Mortgages in Canada.
Mortgage Application
Mortgage Interest Rates – Affordability – Eligibility – Salary to Loan Value
Am I eligible for a mortgage?
The only way to be absolutely certain you will get a mortgage in Canada is to go to a bank and get mortgage pre-approval. Your lender will then commit to lending you money with specified terms.
You are under no obligation to accept a mortgage at this stage, but it serves to establish whether you are eligible.
Alternatively, rather than visit each bank individually, you could arrange to see an accredited mortgage broker to review mortgage options from several banks at once.
If you are Canadian, or if you have been resident in Canada for some time, banks will review your Canadian credit history to determine whether they will lend to you. If you have no credit history, build one by taking small loans from your bank and making payments on time. Get a credit card and use it responsibly.
You will also need a cash deposit for the home you wish to buy and a job or some source of income.
If you are a newcomer to Canada it is possible you can get a mortgage based on your overseas history. This can be done, for example, through the Canadian Imperial Bank of Commerce (CIBC) or RBC Royal Bank. In this case, you will need enough money to fund at least 25 to 35 percent of the house purchase yourself. If you already have a job offer in Canada, you will be able to proceed with less deposit.
If you don’t have a job arranged in Canada, some lenders may require you to lodge enough money to fund one year’s worth of mortgage payments in a bank account.
Some lenders may offer more relaxed terms than those above, but they are likely to charge a higher interest rate.
What percentage of the property value can I borrow?
A Conventional Mortgage in Canada
Mortgage lenders in Canada cover up to 80% of the purchase price of a property for Canadian residents. You must have money available to pay for the other 20%.
A High Ratio Mortgage
If you can provide between 5% and 20% of the purchase price as a down payment, you will require a high-ratio mortgage, which means you will have to buy mortgage loan insurance. Some lenders require you to pay the whole insurance premium up front. Others will add it to your monthly mortgage repayments.
The biggest mortgage relative to income?
A good way of assessing how much you can borrow is to use online calculators such as the HSBC‘s or TD Bank‘s.
Different calculators from different banks give somewhat different results.
Another way to figure out how much you can afford is to use the following guidelines from the Canadian Mortgage and Housing Corporation.
These rules are used by lenders to decide the maximum amount you can afford to pay.
Rule 1: You should not spend more than 32% of your gross income on costs associated with housing. These costs include mortgage payments, heating costs, property taxes, and, if relevant, half of your condominium fees and the whole of your lease costs.
Rule 2: You should not spend more than 40% of your gross income on paying debts such as mortgage, credit cards, car loans, etc.
An Open or Closed Mortgage?
Open mortgages are more flexible than closed mortgages.
An open mortgage can be paid off or altered at any time without penalty.
Closed mortgages must run for their full term unless the borrower is willing to pay additional interest. Some lenders may allow limited early repayment without penalties. Closed mortgages offer cheaper interest rates.
Here are current mortgage interest rates offered by some of the country’s main high street lenders in July 2018.
Closed Mortgage Fixed Interest Rates in Canada
| Type of Mortgage |
RBC | TD Bank | Scotiabank | CIBC |
|---|---|---|---|---|
| 6 months | 3.49% | 3.14% | 4.75% | 3.75% |
| 1 year | 3.49% | 3.04% | 3.69% | 3.39% |
| 2 years | 3.74% | 3.44% | 3.59% | 3.34% |
| 3 years | 4.30% | 3.49% | 4.04% | 3.64% |
| 5 years | 5.34% | 5.59% | 5.34% | 5.14% |
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Further Reading
https://www.canada.ca/en/financial-consumer-agency/services/mortgages/down-payment.html
https://www.canada.ca/en/financial-consumer-agency/services/mortgages/choose-mortgage.html