Frequently Asked Canadian Mortgage Questions

Can I get pre-approved for a home purchase loan before I’ve found my property?

Absolutely.  However, you should note that this pre-approval is not the same as a commitment letter.  The pre-approval states the amount you will qualify for as long as all the information you have provided is accurate.  A pre-approval should help when purchasing a home by providing an accurate range of pricing for the home that you wish to purchase.  It also creates purchasing power by showing that your finances are in order, you become more like a cash buyer and can save thousands of dollars just by being in a better negotiating position.  Make note, you should never waive the financing condition on your purchase until the commitment has been fully satisfied.

Can I make changes to my application?

Yes, you can make changes anytime before you lock in your rate.  Keep in mind that any changes you make may extend the time that it takes to close your loan, may increase the cost of closing and may effect your interest rate.  We recommend that you complete your original loan application accurately and completely prior to submitting.  Once you receive confirmation of your rate lock, you should review the terms carefully and contact your mortgage consultant immediately if any corrections are needed.

Do I have to finish filling out my application at one time?

No. But it is best to get it done right away.  This gives your broker a clear picture of your financial standing at that time.  With a clear picture and everything being disclosed, a good broker will find ways to leverage all your assets to get you an excellent rate, but more importantly, find a product that will save you money.

How do I increase and protect my credit rating?

Here are a few general tips to assist you in raising and maintaining your credit score:

-Maintain two to three revolving charge accounts such as Visa or MasterCard and keep in good standing.

-Have a couple of other credit card accounts, such as department stores or gas cards, keep in good standing.

-Avoid “finance” company credit card offers.

-Avoid credit inquiries-they lower your credit score.

-Don’t max out your credit cards-the ratio of available credit to your total credit balances is very important. (Try to keep between 4%-12% of total available balance)
-Don’t apply for multiple credit lines; this triggers an inquiry of your credit, which lowers your credit score.
-Never co-sign a loan for someone else, your credit could be tarnished by their inability or unwillingness to pay.

See all our tips in the top 9 ways to improve your beacon score.

How long will it be before we will know if the loan is approved or not?

The paperwork for a commitment can be received anywhere between 4 hours and 4 days.  The loan can be approved as early as a few hours after all the necessary documentation has been received and filed. If the paperwork is not satisfactory to the lender it could take as long as a couple of weeks.

How long will it take to close the loan?

If everything goes smoothly, we have closed in as little as a few of days.

How will my credit score affect my loan application?

Credit scoring plays a significant role when you apply for a loan. Higher credit scores help you to be eligible for more loan options and give you better rates. If you’ve had credit difficulties in the past, there are still mortgage programs available, but they usually cost a little more and will vary depending on the severity of your credit problems.
Read about the importance of good credit.

Should I refinance?

The significant and most common reason for refinancing is to save you money.  You can save a lot of money every month by lowering the interest rate on your current loan.  How much you can save depends on a lot of factors.  You have to consider how much it will cost in fees (interest penalty, lawyers fee’s, charging/discharging the loan) in order to realize the savings in your payment.   Saving money through refinancing can be achieved by obtaining a lower interest rate, which causes your monthly mortgage payment to be reduced or by reducing the term of the loan, which saves money over the life of the loan.  Even if the fees get added on to the loan balance, they’re still there.

You may also save money by changing your rate from a variable to a fixed. The main reason for this is to obtain stability and security offered by a fixed loan rate over the term of the loan.  Adjustable rates are popular when rates are higher whereas when rates are low most people tend to lock in for a fixed loan rate.

If your intentions are to consolidate debts and replace high interest loans with one low rate mortgage than you may want to consider refinancing.  The loans being consolidated may include second mortgages, credit lines, student loans, credit cards, credit cards, or other debt you may have.  In many cases, debt consolidation saves you money by saving on taxes and avoiding paying high interest rates.

What are points?

A point is a term used to reflect 1%.  If someone says that they charge 2 points on the loan that would be 2% of the total loan amount.

What does it mean to “lock a rate”?

