Guide to Getting a Mortgage
Guide to Getting a Mortgage in London Ontario
Guide to Getting a Mortgage
“When you use the Right Mortgage Broker, you get the Best Mortgage Rate”
Available 24/7, Call or Text 519-860-2102
Obtaining a Mortgage Financing can be a complex process with multiple moving parts. With multiple types of Mortgages available (traditional mortgage with 5 percent down, mortgage re-financing, mortgage renewals, private mortgage financing, etc) it can be daunting to figure out how the whole process works.
This guide will answer some of the most common questions pertaining to mortgage financing – How much down payment do I need? How much of a mortgage can I afford? Do I qualify for a mortgage? This guide will outline the process of obtaining a Mortgage in London Ontario and surrounding area and attempt to answer some of the most common questions.
This guide is meant to act as an initial tool to understand the process of getting a mortgage in London Ontario and surrounding area. It is always best to contact a Mortgage Broker in order to get a personalized assessment of your needs.
How much of a Down Payment do I Need?
This is possibly the most oft-asked question about getting a mortgage. While twenty-years ago it was possible to get a zero-down payment mortgage the Government of Canada has since
clamped down on zero-down mortgages. In rare circumstances where you are purchasing a relative’s home you can receive what is called ‘Gifted Equity,’ where your relative will give you the down payment, essentially selling you the home for less than what it is worth, a zero-down mortgage is still technically possible. It is best to contact a Mortgage Broker to go over if this is a possibility. Please call or text me at 519-860-2102 for details!
5 Percent Down Mortgage
In most cases the Minimum Down Payment needed is 5 percent. This is regulated by the Government of Canada. A 5-percent down Mortgage what is called an ‘Insured Mortgage,’ meaning with 5 percent down you can obtain a mortgage with Mortgage Insurance. These mortgages are insured by the Canadian Mortgage and Housing Corporation (CMHC), Genworth Financial or Canada Guaranty. With mortgage insurance the lenders are guaranteed that if the mortgage goes into default they will be compensated by the mortgage insurer.
5 percent down payment mortgages are heavily regulated by the Government of Canada. In order to qualify for a 5 percent mortgage you must have two sources of revolving credit (line of credit, credit card, etc), for two years, with good credit history. There cannot be any Bankruptcies, Consumer Proposals or Collections on the credit bureau.
In order to qualify for a 5 percent down payment mortgage, in addition to good credit history the insurers also require that the applicant have two years of recent employment history. While there are some exceptions to this qualification, in general it is important to show continuous employment so the insurers are satisfied in the ability to pay the mortgage. For more information on this qualification call or text me at 519-860-2102, or Contact Me.
The third and final qualification for a 5-percent down mortgage pertains to how much you can qualify for. The Government policy is that borrowers must qualify at the Bank of Canada Benchmark rate, amortized over 25 years. For example, even if your mortgage rate is 3.14 percent the total mortgage for which you qualify must be tested against a mortgage for the benchmark rate, which at the time of writing was 5.35 percent. This policy was put into place by the Government to ensure that home buyers could afford their mortgages should interest rates rise in the future.
However, as with most things, there are exceptions to every rule and it is best to contact a Mortgage Broker. For a detailed assessment call or text me at 519-860-2102, or Contact Me and we will go over your options!
20 Percent Down Mortgage
In contrast to the above, if there is 20 percent down the rules are less stringent in obtaining mortgage financing. While the above listed the rules for insured mortgages, with a 20 percent down payment you are no longer subject to the insurers’ guidelines. A mortgage with 20-percent down payment or more is what is called an ‘Uninsured Mortgage.’
Is is much easier to qualify for an Uninsured Mortgage.
Mortgages with 20-percent down payment are able to qualify up to a maximum of a 35 year term (depending on the lender), allowing for a higher mortgage amount with less income than those qualified over a 25 year term.
With 20-percent down the lenders ease their restrictions on credit history. You can have had credit issues in the past (missed payments, bankruptcy, consumer proposal) etc and still qualify for a mortgage. Although previous credit issues will affect the Interest Rate, unlike the insured mortgages, you may still qualify for a mortgage!
