another thing to keep in mind is that it will take at least three weeks to approve the new loan. Then you’ll need to get your documents in order, including a copy of your existing mortgage, title search and other financial information needed by your lender to process your application.

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When To Refinance Mortgage When Interest is Going Down

People who refinance their existing mortgage when the interest rate is going down may not see as many savings as they would if rates were rising, but they could still save $100s or $1,000s over the life of your loan. You can then use that money for other financial goals that will reap future rewards, like perhaps using it to pay off credit card debt.

The other thing to consider is that you don’t have to wait until interest rates are higher before refinancing your loan because if you do, you could end up paying more interest over the term of your new mortgage. So, for example, even if interest rates fall by 2%, there might be little incentive for you to refinance your loan.

However, if you can lower your monthly payments by $200 or $300, then it’s probably worth looking into refinancing your mortgage, even if that means you will be locking yourself into a low-interest rate for the next 5 to 10 years. Or perhaps take out another line of credit using the equity in your home as collateral.

When To Refinance Mortgage When Interest is Stable

Another time when you might consider refinancing your existing mortgage is when interest rates are stable. That could make sense because with rates remaining the same, there wouldn’t be any penalty attached to closing out an existing mortgage contract and taking on a new one should interest rates decrease further still, something which seems inevitable at this time.

Another advantage of refinancing during this period is that you might be able to replace your current fixed-rate mortgage with a floating rate. That means your monthly payment could become even less expensive if rates drop further over the next few years as expected. However, if interest rates increase, it shouldn’t have as much of an impact on your loan since you will now have a floating rate attached to your new mortgage.

Most mortgages in Canada are now either variable or adjustable-rate mortgages because homeowners feel these loans offer greater flexibility and affordability. In a rising interest rate environment, especially where money becomes more expensive to borrow, these flexible loans can help mitigate the worst effects that higher rates can cause to home budgets.

Of course, if you do decide to refinance your existing mortgage when rates are going up or down, you’ll need to make sure that the new rate is a fixed one because variable rates can fluctuate dramatically and even go up as high as prime plus 9.0%.

What You Should Know Before Refinancing Your Mortgage

Another thing to keep in mind is that refinancing your mortgage could mean an increase in your monthly payment even if you’re getting a better rate. Why? Because some lenders may also require you to pay for the appraisal, title search and other legal fees associated with closing out an existing loan contract.

Before you refinance your current mortgage, it’s worth doing some research first by getting quotes from different lenders so you can find out how much money you could potentially save by refinancing. This way, there won’t be any surprises when borrowers receive their final quote following their application process or lock-in period, which typically lasts between 30 days and six months. During that time, they cannot switch lenders without paying fees.

Closing Thoughts

With more extended amortization periods now being offered by some mortgage lenders, refinancing your existing home loan may well become an even more attractive strategy today. That is especially true now that interest rates are so low and likely to remain this way for the foreseeable future.

If you do decide to refinance your mortgage, make sure before signing on the dotted line that you’re aware of all the terms and conditions involved with closing out your current loan contract in addition to any other fees that may be associated with this transaction.

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You can get in touch with our Mortgage experts for loan rates and advice. We also have more articles covering different aspects of Mortgage in Canada available at Best Mortgage Online for your reference.

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New Purchase Mortgage

Canadian Mortgage Documents Checklist

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The bank representative hands you a thick stack of documents. You are told that these documents must be signed (or initialed) to complete the loan process. However, rarely does anyone tell you what is on those pages. It can be daunting for first-time home buyers – especially if they do not know what to expect.

Inexperienced home buyers should always check with their agent or mortgage representative to determine what documents are required for registration. After reviewing the list of documents, you may discover that there are many you have never even seen before. To help prepare others for this experience, below is a list of typical documents you need to get a mortgage in Canada.

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Mortgage Documents Checklist

1) Pre-Authorized Debit form

The form authorizes your financial institution to electronically debit your bank account each month to pay off the balance on loan.

2) Statement Indicating Down Payment Source(s)

This proves that all funds used towards the down payment came from legitimate sources. Funds must be traceable – i.e., brokerage statement, RRSP withdrawal confirmation, and second mortgage payoff letter.

3) Income Verification

Your lender will require your most recent income tax return and the T4 slips from all companies you have worked for to date to verify your income history. You should also provide a record of any assets or other sources of funds that can be used towards repayment of the mortgage, such as property rental income, dividends from investments, trust income, etc.

4) Pre-Approved Letter From Lending Institution(s)

That is to show that you have been pre-approved for a loan based on a detailed analysis of your financial position by a qualified mortgage specialist.

