Mortgage payments are made up of a principal sum (the amount borrowed) and interest (the cost to you of borrowing money).
The best plan for any type of mortgage is to minimize the amount of interest you pay and lenders offer several ways to help do this.
- A larger down payment means your home ultimately costs less because a smaller mortgage means less interest.
- A shorter amortization, the period over which a loan is repaid.
- A weekly or biweekly payment schedule, instead of monthly.
- Additional lump sum payments.
Remember you don't have to get your mortgage from the same place you have your savings or chequing accounts. At the end of each term you will be able to change the options of your mortgage such as the payment schedule, the term, the rate, even the mortgage lender. Be sure to consult with your broker before renewing your mortgage term.
Where to get a mortgage
Many institutions and individuals lend money for mortgages. These include insurance companies, banks, trust companies, credit unions, finance companies and pension funds.
The best option is always to speak with a mortgage broker first. Mortgage brokers know where to find mortgage funds and at the lowest rates with the best conditions available.
What a lender wants from you
Lenders will want some financial information about you and/or your co-buyers to assess your ability to repay the loan. This ability is based on your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios and also on your assets, liabilities, earnings, employment history and your past record of repaying loans.
Specifically, your lender may want the following:
- personal information - age, marital status, dependents
- details of employment, including proof of income (T-4 slips, personal income tax returns or a letter from your employer stating your position)
- other sources of income, for instance, pensions or rental income
- current banking information
- verification of your down payment
- consent to run a credit investigation
- a list of assets, including property and vehicles
- a list of liabilities, for example, credit card balances, car loans - the total amount you owe and your monthly payment amounts
- fees for an appraisal or for a copy of a valid appraisal report if one was recently done
- mortgage insurance fees if a high-ratio mortgage is required
- a copy of the property listing
- a copy of the Agreement of Purchase and Sale on a resale home
- plans and cost estimates on a new home
- the condominium financial statements, if applicable
- a certificate for well and septic, if applicable
A mortgage approval should take only a few days, but it's probably best to allow up to two weeks. During this process, the lender will do a credit check and spot check other information you have provided. In addition, an appraisal of the value of your home may be obtained.
Whether the lender approves your loan application will be determined by an evaluation of the following:
- Capacity: Do you have enough income to repay the debt?
- Credit history: Do you pay your bills on time and do you live within your means?
- Capital: What are your current assets?
- Collateral: What assets can you pledge as security against the mortgage? If required, a request for mortgage loan insurance is submitted to CMHC, Genworth (GE), or a private insurer. The lender then approves or rejects your mortgage loan.
A pre-approved mortgage is very common. A pre-approval means your lender approves the amount of your mortgage and gives you a written confirmation or certificate for a fixed time period before you start looking for a home. A pre-approval usually lasts for 60 to 90 days and sets the mortgage rate the lender will offer to you. If rates go down in that period, the lender should offer you the new lower rate prior to closing your mortgage.
A pre-approval gives you a head start on house hunting, but your final approval is still subject to an appraisal of the home and a credit review of your finances.
To get pre-approved for your mortgage today click here.