There are many factors to consider when choosing your mortgage type for the first time. Rates, features, options, market trends, and long term goals should all be taken into account when choosing your mortgage. Below we have outlined some of these important considerations.

First Time Buyers
Purchasing your first home as be an exciting yet scary process. Knowing where to start can make that process a little bit easier. First off, if you're reading this you've already taken the first step. Understanding how you qualify for a mortgage and what you can afford will help you make a more informed buying decision. We encourage you to read the other Resource sections for information about qualifying for a mortgage. Steps in the home buying process:

Step 1: Determine what you can afford and qualify to purchase: Your mortgage advisor will be looking at your income and down payment to determine this and get you a pre-approval.

Step 2: Connect with a realtor: Using a realtor can making finding the right home easier. Realtors have access to information and insight into the housing market that can aid your search.

Step 3: Make an offer to purchase: Once you have found a property, you will make an offer on the property with your realtor. Be prepared to negotiate back and forth a few times. You will need do give a deposit with the accepted offer. This deposit will count towards your down payment and closing costs.

Step 4: Convert your pre-approval to a full approval: Once your offer is accepted, make sure your mortgage advisor has a clear copy of the purchase agreement and MLS listing. They will use this information to get you a full approval from a lender. An appraisal might be required by the lender.

Step 5: Signing mortgage documents: Once your mortgage advisor has collected the required documents to meet the lender's approval conditions they will meet with you to sign the mortgage commitment documents. The required documents will be sent back to the lender who will then send mortgage instructions to your lawyer.

Step 6: Signing with your lawyer: The lawyer will prepare the mortgage and registration documents once they have received the instructions from the lender. You will then meet with the lawyer and sign the documents with them.

Step 7: Get your keys & move in: Once the lawyer has received the funds from the lender and completed the registration on the title and mortgage they will contact you to let you know that you can pick up your keys.

First Time Buyer Benefits As a first time buyer have 2 major benefits. The Home Buyer's Withdrawal Plan allows you to withdraw money that you have contributed to your RRSP up to a maximum of $35,000 to use towards the purchase of a qualifying home. The funds have to be repaid to your RRSP over a 15 year period starting 2 years after the withdrawal. For more information on the Home Buyer's Withdrawal Plan visit the Government of Canada's website by clicking here.

The other major benefit is that of the land transfer tax rebate. You can get more information about the land transfer tax from the Government of Ontario's website by clicking here.
High Ratio vs Conventional Mortgages
The difference between a High Ratio and a Conventional Mortgage is determined by your down payment. A mortgage is called a high ratio mortgage when the down payment is less than 20% of the purchase price. Another way of saying that is that the ratio of the mortgage to the purchase price is greater than 80%, hence "high ratio".

The current maximum amortization for a high ratio mortgage 25 years. Home buyers who are purchasing a primary residence with less than 20% down payment will have to pay an insurer premium to have the mortgage insured with one of the 3 insurers (CMHC, Sagen and Canada Guaranty). The insurer premium can be added to the mortgage amount or paid up front on the closing date. It is more common  for it to be added to the mortgage. 

CMHC's Mortgage Insurance Calculator

Conventional mortgages are those where the total down payment is at least 20% of the purchase price for a primary residence, and as such avoid paying the insurer premium. By putting 20% down the home buyer will have a lower mortgage but can also take advantage of a 30 year amortization which lowers the mortgage payment versus a 25 year amortization on the same mortgage amount. Some lenders also offer 35 or 40 year amortizations, for more information on this please contact one of our mortgage agents.

