All About Financing & Mortgages

Printable version: Understanding Financing  &  How Much Can You Afford?

Get A Mortgage Pre-Approval

It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your RE/MAX Hallmark REALTOR® know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your RE/MAX Hallmark REALTOR® or mortgage broker. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and usually at no expense to you.

Conventional Mortgages

The maximum amount of conventional mortgage is 80% of the purchase price. The amortization or length of time in which to repay the loan is usually 25-30 years. The term of the mortgage is the number of months or years, usually six months to five years, for which the rate of interest is set.

High Ratio Mortgages

For most people the hardest part of buying a home, especially the first one, is saving for the necessary down payment. With mortgage loan insurance, you can put as little as 5% down payment on homes up to $500,000. Mortgage loan insurance, protects the Lender and, by law, most Canadian lending institutions require it. The cost of high ratio mortgage loan insurance is in the form of a premium. The premium is calculated as a percentage of the principal and can be paid in a single lump sum or be added to your mortgage and included in your monthly payments.

Loan To Value Ratio                Premium Rate (applied to Total Loan Amount)

Up to and including 65%                                            0.60%
65.01% to 75%                                                               1.70%
75.01% to 80%                                                               2.40%
80.01% to 85%                                                               2.80%
85.01% to 90%                                                               3.10%
90.01% to 95%                                                               4.00%

**loan insurance may vary due to mortgage product and amortization length

To calculate your loan insurance, visit www.remaxhallmark.com/loan-insurance

Using Your RRSP To Purchase A Home

The Home Buyers’ Plan (HBP) allows each RRSP plan holder to borrow up to $25,000 from the plan to use towards the down payment of a home. Couples with separate plans can borrow up to $25,000 each up to a total of $50,000. Home buyers using this program have up to fifteen years to return the borrowed funds, interest free, to their RRSP. Using these funds towards the purchase of a home does not deregister the plan unless the monies are not returned as agreed. This allows participants to retain the tax advantages the RRSP offers.

Here Are The Major Guidelines For This Program:

  • You are a first time home buyer or have not owned a principal residence in Canada during the past four years. The RRSP must have been in existence for at least 90 days.
  • You must be a resident of Canada both at the time the funds are withdrawn and at the time the home is acquired.
  • A minimum of 1/15 of the amount is withdrawn has to be repaid annually.
  • Repayment of more than 1/15 of the borrowed amount in any particular year will be carried forward and can be applied towards a future year’s repayment.

Not every RRSP is eligible under this program. Check with your investment firm to see if you qualify. Also, advise your lawyer well before closing that you will be using these funds.

You can arrange for a Mortgage Pre-Approval with your bank or other lender, or by working with a good mortgage broker. I’m well-connected in the local real estate scene, so if you want me to recommend a reputable broker or lender, please contact, Zena Taller at (613) 301-6554 or Zena.Taller@HallmarkOttawa.com

How Much Home Can You Afford?

FIRST AFFORDABILITY RULE

Your monthly housing costs should be no more than 32% of your average gross monthly income. This percentage is known as your gross debt-to-income or gross debt service (GDS) ratio.

Housing costs include:

  • your monthly mortgage payment (principal and interest)
  • property taxes
  • heating expenses
  • 50% of condo fees (if applicable)

SECOND AFFORDABILITY RULE

Your monthly debt load should be no more than 40% of your average gross monthly income. This percentage is known as your total debt-to-income or total debt service (TDS) ratio.

Your monthly debt load includes:

  • housing costs (amount calculated in rule 1)
  • car loans or leases
  • credit card payments
  • line of credit payments
  • other mortgage payments

The maximum amount you can afford to spend on a home depends on these numbers and the size of your down payment.

In addition to GDS and TDS ratios, financial institutions base their lending decision on your credit history, job stability and the amount of your down payment. Interest rates also affect the amount of financing you will be able to obtain.

*Please note that many lenders are prepared to exceed these guidelines.

To calculate your affordability, visit www.remaxhallmark.com/affordability

Have questions about arranging financing? Please submit the form below or contact Zena Taller at (613) 301-6554 or Zena.Taller@HallmarkOttawa.com