Frequently Asked Questions

Fixed vs. Variable vs. Adjustable Rate

Fixed Rate Mortgage

A fixed rate mortgage is a mortgage where the rate of interest is fixed for a specific period of time. Generally known as the mortgage term, it usually ranges from between 6 months and 25 years. As time goes on, more of the mortgage payment goes towards the principal and less of the payment goes to the interest.

Variable Rate Mortgage

A variable rate mortgage is a mortgage that has fixed payments, but the interest rate fluctuates with any changes in interest rates. If interest rates go down, more of the payment goes to principal and if interest rates go up, more of the payment goes towards the interest.

Adjustable Rate Mortgage (ARM)

Like a variable, the interest rate for an Adjustable Rate Mortgage fluctuates with Bank Prime. However, unlike a variable rate mortgage, your payments also adjust upwards and downwards with fluctuations in interest rates, ensuring that your amortization period remains constant. ARMs are becoming more and more popular and have gradually replaced VRMs as the preferred "floating" mortgage type.

If I sell my home and buy another, can I take my mortgage with me?

Frequently Asked Questions
It depends on the mortgage lender. Most lenders now offer portability options, which allow you to take your mortgage with you. Generally, as long as you take possession of your new home within 60 days of giving up possession of your old home, no extra fees or penalties apply.

Does paying my mortgage bi-weekly really save money or reduce my amortization?

Frequently Asked Questions

Yes! Essentially, by paying your mortgage bi-weekly, you’re making extra mortgage payments. Normally, when you pay monthly, you make 12 mortgage payments. When you pay bi-weekly, you make 26 mortgage payments, or the equivalent of 13 regular, monthly payments. As far as saving money and reducing amortization, let’s look at the following scenario…

Your mortgage principal is $100,000, and you wish to have a 5-year term. The current interest rate is 5.99%. If you were to choose monthly mortgage payments, the payment would be $639.21 per month. Your mortgage would be paid off in 25 years. However, if you were to choose bi-weekly mortgage payments, the payment would be $319.61 twice a month (so $639.22 per month). Your mortgage would be paid off in 23.08 years. With bi-weekly payments, for the same amount of money each month, you could pay your mortgage off in almost 2 years quicker than if you were to pay your mortgage monthly. You’d also save a significant amount of money because you’ll be paying less interest to the mortgage lender.

Should I take a short-term mortgage or a long-term mortgage?

Frequently Asked Questions

It depends on your unique situation. Short-term mortgages tend to have slightly lower interest rates, but the rate is locked in for a shorter amount of time, so you will be subjected to higher interest rate risk because you might have to renew at a higher rate when your term is up. Long-term mortgages are usually higher rates (but still competitive) compared to short-term mortgages, but the rate is locked in for longer, so if interest rates increase you won’t necessarily have to renew at that higher rate (at least until your term is up). A general rule of thumb is that if interest rates are low, you should choose as long of a term as possible, and if rates are high, you should choose shorter terms (so you can get the lower rate if rates decrease). Most of our clients are currently choosing to go with 5-year mortgage terms because rates are relatively low.

Why do I need to pay an insurance premium?

Frequently Asked Questions

You pay a mortgage loan insurance premium when you put less than 20% of the property value as a down payment. From the lender’s standpoint, if you put less than 20% down, you’re not as invested in the property than you would be if you put 30% or 40% down. Therefore, in the lender’s eyes, a client who puts less money down initially is more likely to default than someone who puts a lot of money down. The insurance premium that you pay on your mortgage is insurance for the lender in the event of your default – it protects them so that when the time comes to pay back their investors, they have the funds to do so.

Why do I need an appraisal?

Frequently Asked Questions

The requirement of an appraisal is a standard condition for any conventional mortgage (more than 20% down payment), as the mortgage won’t be insured. Basically, the lender just wants to make sure that you are paying fair market price for the property you are purchasing (ie: that you aren’t paying $290,000 for a home that’s only worth $250,000). From the lender’s perspective, they don’t want to lend $290,000 if all they can recuperate in event of default is $250,000 (not that you would default on your mortgage payments, but it’s a base that the lender wants to cover). Another reason for an appraisal is that lenders want to see that the property you are purchasing is, indeed, a quality property.

I'm self-employed, can I get a mortgage?

Frequently Asked Questions

Generally, if you don’t have a pay stub and job letter, you can’t qualify for a mortgage. There are exceptions, such as if you are self-employed or on commission and have been for two or more years. In that case, you would have to be able to prove you’ve been self-employed for at least two years with articles of incorporation, T1 Generals with statements of business activities, a business license, or some other documentation, depending on the structure of your business. You would also need to provide the most recent two years’ Notices of Assessment from Revenue Canada. If you have a big enough down payment you can also qualify on equity alone, as long as your credit is in good shape.

Can I get a mortgage to renovate my property or pay off my credit cards?

Frequently Asked Questions

Yes! Mortgages can be obtained for a number of purposes, including financing home renovations or to consolidate credit card debt. You can also borrow against the equity in your home to invest in the stock market or your own business. There are hundreds of possibilities!

