Mortgage FAQThe average person applies for a mortgage fewer times during their entire life than I do in an average week. Consequently you may be forgiven for feeling like you are stepping into a mine field with no shoes on. As they say, there’s no such thing as a stupid question so here are the answers to some of the more frequent questions I am asked:
Q: Why should I use a Mortgage Broker and what’s in it for me?
The best way to explain this is as follows: when I worked for the bank(s) I was paid a salary every two weeks so that I would look after the best interests of the bank, and to promote that particular bank’s products whether they offered the best interest rate or the most suitable terms and conditions on the market for that client or not. A mortgage broker places the best interests of the client above all else when seeking to place a mortgage - and has more than 30 institutional lenders to choose from, all offering discounted rates. Furthermore, in the majority of cases, the broker’s services are paid for by a finder’s fee from the lender and are therefore provided at no cost to the borrower. Most brokers also have a number of private investors available for the more difficult transaction, where the borrower may be required to pay a fee.
Q: How much house can I afford?
Q: How much down payment will I need?
Technically, you’ll need a minimum of 5% of the purchase price (which may be borrowed Q: What is Mortgage Insurance and will I have to pay it?
Whenever the mortgage amount exceeds 80% of the purchase price or appraised value, whichever is the lower, the lender is required to insure the mortgage against default, by law - and guess who gets to pay for it?? There are three mortgage default insurers in Canada at the present time: Canada Mortgage and Housing Corporation (a Crown Corp.), Genworth Financial Canada, and A.I.G United Guaranty. Fees range from 0.5% to 3.35% and are usually added to the mortgage balance. Q: Are there any other (hidden) costs?
Yes there are. A lawyer will need to search the title to the property so that he/she is able to certify to the lender that the security for the loan (the house) is what it is purported to be, i.e. that there are no nasty liens against it nor physical infringements upon the property itself which would take priority over (or cloud the rights transferred to the lender under the terms of) the mortgage, and that everything was registered properly in accordance with Canada’s real estate laws. The fee for this, along with the cost of a Title Insurance policy is likely to be anywhere from $1000 to $2000 depending upon the lawyer and the amount of work involved. You will also be required to pay Ontario’s Land Transfer Tax. This tax is based on a graduated scale in accordance with the value of the home. For ease of reference it is usually estimated that legal fees, title insurance and land transfer tax will amount to approximately 1.5% of the purchase price. You will have to come up with this out of your own pocket, although first-time home buyers may apply for a Land Transfer Tax Rebate to a maximum of $2000. The last item is the PST due on the mortgage default insurance. Although the premium itself may be capitalized into the mortgage, the 8% PST on it may not, so you will have to dip into your pocket again on the day of closing. Q: What is Title Insurance and what does it do for me?
First of all, Title Insurance removes the requirement for certain searches to be performed by your lawyer and it also removes the necessity of a land survey, so in many cases it actually saves you money. It also insures against things like unpaid property taxes or defects in the title to the property which are not discovered at the time of closing. It further covers both the borrower and the lender for any claims against title (ownership) arising in the future - an extremely valuable commodity in today’s high-tech, white-collar world of mortgage and title fraud. Q: What is this “Beacon Score” anyway?
A computerized formula was devised by a company called Fair Isaac and Co from the US which is applied to the information carried on your credit bureau report. It applies weighting to such factors as: late payments; the amount of time credit has been established; the amount of credit used versus the amount of credit available; the length of time at present residence; the type of credit the individual has availed themselves of and any negative credit information such as bankruptcies, charge-offs, collections, etc. The beacon score ranges from 300 to 900 (the higher the better) with Canada’s current legislation requiring a minimum score of 600 for at least one of the borrowers. Q: How do I apply?
You can get started right now with our Quick Start Mortgage Application or the full online application available at the Mortgage Intelligence site. |
A mortgage broker can help you to: 
The maximum percentage of your income most lenders will allow to be attributed toward housing costs (principal and interest, property taxes plus an allowance for heat costs, say $75 to $100 per month) is usually 35% of your combined, gross income (this is called the Gross Debt Service Ratio). When all of your other debt payments are added in (car loans, credit card payments etc.,) the total including your housing costs should not normally exceed 42% of your combined gross income (this is called the Total Debt Service Ratio). If your beacon score/credit rating is above 680 then many lenders will dispense with the Gross Debt Service Ratio, instead imposing only a Total Debt Service Ratio ceiling of 44%. 
For years lenders tried many different types of criteria to determine, in advance, which loans would be good and which ones might go bad, with varying degrees of success. In the end it was eventually determined that the best indicator of how a person would pay their debts in the future was - how they paid them in the past! 