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5) Job Offer Letter

If you are self-employed, this letter provides proof of stable employment and outlines projected business activity over at least the next twelve months.

6) Buyers Profile

Lenders will typically request a summary of your financial situation to complete this form.

7) Verification of Deposit Held/Assets Owned by the Client(s)

Your lender will want proof that the loan can be repaid and have enough money left over for all other living expenses and savings goals. That may include: pay stubs, monthly bank statements, letters from employers/financial institutions showing salary amounts and deposits into accounts each month over the past six months, RRSP or TFSA contribution confirmations for last year, net worth statement (see note below), etc.

Note: A Net Worth Statement is a list detailing everything you own (i.e., personal property such as your home, cars, heirlooms, etc.), minus what you owe (i.e., money owed on credit cards or loans). Assets are listed according to liquidity – the most liquid items first. The value of each asset is listed next to it. Liabilities are listed last and show how much money or equity is left over after deducting debts from assets. Not every lender will require this form, but it does help provide a complete picture of your overall financial position.

8) Letters Regarding Any Other Real Estate Owned/Mortgages Currently Held

Your lender will want to know if you have other mortgages on any other properties. They’ll need to know this to determine if you can afford the new mortgage payments and still meet all your other financial obligations.

9) Certified Cheque

To complete the registration process, your lender will need a certified bank cheque as proof that you have enough money to pay for all fees and closing costs. The lender must ensure that the name(s) on the cheque must match those on the title as part of this process.

10) T4 or Notice of Assessment

This confirms federal and provincial tax amounts and dates so that interest rates quoted by lenders accurately reflect income tax deductions.

11) Pre-Approved Guarantor Form (if applicable)

If you are buying with someone else who is not going to be on title or provide a down payment, they may need to complete this form for their income and assets to be considered for purposes of underwriting the mortgage.

12) Endorsement/Holder information – The endorsement section of your mortgage documents lists all authorized signers (i.e., those able to make decisions on behalf of the lien-holder). The section must match up with the individual(s) listed on the title and statement of authority (if applicable), or they may not be permitted to make any changes to your file. That includes signing, amending, and terminating agreements and mortgages, and authorizations should be limited based on your settlement date and other requirements specified by your lender.

13) Statement Regarding Holding Title in Trust (if applicable)

If you are buying a property held in trust, you will need to complete and submit this form that documents your authorized signers.

14) Statement Regarding Mortgaged Property (if applicable)

If you are buying an already mortgaged home, you will need to provide proof of the mortgage to be removed from the title and replaced with your new mortgage. You may also need an updated appraisal on the home if there have been any significant changes or improvements since the last valuation was completed.

15) Verification of Employment

Your lender will ask your employer(s) to confirm details related to your job description, salary, etc., so make sure to provide accurate information upfront. The lender may also ask for a letter verifying how long you have been employed at that company.

Closing Thoughts

Mortgage financing isn’t always simple, but it doesn’t have to be complicated. Before you home-hunting, be sure that you are financially prepared to own the property by consulting with professionals who can assess your income and credit history/score, determine how much of a mortgage you qualify for, and help explain the entire process.

And remember: any violations of your lender’s requirements could result in a declined mortgage, so be sure to carefully review all the information to ensure you have submitted everything required.

For more articles on Mortgage, please refer to our home page at Best Mortgage Online. We also have a sister site dedicated to news, tips, reviews and more on Insurance in Canada – Best Insurance Online.

Our experts are available to assist you through the mortgage application process, help you pick the most suitable loan rate, etc.

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New Purchase Mortgage

Mortgage Down Payment in Canada: Everything You Need to Know

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If you’re reading this, you’ve probably come across the news that prices of down payments in Canadian cities have skyrocketed over the past year. As CTV News reports, in 2021, housing affordability has worsened by the widest margin in nearly 30 years.

But despite all of this, many Canadians are still out there buying properties. Whether you’re buying your first home or owning multiple properties, you know that the buying process starts with saving for a down payment. 

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To help you start, here’s everything you need to know about down payments in Canada.

How Minimum Down Payment Works in Canada

When a down payment is mentioned, people usually think of the minimum amount you must pay as a deposit. However, the term mortgage down payment covers different deposits with varying credit conditions.

The Loan-to-Value Ratio (LTV) is how much of your home’s price is paid by the mortgage. Most mortgage lenders use this insurance to keep themselves safe even when they don’t have collateral.

The minimum mortgage down payment in Canada ranges from 0% to 20%. In addition, all high-ratio mortgages require mortgage default insurance, which protects against losses in case of borrower default, death, or disability.  

