Conventional Mortgages are mortgages which require a minimum 20% down payment. Mortgage default insurance is generally not required when the mortgage load does not exceed 80% of the purchase price of the home.
High Ratio Mortgages are designed for people who do not have the 20% down payment or cannot obtain a conventional mortgage. High ratio mortgages require mortgage default insurance. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a smaller down payment. This insurance should not be mistaken for Mortgage Life Insurance which protects the homeowner in the event of death, sickness, unemployment or disability
Mortgage default insurance if required is provided by insurers such as:
Canada Mortgage and Housing Corporation (CMHC)
Glenworth Financial Canada
Canada Guaranty Mortgage Insurance Company
Mortgage Rules (Effective July 9, 2012)
- Maximum amortization period with less than 20% down payment is 25 years
- Maximum loan-to-value-ratio when refinancing is 80%
- Gross debt service (GDS) and total debt service (TDS) will be limited to a maximum of 39% and 44% respectively.
- Mortgage insurances has been banned on properties over $1 million.
Where to get a Mortgage
Institutional Lenders initiate the largest share of mortgage loans such as:
- Credit Unions
- Caisses Populaires
- Trust Companies
- Loan Companies
- Life Insurance Companies
If you have a good relationship with a mortgage broker or your bank we recommend you speak with them, if not we would be happy to recommend someone to you. Most of our clients prefer working with a mortgage broker as they work for you and not for a large institution and therefore have access to a variety of mortgage options that are often better suited to your needs. For some brokers we have worked with in the past please check the bottom of the page or visit our Service Providers section.
Variable and Fixed Mortgage Interest Rates
Fixed – The interest rate on a fixed rate mortgage remains the same throughout a specified mortgage term (i.e. five years). The contracted interest rate is typically higher than that of a variable mortgage rate as the rate is secured and mortgagor has no risk of their mortgage payment increasing during the term.
Variable – The interest rate on a variable rate mortgage can change your required monthly payments alongside the Bank of Canada’s target overnight rate and prime rate. Variable rates are typically lower than fixed rates as they reflect the reduced risk to the lending institution as future change in the interest rate is passed onto the mortgagor.
Open Mortgages – This type of mortgage has the most flexibility for re-payment meaning that you can make payments at any time during the term or pay off the mortgage completely before the end of the term without having to pay any penalty (There may be an administrative fee). The flexibility of an open mortgage is generally offered with shorter terms (six months to a year) and typically offered at higher interest rates than a closed mortgage.
Closed Mortgages – This type of mortgage prevents the borrower from pre-paying the mortgage without incurring a penalty except when prepayment privileges are permitted under the terms of the mortgage contract or Interest Act. The interest rates of a closed mortgage are usually lower than on an open mortgage with a comparable term length.
Variable Rate Mortgage – This type of loan, also known as a floating or adjustable rate mortgage as flexibility exists to re-evaluate periodical and make adjustments to the size of payment or length of the amortization period.
Vendor Take-back Mortgage – This loan is like a conventional mortgage except the vendor carries the financing.
Reverse Annuity Mortgage – In this case the lender makes a series of payments or advances to the borrower. It allows aged homeowners a means of supplementing income, typically upon retirement. In essence, the equity of the property is used and reduced over time however the borrower is able to keep their home.
Home Equity Loans – A homeowner can use the equity in their home as security for borrowing money.
CashBack Mortgages – This type of mortgage allows the borrower to receive cash back to be paid on the date the mortgage is advanced. This money advanced can be used for renovations, furniture, moving expenses etc.
We recommend to all of our clients that they speak with their bank or a mortgage broker (if you don’t have one we can recommend someone to you) before you start looking at houses. With a pre-approval you will know the amount of mortgage you can afford. A pre-approved mortgage is not a guarantee of being approved for the mortgage loan, but it is the first step. There is nothing worse than finding the perfect home then finding out it is beyond your financial capabilities.
Mortgage Helpers (Houses with Suites, Tenants)
Having a section of your home, a basement suite or in-law suite may help you to get approved for a mortgage because the borrower can show additional income generated from the suite. They also allow borrowers to pay off a large mortgage faster and mitigate the financial stresses of owning a home.
Top 10 Mortgage Tips
- Find out how much you qualify for before you start searching for a house. (Get pre-approved)
- Understand your pre-payment options in the terms of the mortgage
- Use accelerated payments (for example bi-weekly) that coincide with your salary payments to pay your mortgage off quicker and reduce the amount of interest you have to pay.
- Always try for a minimum of 20% down payment.
- Evaluate the impact of interest rate hikes on your monthly payment
- If you are having any difficulties with your current mortgage payments seek help before you are in too deep.
- Add the property taxes to your monthly payment to avoid the one-time property tax bill once a year.
- Take advantage of pre-payment options. When work provides you a bonus, enjoy a portion and put a portion towards your future by paying down some of you mortgage.
- If you have high interest credit cards, consider a second mortgage or consolidating the debt to get it paid off.
- Round up your payments. It sounds little like a little, but it can add up to a lot.