Understanding financing

UNDERSTANDING FINANCING

PRE-APPROVAL
It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you 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 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. If you need a referral for a mortgage broker, don’t hesitate to ask us.

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 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. 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.

DOWN PAYMENT LOAN INSURANCE
5% to 9.9% 2.75%
10% to 14.9% 2.00%
15% to 19.9% 1.75%
20% to 24.9% 1.00%
25% to 34.9% 0.65%

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

HIGH RATIO MORTGAGE EXAMPLE

Purchase price $500,000.00
5% down payment $25,000.00
Mortgage required $475,000.00
Insurance premium $13,062.50 ($475,000 x 2.75%)
Total mortgage amount $488,062.50 ($475,000 + 13,062.50)