The amount you put down will affect the mortgage rate and mortgage payment. For example, if you put down a mortgage down payment of less than 20%, there will be mortgage insurance fees.

The mortgage insurance premium is payable to the mortgage insurer, the Canada Mortgage and Housing Corporation (CMHC), or Genworth Financial Canada Ltd. This amount is usually included in your monthly mortgage payment. Exclusions from mortgage insurance include:

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Different Types of Minimum Down Payments

Though mortgage down payment is usually used interchangeably with mortgage insurance, there are also different types of mortgage down payments.

Cash Committed Mortgages

If you need a mortgage loan but don’t have the minimum 20% mortgage down payment, your mortgage advisor can help you get a cash-committed mortgage loan. A cash-committed mortgage loan requires mortgage insurance because the loan amounts are greater than 80% of the property’s value.

A cash-committed mortgage loan requires mortgage insurance because the loan amounts are greater than 80% of the property’s value.

Lender Mortgage Insurance (LMI)

If you plan to borrow more than 80% of your home’s price and can’t meet mortgage down payment requirements, it will be an interest-only mortgage with mortgage default insurance. That means mortgage insurance premiums must be paid with interest charges until the mortgage is paid off, or mortgage down payment can be increased to 20% or more of the home’s value.

CMHC Mortgage Loan Insurance Premium (CMHC MIP)

If you need mortgage financing and cannot make a minimum 5% mortgage down payment, you can apply for mortgage loan insurance with the Canada Mortgage and Housing Corporation (CMHC. The CMHC mortgage loan insurance premium is payable to mortgage default insurance.

National Housing Act Mortgage Loan Insurance Premium (NHA MIP)

The National Housing Act mortgage loan insurance premium is payable to mortgage insurer Genworth Financial Canada Ltd., on mortgage loans with mortgage rates more than the mortgage down payment.

Mortgage Loan Insurance Premium (MIP)

The Canada Housing and Mortgage Corporation (CHMC), a mortgage insurer under the National Housing Act, operates as Canada Guarantee. This mortgage insurance premium is payable to mortgage insurer Genworth Financial Canada Ltd., on mortgage loans with mortgage rates more than the mortgage down payment.

How Much Mortgage Down Payment Do I Need?

You don’t need to pay a 20% mortgage down payment to get a mortgage loan, but you must avoid borrowing more than 80% of your home’s value. You can calculate this by taking your property value and subtracting the mortgage down payment.

Different mortgage lenders have different mortgage rates and insurance premiums for mortgage down payments. You can lower your monthly mortgage rate by making mortgage down payments of more than 5% of the home’s value, e.g., 10%, 15% or 20%.

Time You Need to Save Up for a Down Payment

You need to consider how much time you need to save up for a down payment. Luckily, the National Bank of Canada recently released a report outlining how much time people need to save money to make the first down payment. 

If you saved 10% of your pre-tax household income, it would take you slightly under six years – or 69 months – enough to save for a down payment on a typical Canadian home. As at this time last year, there had been 57 months of saving at the same rate.

Putting away 10% of your household’s pre-tax income may take decades in Vancouver, Victoria, and Toronto.

Average Down Payments by Province

Next, you need to realize that your down payment vastly varies from province to province. That can help you determine how much money you’ll need for a down payment on a house in your area based on the average price of homes in your area. 

Here are the average don payments in Canadian provinces, according to the latest Real Estate & Housing Market Forecast report:

  • British Columbia: The average down payment in British Columbia is $159,762.64, or 22.5% of the purchase price of a property.
  • Ontario: Ontario homebuyers, on average, make a larger down payment than residents of any other province (aside from British Columbia). 
  • Quebec: According to first-quarter data, Quebec residents made the smallest down payment on a home, with an average of less than 15%.
  • Alberta: The average down payment in Alberta was $62,929.45, making it the second-lowest in the test markets, behind only Quebec’s 15.15 percent.
  • Nova Scotia: The average down payment in Nova Scotia is 18.54 percent ($57,781.46), the lowest among the test markets at $363,330.

Closing Thoughts

The mortgage down payment is the cash a home buyer needs to pay as a deposit on a mortgage. Mortgage insurance reduces this for buyers who can’t complete a down payment. Depending on mortgage rates and insurance premiums, you can calculate mortgage down payments in Canada.

Let us at Best Mortgage Online help you find the best loan rates to assist you in your home purchasing process. Contact us via the button below.

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Mortgage Renewal/Switch

Will Your Mortgage Renew Automatically in Canada?

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Will Your Mortgage Renew Automatically in Canada?

