You know the old saying: “Only two things are certain in life: Death & Taxes?” Well that saying should have a third element to it: Mortgage.
Every single property owner will at some time or another, have a mortgage.
Nobody buys a house in cash, and even if somebody had $1,000,000 in a suitcase, he wouldn’t buy a $1,000,000 house; he would buy a $3,000,000 house and hold a $2,000,000 mortgage.
With interest rates as low as they are right now, and banks and other financial institutions lining up to hand out money to borrowers, it’s no wonder why our real estate market is so strong!
My advice to all those prospective property buyers: Don’t waste any time—get a pre-approval NOW! How else do you know WHERE to start, WHAT houses to start looking at, if you don’t know WHAT mortgage amount you can get approved for?
Ask yourself a few preliminary questions:
- How much is your current rent?
- Can you afford more than that per month?
- How much money do you have for a downpayment?
- Can your parents help you with a loan?
- Do they have equity on their house they can “gift” to you?
- Do you have an RRSP you can use?
A very basic rule of thumb for mortgage calculations is the following:
Every $100,000 of mortgage carries for a $600/month mortgage payment.
Example: a $300,000 mortgage means you will make an $1800 mortgage payment each month.
Canada Mortgage & Housing Corporation
Perhaps the most important detail to remember about mortgages in Canada is the following: If you don’t have at least a 20% downpayment on your property, you have to pay an insurance premium to the Canada Mortgage & Housing Corportation (CMHC) on the entire mortgage. Mortgages with less than a 20% downpayment are called “high ratio mortgages.”
Up until May 2007, this was a 25% minimum. Legislation was enacted that makes it far more affordable for Canadians (first time property owners especially) to purchase homes.
Simply put, if you have only a 5%, 10%, or even a 19% downpayment, you are considered to have a “high ratio mortgage,” and are required to pay the appropriate insurance premium to CMHC.
The premiums depend on the amount of your loan:
2.75% premium on downpayments of 5% – 9.9%
2.00% premium on downpayments of 10% – 14.9%
1.75% premium on downpayments of 15% – 19.9%
There are no ways around these CMHC insurance fees, however there are ways to ensure you get the required 20% downpayment if you don’t have it in cash, i.e. borrow equity against your parent/sibling’s house, take money from your RRSP, etc.
Just use 20% as the “magic number,” and remember that you need $50,000 downpayment on a $250,000 condo or a $120,000 downpayment on a $600,000 house in order to avoid paying the insurance premiums.
Mortgage Brokers vs. Banks
Here is where some of you may disagree with me, but I’m going to give my OPINION, and you all know what they say about opinions…
I truly believe that when looking for a mortgage, you should use a BROKER.
Here are a few reasons why:
Most people believe “I’ve been with my bank for 20 years! They know me! They’ll give me the best rate possible!” This isn’t always the case. The mortgage business is extremely competitive, and often banks just can’t compete with brokers.
Banks often tell you what you want to hear, as they are in the service industry and will try to keep your business at all costs.
Mortgage Brokers use up to 50 lending institutions to find you the best rate possible; a bank is just ONE!
Mortgage Brokers will let lending institutions “bid” on your mortgage, and get the best rate possible from the most competitive companies in the business.
I had a situation where my client, got a quote from his bank at 5.14%. I told client to give my mortgage broker a call, and within 24 hours, my broker had gotten client pre-approved for a mortgage with a rate of 5.04%. The following day, client went back to his bank to tell them he had found a better rate elsewhere, and the mortgage representative at his bank said to him “Oh, well we can match 5.04%, no problems!”
Here is my issue with this situation: If the bank can match the rate of 5.04%, then why didn’t they just do that in the first place?
I feel often that banks are not trying to get you the lowest rate possible, but rather, the lowest rate possible that you will accept.
Banks are in the business of making money and the higher the rate you accept, the more money they make. A mortgage broker, on the other hand, gets paid by the lending institution that gives you your mortgage, whichever lending institution that may be! The payment that the mortgage broker receives is not at all a function of the rate that they provide you with, so he has no incentive to provide you with a higher rate. He will go through as many lenders as possible to find the best rate.
Here is a partial list of lenders that my mortgage brokers use. Do you think that your ONE bank can compete with ALL of these lenders?
- AGF Trust
- Bank of Montreal/FirstBank Direct
- B2B Trust
- Bridgewater Bank
- Business Development Bank of Canada
- Caisse Populaire
- Citizens Bank of Canada
- Co-operative Trust Company of Canada
- Desjardins Credit Union
- Equitable Trust Company
- Equity Plus Financial Inc.
- FirstLine Mortgages
- First National Financial
- GE Money
- Gibraltar Mortgage
- HSBC Bank of Canada
- Home Trust Company
- ICI Mortgage Managers Inc.
- ING Mortgage Broker Service
- La Capitale Group Financier Inc.
- Laurentian Bank
- Manulife Financial
- Maple Bank & Trust
- MCAP Mortgage Bank & Trust
- MyNext Mortgage Company
- National Bank of Canada
- Resmor Trust
- Scotia Express(Scotiabank)
- TD Canada Trust
- Xceed Mortgage Corporation
My Mortgage Broker
I have an excellent relationship with my mortgage brokers, and they are mortgage broker to my clients.
What I like about them is that you can reach directly by email or cell phone almost any time of day. they have an amazing group of people working under them, and are courteous, personable, and will meet you in person to discuss your mortgage needs.
I have used them for real estate transaction I have ever been involved with on a personal level, and they worked for my clients.
I still suggest you to get your opinion from your choice of lenders ,if you need my help i should help provide atleast three mortgage broker/ lenders advice for you..
Give me a call today, get pre-approved by mortgage broker, and let’s start looking for a home!