FREQUENTLY ASKED QUESTIONS -
LIST OF QUESTIONS	HOW MUCH CAN I AFFORD TO PAY FOR A HOME? WHAT IS A HOME INSPECTION AND SHOULD I HAVE ONE DONE? WHAT IS THE MINIMUM DOWN PAYMENT NEEDED TO BUY A HOME? WHAT IS MORTGAGE LOAN INSURANCE? WHAT IS A HIGH-RATIO MORTGAGE? WHAT IS A CONVENTIONAL MORTGAGE? WHY SHOULD I USE A MORTGAGE BROKER? DOES A MORTGAGE BROKER CHARGE A FEE? DOES PAYING MY MORTGAGE BI-WEEKLY CUT YEARS OFF MY MORTGAGE? WHAT IS THE DIFFERENCE BETWEEN MONTHLY, SEMI-ANNUAL AND ANNUAL INTEREST CALCUALTIONS? HOW DOES BANKRUPTCY AFFECT MY ABILITY TO QUALIFY FOR A MORTGAGE? HOW WILL CHILD SUPPORT AND ALIMONY AFFECT MY MORTGAGE QUALIFICATION? CAN I GET A MORTGAGE TO PURCHASE A HOME PLUS MAKE IMPROVEMENTS?
HOW MUCH CAN I AFFORD TO PAY FOR A HOME? First, a Mortgage Lender will look at affordability by determining the 'Taxable Income' of the potential owners. They will then allow 32% of this income to be used toward mortgage payments, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included. Second, the Lender will want to ensure that all of the housing related costs PLUS all other monthly debt payments, including car loans, credit cards, lines of credit payments, do not exceed 40% of your 'Taxable Income' In addition to considering what a lender says you can afford, make sure you calculate how much YOU think you can afford. If the payment amount you are comfortable with is less than 32% of your income you may want to settle for the lower amount rather than stretch yourself financially. Make sure you don't leave yourself house poor. Structure your payments so that you can still afford simple luxuries, like the occasional vacation. Equity mortgages are also available based on certain criteria - please see Equity Mortgages. To calculate how much of a mortgage you qualify for, go to the Mortgage Prequalifier. Or, contact me by phone at (604) 649-8244 or by email at frank@frankgreschner.com.
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WHAT IS A HOME INSPECTION AND SHOULD I HAVE ONE DONE? A home inspection is a visual examination of the property to determine the overall condition of the home. In the process, the inspector should be checking all major components (roofs, ceilings, walls, floors, foundations, crawl spaces, attics, retaining walls, etc.) and systems (electrical, heating, plumbing, drainage, exterior weather proofing, etc.). The results of the inspection should be provided to the purchaser in written form, in detail, generally within 24 hours of the inspection. Where possible, it is worthwhile for the purchaser to attend the inspection as it provides an excellent opportunity to be familiarized with the properties systems and components. A pre-purchase home inspection can add piece of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs, such as a new roof, and this information can then be factored into your buying decision. A home inspection helps remove a number of unknowns and increases the likelihood of a successful purchase.
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WHAT IS THE MINIMUM DOWN PAYMENT NEEDED TO BUY A HOME? Generally a minimum down payment of 5% is required to purchase a home.* The mortgage is insured through CMHC or Genworth. The 5% must be from your own cash resources or a gift from your parents, it cannot be borrowed. Former price restrictions have now been lifted allowing you to buy a home for any purchase price. Job stability of 1 year is generally required together with credit worthiness. *A current trial program is available to allow quality applicants to purchase up to $300,000 with no money down. The lender provides a 5% cash back that is used for the down payment. The mortgage interest rate is at posted rates rather than at discounted rates. This is currently an excellent program as interest rates are at an all time low. (Current Premium 2.90%)
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WHAT IS MORTGAGE LOAN INSURANCE? Mortgage Loan Insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 75%. Insurance premiums range from .50% to 2.75%, for existing owner occupied property, and are paid by the borrower. They are usually added directly onto the mortgage amount. This is not the same as Mortgage Life Insurance.
