Consider Mortgage Options What type of mortgage is best for you? Fixed rate mortgages: Your interest rate is locked in for a specific period called a term. Your payments stay the same for the mortgage's term so you will not pay more if interest rates increase over time. Variable rate mortgages: Tate of interest you pay may change if rate go up or down. Conventional mortgages: Require a down payment of more than 20% of the propety's value. You are not required to get mortgage default insurance with a conventional mortgage. Closed mortgages: The mortgage cannot be paid off early without paying a prepayment charge. Open mortgages: A mortgage that can be paid off at any time during the term, without having to pay a charge. The interest rate for an open mortgage may be higher than for a closed mortgage with the same term. What mortgages features are best for you? Portable mortgages: If you sell your existing home, you can transfer your mortgage to your new home while keeping your existing interest rate. You…
Asses Financial Readiness What do lender require? Mortgage lenders use two calculations to help determine your eligibility for a mortgage - your Gross Debt Service (GDS) ratio and your Total Debt Service (TDS) ratio. Your GDS ratio is the percentage of your gross monthly income used for mortgage payments, taxes and heating cost or - if you are buying a condominium - half of the monthly maintenance fees. As a general rule of thumb, your GDS ratio should not be more than 32% of your gross monthly income. Your TDS ratio is the percentage of gross monthly income required to cover monthly housing cost, plus all the other debt payments, such as car loans or leases, credit card payments, lines of credit payments and any other debt. Generally, your TDS ratio should not be more than 40% of your gross monthly income. Have you been pre-approved? Getting a pre-approved for a mortgage before looking at properties gives you a more realistic expectation of what you can afford. However, keep in mind that the pre-approved amounts…
Mortgage Default Insurance Are you planning to purchase a property with less than 20% down payment? If yes, you require mortgage default insurance which generally adds 0.5% to 3% to the cost of the amount of the mortgage depending on the total amount borrowed. Mortgage default insurance enables you to purchase a home with a minimum don payment of 5% (10% for multi-unit dew lings) with interest rates comparable to those of a conventional mortgage. Major providers of mortgage default insurance include Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada, and Canada Guaranty Mortgage Insurance Company. When you buy a home with less than 20% down payment, the mortgage needs to be insured against default. This type of insurance protects the mortgage lender in case you are not able to make your mortgage payments. It does not protect you. Courtesy of "Home Buyers Road Map" - Financial Consumer Agency of Canada