Please consult one of our consultants to ensure you're getting the very best advice.

What are closing costs?

Frequently Asked Questions
Closing costs are any costs that are associated with obtaining and closing a mortgage. They can include (but are not limited to) legal fees, appraisal fees, survey fees, and Realtor fees. Don’t forget the cost of moving!

What can I use as my down payment on my new house?

Frequently Asked Questions

For those home buyers who have saved up a down payment, traditional mortgage loan insurance products require home buyers to provide the minimum down payment from their own resources, however gift down payments from immediate relatives are also acceptable.

Additional sources of down payment are also available through CMHC's Flex Down product. With Flex Down, homebuyers with a proven track record in managing their debt can provide the 5% down payment from a variety of sources, including borrowed funds or lender incentives, provided the funds are at arm's length from and not tied to the purchase or sale of the property. Please contact your lender to confirm availability and qualifying criteria.

What type of documentation will be required to obtain a mortgage?

Frequently Asked Questions

Some of the items you will need to provide are:

- Your personal information, including identification such as your driver\'s license
- Details on your job, including confirmation of income
- Your sources of income
- Information and details on all bank accounts, loans and other debts
- Proof of financial assets
- Source and amount of down payment
- Proof of source of funds for the closing costs (approximately 2.5% of purchase price)

What is a conventional mortgage?

Frequently Asked Questions
A conventional mortgage is usually one where the down payment is equal to 25% or more of the purchase price, a loan to value of or less than 75%, and does not normally require mortgage loan insurance.

What is mortgage loan insurance?

Frequently Asked Questions

Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company, 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%. The insurance premiums, ranging from .50% to 3.75%, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.

What is the minimum down payment needed for a home?

Frequently Asked Questions

In most cases, a minimum down payment of 5% is required to purchase a home. In addition to the down payment, you must also be able to show that you can cover the applicable closing costs (i.e. legal fees and disbursements, appraisal fees and a survey certificate, where applicable).

Regardless of the amount of your down payment, at least 5% of it must be from your own cash resources or a gift from a family member. It cannot be borrowed. There is a new CMHC program that will allow some alternate souces of downpayment. Contact one of our Mortgage Specialists at (416) 483-0668 for details.

Lenders will generally accept a gift from a family member as an acceptable down payment provided a letter stating it is a true gift, not a loan, is signed by the donor. Where the mortgage loan insurance is provided by Canada Mortgage and Housing Corporation (CMHC), the gift money must be in the your possession before the application is sent in to CMHC for approval.

Mortgages with less than 25% down must have mortgage loan insurance provided by either CMHC or GE.

What happens when I keep checking my credit at various places?

Frequently Asked Questions
It may ruin your credit completely. The more you check it the worse it gets. Even if your credit has been perfect up until now, frequent checks could put you in a difficult position. We check your credit once and we use the same credit report for all the financial institutions where we represent you, this way your credit stays the same. We will even help you improve it at no charge.

Why doesn't my own bank give me the best interest rate?

Frequently Asked Questions
Good question!! The short answer is that we don't know. We pride ourselves on offering the very best solution to meet your needs and we thank you for taking the time to consider Premiere Mortgage Centre.

Who does the mortgage broker represent, the bank or the applicant?

Frequently Asked Questions
Both. We negotiate on your behalf with the banks, but we also want to be careful to protect our banks, as business partners from fraud and show them applications that meet their guidelines.

How much does it cost to use a broker?

Frequently Asked Questions

Our services are free*. You can only gain by using a broker in any situation!

* OAC, Some conditions apply.

Why choose a mortgage broker?

Frequently Asked Questions

Over 50% of Canadians do and the numbers are growing, because we offer:

Choice:
We deal with a great number of banks, financial institutions and private lending sources to find you the best rates available to you based on your financial situation.

Convenience:
We do the work. We package your application, contact the head offices to explain your situation and sell your application to the bank. We bypass the local branches and directly deal with the person that makes the decisions about you, the customer.
You can reach us, talk to a live person and we can be available to you even outside of "banking hours".

Expertise:
We will save you thousands, we get you the best interest rate and we also connect you to the right bank that will offer you best terms for your situation.
We arrange financing for residential/commercial, first/second/third mortgages.

How much can I afford to pay for a home?

To determine 'affordability' you will first need to know your taxable income along with the amount of any debt outstanding and the monthly payments. Assuming it is your principal residence you are purchasing, calculate 32% of your income for use toward a mortgage payment, property taxes and heating costs. If applicable, half of the estimated monthly condominium maintenance fees will also be included in this calculation.

Second, calculate 40% of your taxable income and deduct all of your monthly debt payments, including car loans, credit cards, lines of credit payments. The lesser of the first or second calculation will be used to help determine how much of your income may be used towards housing related payments, including your mortgage payment. These calculations are based on lenders' usual guidelines.

In addition to considering what the ratios say 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.