Qualifying Rate
Qualify for a mortgage has become more difficult over the past few years. Government requirements relating to how mortgage applications can be approved has affected the term that some applicants can take for their mortgage. The government requires a stress test be completed on mortgages. This stress test takes the form of applicants having to qualify based on the higher of a benchmark rate set by the government or 2% of the contract rate of the mortgage.  As a result of having to qualify at the higher rate, the applicant(s) Gross Debt Servicing (GDS) ratio and Total Debt Servicing (TDS) ratio are higher than what they would have been at based on the actual mortgage rate for the chosen term. If a client is taking a mortgage term of 5 year or greater, they are able to qualify using the actual contract rate for that term. Due to this harder qualifying criteria more clients have to take a 5 year or greater term in order to qualify for their mortgage, despite their preference for a different term.
GDS & TDS Ratios
Lenders and insurers will look at two calculations are part of the analysis on a mortgage application. The first is the Gross Debt Servicing ratio (GDS). This calculation looks at the carrying cost of the property relative to your income. The carry costs are the mortgage payment, the property taxes, heating costs and if applicable 50% of the condo fees. Most lenders will determine the heating costs using a flat $1200 per year for properties with a square footage of less than 2000 and a heating costs factor of 0.60 x square footage for properties over 2000 square feet. The maximum the GDS should be is 35% or 39% with strong credit scores for all applicants.

The Total Debt Servicing ratio is the second calculation that lenders look at. Like the GDS, the TDS ratio looks at the carrying costs relative to income but also includes other debt payments like credit cards, loans, vehicle leases, lines of credits, and with some lenders cell phone payments.

Debts are categorized into four categories: Revolving, Installment, Open & Mortgage. Credit cards and line of credits are revolving credit, loans are installment credit and cellular phones are considered open credit (no credit limit, full balance is due monthly). Lenders will typically use 3% of the outstanding balance on revolving and open debt for the TDS calculation and the monthly payment as reported on the credit bureau for installment credit. Some lenders may use 3% of the total limit for revolving credit.  The maximum the TDS should be is 42% or 44% with strong credit scores for all applicants. 

Please note: We have access to lenders that will consider GDS and TDS ratios higher than the industry standard. For more information contact us today for an appointment.

The amortization is the length of time that a mortgage is spread over. The longer the amortization, the lower the payment, however the total interest cost is greater as it takes longer to pay off the mortgage. 

High Ratio mortgages (purchases with less than 20% down payment) have a maximum amortization of 25 years. Conventional mortgages (20% or more equity in the property) can have an amortization of 30 or 35 years (ask your Approved Financial Services mortgage agent about the 35  or 40 year options).

Fixed vs Variable
The terms fixed are variable refer to how the mortgage rate changes. Fixed rate mortgages have a set interest rate that will not change for the duration of the selected term. Variable rate mortgages have rates that are based on the lender's prime rate. The variable rate can be either Prime minus or Prime plus a percentage (i.e. Prime - 0.25% or Prime + 0.25%). If the lenders Prime rate changes the payment can change which in an increasing rate environment can have a major affect on an applicant's cash flow.

Qualifying requirements can affect whether an applicant can have a variable rate, please refer to our section on Qualifying rates for more details.

Home Equity Lines
Home Equity Lines of Credit (HELOC) have become a very popular method of financing and refinancing. Home Equity lines operate like their unsecured counterparts, however they are secured by the equity in the property. The rates on HELOCs are typically cheaper than unsecured lines and are prices based on Prime rate plus a premium (i.e. Prime + 0.50%). HELOCs are revolving credit and have interest only payments. Many lenders that offer HELOCs have an option to add fixed portions to the used portions to have a fixed rate and payment. 

Government requirements limit the maximum a HELOC can be to 65% Loan-to Value (LTV). Lenders that offer HELOCs also have more stringent requirements than for mortgages. Approval for HELOCs are typically calculated based on a 25 year amortization and are required to be qualified based on the government's qualifying criteria (see the section on Qualifying Rates).
Closing Costs
Closing costs are an important and necessary part of a home purchase. Closing costs consist of legal fees, land transfer tax, title registration, adjustments etc. A rule of thumb is to estimate closing costs at 1.5% of the purchase price, however it's best to check with you lawyer to get a better estimate. Keep in mind that if you are purchasing a property in Toronto, there is currently a Toronto Land Transfer Tax in addition to the Ontario Land Transfer Tax.

Our Lenders

Here is some of the lenders we work with on a daily basis to help our clients