How you qualify for your mortgage also changes with 20-percent down. Rather than qualifying at the Bank of Canada Benchmark Rate, the Stress Test Requirements state that those seeking a mortgage must qualify at either the Benchmark Rate, or the Contact Rate (the rate of which you pay) plus 2 percentage points (whichever is higher).
For example, if the mortgage interest rate is 3.6 the mortgage must qualify at a 5.6 percent interest rate. Mortgage Brokers can get around the stress test and have options available to qualify at the contract rate. Call or text me at 519-860-2102 or Contact Me and we will go over the various options and lowest interest rates available.
What Will my Interest Rate be?
It is always best to try to get the lowest interest rate available! There a number of factors which determine how low of an interest rate will be applied to your mortgage. All things being equal the most important factor when figuring out your interest rate is credit history.
If there have been very few late payments and overall good credit history then you can expect to get a low interest rate – usually between 3-3.5 percent on a Five Year Fixed Mortgage, or Prime minus .75 on a Variable Mortgage.
If there have been credit issues in the past (Bankruptcy, Consumer Proposal, Collections, etc) then a Mortgage Broker can still get you approved for a mortgage, however there is a good chance that you will pay a higher interest rate.
The good news is, however, with my Credit Recovery Program, there is a good chance that you will not pay too have of an interest rate for too long. Usually we try to have put your mortgage into a shorter term, establish a good repayment history, and then after two years switch out to a low rate mortgage! For more information please do Call or Text me, 519-860-2102, or Contact Me.
Should I Choose a Variable or Fixed Mortgage Interest Rate?
When deciding whether to choose a Variable Rate or Fixed Term (the most popular is 5 year fixed) it is important to consider with what level of risk you are comfortable.
Variable interest rates are low than that of fixed interest rates. A typical Variable Rate Mortgage through a Mortgage Broker will be Prime minus .75. Under this type of interest rate your monthly mortgage payments will fluctuate with the Bank of Canada’s Prime Rate. If the Prime Rate rises then so does your monthly mortgage payment. Conversely, if the Prime decreases then so too does your monthly mortgage payment.
Fixed Mortgage Rates are higher than that of Variable Rates. However, with a 5 Year Fixed Mortgage Rate (the most popular) your monthly mortgage payment is set in stone for the duration of the term. While you are paying a more interest over the course of the term you do have the comfort of knowing that your mortgage payment will not increase over the life of the term.
When deciding whether to choose a Variable or Fixed Mortgage Rate it is best to consult with a Mortgage Broker who can go over all of your financial goals and help find what works best for you. Call or Text me at 519-860-2102, or Contact Me and we will go over the details through a personal assessment.
How Much Mortgage Can I Afford
When considering the type of Mortgage needed it is imperative to ensure that the mortgage is affordable. Check out the Mortgage Affordability Calculator to see how much of a mortgage you can afford. This calculator considers the Principal Payment, Interest Rate Payment, as well as other expenses such as heat and hydro when calculating how much of a mortgage payment is affordable.
The Mortgage Affordability Calculator does a good job of letting you known what monthly mortgage payments you can afford based off your monthly income. However, the calculator does not incorporate expenses such as home insurance, maintenance, etc. It is important to consider all of the expenses associated with home ownership prior to purchase a new home.
Get Approved for a Mortgage
After considering how much of a down payment needed, the difference between a Variable and Fixed Rate Mortgage and how much you can afford it is time to get approved for a Mortgage. To be approved for a Mortgage it is always best to meet with a Mortgage Broker. Available 24/7, I have access to the best interest rates in the London Ontario and area, I am mobile (I can come to you) and offer personalized service. It is not uncommon for me to have client-meetings at night time or on the weekends, and am always available via call or text.
Find a Property
Once you have been PreApproved for a Mortgage it is time to shop for a property that fits your needs and wants. Realtor.ca , the old MLS.ca , is a great start for finding a property!