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WHAT IS A HIGH-RATIO MORTGAGE? A High-Ratio mortgage is one where the funds available for the down payment equal less than 25% of the purchase price. High-Ratio mortgages generally require Mortgage Loan Insurance provided by either Canada Mortgage and Housing Corporation (CMHC) or Genworth, a private Insurer. The Mortgage Loan Insurance premium is paid to CMHC or Genworth and protects the lender in the event the mortgage is not repaid and the bank has to take back the property. The only benefit to borrowers is that it allows them to purchase a home with a minimum down payment. The insurance premium is by paid by the borrower and is usually added directly onto the mortgage. Mortgage Loan Insurance premiums range from .50% to 2.75% of the mortgage amount, for existing owner occupied properties, and are calculated based on the down payment or overall loan to value. For instance, borrowers with a 5% down payment would pay a premium of 2.75% while those with a 20% down payment would pay an insurance premium of 1.0% This is not mortgage life insurance.
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WHAT IS A CONVENTIONAL MORTGAGE? A conventional mortgage is one where the down payment is equal to 25% or more of the purchase price. Conventional mortgages do not normally require Mortgage Loan Insurance.
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WHY SHOULD I USE A MORTGAGE BROKER? Financial Institutions sell only their own products to the public through their own sales force. As a result, they are not able to provide unbiased advice or selection since by doing so they risk losing your mortgage to a company whose product may provide more value to you. Brokers on the other hand, sell a variety of mortgage products and services as they deal with many lenders and not just one. They are able to search from a variety of Financial Institutions, including banks, trust companies, insurance companies and credit unions, for the lender that offers the best product, rate and terms for a particular client. Thus, they can be more objective in their recommendations to their clients. To gain a larger market share and reduce fixed salary costs, the majority of financial institutions pay a finder's fee to Mortgage Brokers who refer business to them. Due to the volume of business done by Mortgage Brokers most lenders offer their best discounted rates and fast approvals in order to gain their business. This allows the Mortgage Broker to shop among the various financial institutions for the mortgage rate and product that best suits the needs of their client and, in almost all cases, at no cost to the client. When you deal directly with a Financial Institution and your mortgage is declined, for whatever reason, you must begin the application process all over again with another Lender. When you deal with a Mortgage Broker the application can quickly be redirected to another Lender, or several other lenders, for consideration.
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DOES A MORTGAGE BROKER CHARGE A FEE? The vast majority of mortgage clients do not pay a fee for the services of a Mortgage Broker. To gain a larger market share, the majority of financial institutions pay a finder's fee to Mortgage Brokers and at the same time offer them their best discounted rates and fast approvals in order to gain their business. This allows the Mortgage Broker to shop among the various financial institutions for the mortgage rate and product that best suits the needs of their client and, in almost all cases, at no cost to the client. In situations where traditional lenders will not approve a mortgage because of poor credit or some other derogatory information, and the application must be placed with a private or non-traditional lender, a brokerage fee may be charged to the client. This cost must always be disclosed to the client up front during the application process and must be authorized IN WRITING by the client before it can be charged.