“Rate locks” are a way of protecting from a possible rise in interest rates during the processing of your loan.  With some lenders, you can lock a rate up to 120 days.  If rates improve during the processing of your loan, you will still get the best available rate.

What if I have little or no credit?

Use your good payment history on rent and utilities, as well as credit obtained through family members or friends.  Provide a year’s worth of cancelled checks to validate consistent monthly payments.  This information will become part of your application for the mortgage loan.  You may also be able to provide 3 months of statements signed and stamped from your bank to provide proof of payments and/or proof of income.

What if I have a credit problem because of an unusual situation?

If you normally pay your bills on time but failed to pay because unusual or temporary situation, the lender may accept a detailed letter explaining your circumstances.  Also provide supporting documentation with your letter such as a doctor’s letter that will add credibility to your case.  The information will become part of your loan application.  Your lender will be able to overlook a credit problem if you can provide a good reason for neglecting your obligation.

What is Annual Percentage Rate (APR)?

The total finance charges for a loan that is expressed as a percentage.  APR takes into account the total cost of a mortgage, including interest, closing fees, lender fees, and other charges over the life of a loan.

What is a Conventional Loan?

A mortgage or deed of trust that is not insured or guaranteed under a government insured program. In order for you to avoid insurance costs on your mortgage/loan it must be 80% Loan To Value (LTV) otherwise stated as 20% down.

Get the full picture on mortgage insurance here.

What is a Balloon Payment?

Periodic lump sum payments which are usually applied to the loan without any penalties.

What is a Buy down Loan?

A mortgage with a starting interest rate below the interest rate stated on the Promissory Note.  The lender lowers the starting rate in return for an interest rate subsidy paid by the seller, buyer, builder, or lender.

What is a FICO score?

A FICO score is a credit score developed by Fair Isaac & Company.  It is the American version to our beacon score.  It is a credit scoring method to determine the likelihood of credit users paying their bills in the U.S.  Since the 1950s, Fair Isaac & Co were pioneers in setting credit scoring standards and even today their method has become the most widely accepted and reliable scoring method used by lenders in credit evaluation.

A credit score attempts to condense your credit history into a single number.  Credit scores analyze your credit history by considering numerous factors such as:

-Late payments
-The amount of time credit has been established
-The amount of credit used versus the amount of credit available
-Length of time at present residence
-Employment history
-Negative credit information such as bankruptcies, charge-offs, collections, liens, etc.

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance.

What is a Variable Rate Mortgage (VRM) and how does an VRM work?

An Variable Rate Mortgage (VRM) is a mortgage or deed of trust, which allows the lender to adjust the interest rate periodically as agreed to at the inception of the loan (usually adjusts with prime). If you are interested in an variable-rate mortgage, it is important to discuss all of the features and options of an VRM with your Mortgage Specialist so they can help you make an assessment of the best VRM to meet your specific needs.

What is Hazard Insurance?

Hazard insurance is an insurance policy to protect homeowners against property damage.  This premium prepayment is for insurance protection for you and the lender against loss due to fire, windstorm and natural hazards.  If a catastrophe does happen, hazard insurance should cover the costs to rebuild your home.  Most Lenders often require you to get a policy before you buy or refinance a home and usually require you to pay the first year’s premium upon financing your mortgage/loan.

Find out about all your other closing costs here.

What is an Origination Fee or Brokers Fee?

A fee or charge for work involved in evaluating, preparing and submitting a proposed mortgage loan.  Usually charged for hard to place loans or loans that require a great deal of work.

What is P.I.T.H?

Principal, Interest, Taxes, and Heat.  The four components of a monthly mortgage payment.  Principal refers to the part of the monthly payment that reduces the remaining balance of the mortgage.  Interest is the fee charged for borrowing money.  Taxes and insurance refer to the amounts that are paid into an escrow account each month for property taxes and your monthly cost for heat and hydro.

What is Prepaid Interest?

This amount represents the interest that accrues between the close of your loan and the last day of the month in which the loan closes.  Interest on your loan after that date is included in your regular monthly payments.