In Canada, when a borrower takes out a mortgage loan to purchase a property, the loan is typically secured by a written agreement called a “Mortgage.” The borrower agrees to repay the mortgage using monthly payments consisting of interest and principal. The period used for repayment of principal is referred to as the term.

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In most cases, borrowers will sign a mortgage for a term of 5 to 25 years. However, once the borrower has paid down the principal to 80% of the property’s original value, he may be able to renegotiate his loan with his lending institution to obtain lower monthly payments.

What Does Mortgage Renewal Mean?

Renewing a mortgage means that the borrower will take out another written agreement with the lending institution, paying off the original loan and signing up for a new term to pay down the principal. Each time this is done, borrowers may be charged fees to obtain their new mortgage.

When Does Mortgage Renewal Occur?

When you renew your mortgage depends on whether or not it has an automatic renewal clause or “option.” At least 30 days before the expiry of your current mortgage, you should receive notification from your lending institution regarding its renewal policy. Borrowers are typically informed if their mortgages will automatically renew subject to certain conditions. These conditions include:

  • The property value increases;
  • The creditworthiness of the borrower;
  • The property type; and,
  • Changes in market conditions.

Suppose your lender does not include an automatic renewal clause in its mortgage agreements. In that case, borrowers are required to make arrangements with their lending institution before the expiry date of their mortgages to obtain new loan terms. Failure to do so may result in a default on the original agreement.

Borrowers who fail to pay their outstanding debts will be subject to foreclosure proceedings by their lenders. They will also lose any accumulated equity in the property, which generally reverts to the lending institution.

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What Happens When Your Mortgage Expires?

If you have a fixed-rate term with no options or renewals attached, your mortgage will expire at maturity. That means that your lender cannot ask you to renew or extend the term of your agreement, and for this reason, a fixed-rate mortgage is a good choice if you think that you might want to move from the property in question before the end of the term.

When Does Your Mortgage Renew Automatically?

During the fixed-rate term of your mortgage, you may wonder what will happen to your rate and monthly payments if they aren’t changed when your agreement expires. That is a good question and one that your lender’s automatic renewal clause can answer.

When Does Your Mortgage Not Renew Automatically?

Most mortgages contain an automatic renewal clause with terms that range from six months to five years. The length of time will vary depending on the type of property involved, how much has been paid off on the existing loan, the borrower’s creditworthiness, and market conditions.

For example, borrowers with “substantial equity” in their homes may have a renewal term of 10 years, while those with no equity usually have to renew for five. With this being said, the bank will not provide a more extended renewal option than the borrower needs or wants.

Borrowers who want a definite expiry date can choose a five-year option and then renegotiate the terms of their loans at maturity. Those who prefer to pay off their mortgages earlier can opt for shorter terms, such as 18 months or two years.

What Happens During Your Mortgage Renewal?

Once your mortgage has been automatically renewed, you will be required to sign another agreement with your lending institution. This document will list all of the original loan details along with the new interest rate, repayment date, amortization period, and other information.

The bank will not automatically save you money on your new rates or terms. To receive the best possible renewal package from your lender, you must call the institution during this time to negotiate a more competitive interest rate and term.

Let’s say that your mortgage is renewed at a higher rate than that on the original agreement. Then, it may be possible for you to refinance with another financial institution within a short period following its expiration. 

That particular strategy may spare you some of the higher associated costs involved with breaking before maturity, as well as those incurred from being charged an early termination fee by your current lending institution.

How Can Your Mortgage Renew Automatically in Canada?

If you need a new mortgage, consider how it will renew automatically in Canada. Some lenders offer personalized renewal terms tailored to your specific requirements. These may include:

  • The ability to lock in interest rates;
  • Mortgage renewal guarantees; and,
  • Loans with flexible terms.   

Pros and Cons of Automatic Mortgage Renewal

There are advantages and disadvantages for borrowers who choose to have their mortgages automatically renewed. For example, suppose you are out of the country or plan on moving far away from your property before the end of your fixed-rate term. In that case, automatic renewal may be beneficial because it reduces one more element that could prevent you from renewing.

On the other hand, if you expect rates to fall over the next few years, it might make sense for you not to renew your mortgage but instead opt for a shorter term to take advantage of lower interest rates. In this case, opting out of automatic renewal will give your lender less bargaining power when terms with you at renewal time.

The Bottom Line On Automatic Mortgage Renewal

Keep in mind that there may be a cost involved with breaking your mortgage agreement before maturity, even if your lender does not renew it automatically. However, you can avoid this expense by calling your lender before the automatic renewal date and negotiating a better deal.

If you are looking to acquire home loans, more information on Mortgage in Canada, loan rates in states of Canada, etc. let Best Mortgage Online help you.

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