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DOES PAYING MY MORTGAGE BI-WEEKLY CUT YEARS OFF MY MORTGAGE? Payment frequency is not the major factor in reducing the amortization period of your mortgage. Principal reduction is! But what about all the talk of bi-weekly payments taking five years off your amortization period. Not so! Although you will save some interest making your payment bi-weekly, ultimately it is the fact that your total payments each year are higher that results in the significant reduction in amortization. For instance, when a client chooses a bi-weekly payment of $500 over a monthly payment of $1000, in fact they are choosing to pay an extra $1000 annually. In most cases a bi-weekly payment is simply a monthly payment divided by two. That means that instead of paying $12,000 in monthly payments, you are now paying $13,000 in bi-weekly payments. That extra $1000 is what ultimately cuts the years off your mortgage. But you can do close to the same thing by increasing your monthly payment, if a monthly payment frequency would be more convenient for you, or by taking an accelerated semi-monthly payment. See the numbers below: Based on $200,000 Mortgage at an Interest Rate of 6.15% MONTHLY Regular MONTHLY Accelerated SEMI-MONTHLY Accelerated BI-WEEKLY Accelerated Payment $1,297.50 $1,405.62 $702.81 $648.75 Yearly Payments $15,570.00 $16,867.44 $16,867.44 $16,867.50 Extra funds paid each year compared to monthly regular N/A $1,297.44 $1,297.44 $1,295.50 Actual Amortization Period 25 Years 21 Years 20.964 Years 20.960 Years TOTAL Interest Paid $189,249.57 $154,518.38 $153,615.95 $153,544.91 Interest savings over life of mortgage as a result of increasing mortgage payments N/A $34,731.19 $35,633.62 $35,704.66 Portion of interest savings actually resulting from making payments more frequently (i.e. not monthly) N/A N/A $902.43 (compared to monthly accelerated) $71.04 (compared to semi-monthly accelerated) Most people find that a payment frequency tied to how often they earn their income makes the most sense. And where possible, increase your regular payment amount or make periodic lump sum payments as both will help reduce the length of time it will take to repay your mortgage fully.
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WHAT IS THE DIFFERENCE BETWEEN MONTHLY, SEMI-ANNUAL AND ANNUAL INTEREST CALCUALTIONS? The more frequently interest is compounded the higher the effective rate of interest. Most traditional mortgage lenders calculate interest for first mortgages using semi-annual interest calculation. Private lenders and second mortgage lenders often use monthly interest calculation. To understand what this means see the table below. Compounding Frequency... 6.5% MONTHLY 6.5% SEMI-ANNUAL 6.5% ANNUAL Monthly Payment (for comparison purposes) $1,012.81 $1,004.74 $995.45 * Above calculations are based on a $150,000 mortgage with a 25 year amortization * As you can see from the above example, you need to know how frequently the interest is being calculated in order to compare it to other rates. A rate of 6.5% calculated monthly is different from 6.5% calculated semi-annually or annually.
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HOW DOES BANKRUPTCY AFFECT MY ABILITY TO QUALIFY FOR A MORTGAGE? Depending on the circumstances surrounding your bankruptcy, generally the earliest a lender would consider providing mortgage financing would be two to three years after you have been discharged. Re-establishing your credit is a primary concern. This can best be done by lodging cash as collateral to obtain a credit card. If you are a previously discharged bankrupt the best way to determine whether or not you qualify at this time is to discuss your situation with a Mortgage Broker.
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HOW WILL CHILD SUPPORT AND ALIMONY AFFECT MY MORTGAGE QUALIFICATION? Where Child Support and Alimony are paid by you to another person, the amount paid out is deducted from your total income BEFORE determining the size of mortgage you will qualify for. Where Child Support and Alimony are received by you from another person, the amount paid may be added to your total income BEFORE determining the size of mortgage you will qualify for, provided proof of regular receipt is available for a lender determined period of time.
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CAN I GET A MORTGAGE TO PURCHASE A HOME PLUS MAKE IMPROVEMENTS? Subject to qualification, yes. In fact, even purchasers with 5% down may qualify to buy a home and make improvements to it. For high-ratio financing, both CMHC and Genworth insured mortgages are available to cover the purchase price of a home as well as an amount to pay for immediate major renovations or improvements that the purchaser may wish to make to the property. This option eliminates the need to finance the renovations or improvements separately. Some conditions apply. Where the improvements are cosmetic, the Mortgage Loan Insurance Premium is unchanged from the standard schedule. Where the improvements are deemed to be structural, the Mortgage Loan Insurance Premium is increased by .50% over the standard schedule. For standard Mortgage Loan Insurance Premium schedule, see Residential Mortgage Financing - Where Loan to Value is 75% to 90%.
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There are many more resources in the Full Article Listing that may be helpful, such as: Costs to Consider and Did You Know?. Information subject to change without notice.