What is Private Mortgage Insurance (PMI)?

Insurance written by a private company that protects the lender against loss if you default on the mortgage.

What is Title Insurance?

Insurance policy that is issued by a company regarding title to real property.  It protects against any fraud involving the title of the land before and after the purchase.

Find out about all your other closing costs here.

What kind of documentation will I need to provide the lender for verification?

As each loan has different variables, there is no single list of documents needed for all applicants.  You should be prepared to provide copies of the following documents to your lender.

Employment & Income Data

-T4’s/NOA’s for the past two years

-Letter of employment from your work on a company letterhead, dated, signed by an authorized individual at that company with their title and extension

-Pay stub showing current year-to-date earnings (two most recent stubs)

-Your job history and any explanation of a job change within the past two years

-If self employed (defined as owning 25% of a business or more), you need business and personal federal tax returns (two years)

Assets

-Bank account statements, past three months, dated and stamped by your branch

-Investment account statements

-Retirement account statements

-Signed gift letter and transfer of funds verification

Liabilities

-Credit Cards – include balances and monthly minimum payments

-Auto loans and leases – value of car when purchased, estimated value today, term remaining on the lease

-Explanation and paperwork of any derogatory credit in the past seven years

-Explanation letter of any derogatory credit (bankruptcy, collection, foreclosure or default)

-Student and personal loans – include account numbers, monthly payments and balances

-Landlord address(s) for past two years and rental amounts

Property & Realtor Information

-Name and contact information of your Realtor (business card)

-Homeowner’s insurance information

-Rental or lease agreements

-Residence &address for past two years

What kind of things do I need to be aware of as a 1st time home buyer?

Buying a home can be your largest purchase in your life.  Remember that you are in control of purchasing your home; so don’t allow anyone to pressure you into making a purchase you are not comfortable with.  Take your time and evaluate all your options before committing to a contract or a loan.  Here are some tips and questions to ask yourself as you start on your first steps to home ownership!

-Know how much you can afford first.

-Yourself, as well as the Realtor and Seller need to know if your can obtain financing.

-You need to know about available financing and special programs

- Be aware of how much you need for closing costs and down payment

-Are there any state sponsored programs available?

- Will the lender allow you to borrow the down payment and what are their requirements?

- Can I be gifted the down payment and how much am I allowed?

For more information see our Mortgage 101 Corner.

When should I choose a fixed-rate loan?

A fixed-rate loan offers a borrower the comfort of knowing exactly what their payments will be, month after month, for the life of the loan. Loan terms can range from 10,15, 20, 25, and up to 37 years. In a low-rate environment, borrowers tend to prefer a fixed-rate product that can protect them from possible interest-rate increases. So you should choose a fixed rate loan when you don’t have room for your payments to fluctuate up and down.

When should I choose an Adjustable Rate Mortgage or Variable Rate Mortgage?

Generally speaking, an ARM/VRM enables borrowers to secure a loan at an initially lower interest than a fixed-rate loan. This means a borrower has lower monthly payments for a specific period of time when compared to other loan options. Lower monthly payments and a longer life to the loan will allow you to qualify for a higher loan amount.

What should I do if I continually struggle to pay my bills?

The best thing to do is seek professional debt counseling to help you with your credit situation. Our team helps with credit counseling free or can arrange for you to meet with a credit counselor. They can help you develop a solid plan for regaining control of your finances.

What should I do to help financially prepare for a home loan?

Here are a few tips to assist you when it comes to applying for a loan:

-Use cash instead of credit for your purchases this will keep your GDS and TDS down
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-Avoid making any large credit purchases—the added debt could impact your ability to qualify for a loan.

-Contact creditors immediately if you have a problem or concern about your ability to make payments on time.

-Put money aside into savings so you’ll have a financial cushion in case of an emergency.

See the advantages to using a broker to find out how one can help you.

When should I pay points on a loan?

The decision to pay points on a loan depends heavily on your circumstances. In certain situations, there will be no choice for you to pay points on your loan.  Some loans are too much of a risk and the lender will not provide the loan without charging points on top.