The mortgage that’s right for you
As a first-time home buyer, you probably have many questions. That’s why we offer step-by-step personal assistance from knowledgeable mortgage specialists. We’ll be by your side each step of the way, from mortgage pre-approval, all the way through finalizing your mortgage and the purchase of your home.
One of the first steps in buying your home is getting a pre-approval, with a pre-approved mortgage you will:
- Know how much you can afford and what your payments will be
- Lock in your interest rate at today’s rate (or lower if rates drop), guaranteed for 90 days or more
- Demonstrate that you are a serious buyer, which can help in your negotiations with sellers and their agents
Best of all, we’ll get back to you with an answer within 48 hours of receiving your application, and our mortgage specialists are ready to help you through the remaining steps to home ownership.
Understanding Mortgage Basics
Need some extra guidance on mortgage basics before starting the process? The following topics can help you make a well-informed decision:
Down payment options
From a low down payment mortgage to using your Registered Retirement Savings Plan (RRSP) as a source of funds, buying a home has never been easier.
A conventional mortgage requires a down payment of at least 25% and is offered on either a fixed or variable interest rate basis. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
With all conventional mortgages, you are responsible for:
- The cost of having your property evaluated by an independent appraisal company
- The legal fees related to registering the mortgage and completing the purchase
Low Down Payment Insured Mortgage
Most lenders now offer insured mortgages for both new and resale homes with lower down payment requirements than conventional mortgages-as low as 5%. Low down payment mortgages must be insured to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include the insurance premium.
Low down payment mortgages are often referred to as National Housing Act (NHA) or High Ratio mortgages. Both Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Mortgage Insurance Company Canada (Genworth) offer default insurance.
With all low down payment insured mortgages, you are responsible for:
- Appraisal and legal fees
- An application fee for the insurance
No Down Payment Mortgage
Some lenders also offer a No Down Payment Mortgage that requires just 1.5% of the purchase price to cover closing costs*. The No Down Payment Mortgage works by providing you with cash back1 when you take a 5-year posted rate mortgage2. That money is then used to cover your required down payment.
Using Your RRSP as a Down Payment
Under the federal government’s Home Buyer’s Plan, first-time home buyers are eligible to use up to $20,000 in RRSP savings per person ($40,000 for couples) for a down payment on a home. The withdrawal is not taxable as long as you repay it within a 15-year period. To qualify, the RRSP funds you plan to use must have been in your RRSP for at least 90 days.
Closed, Open and Convertible Mortgages
Many factors, including interest rates, how long you plan to stay in your home and more should be considered when deciding on a closed, open or convertible mortgage.
In a closed mortgage, the interest rate is locked in for the full term of the mortgage and you must pay compensation, known as breakage costs, to the mortgage lender to renegotiate the interest rate or pay off the balance prior to the end of the term.
Closed mortgages are usually the better choice for buyers who suspect that interest rates may be on the rise and for those who are not planning to move in the short term.
A closed mortgage is often considered ideal for first-time home buyers, particularly in the early years. Interest rates for closed mortgages are generally lower than for open mortgages and first-time buyers are often more secure knowing exactly how much their mortgage payments will be over a set period of time. Closed mortgages are generally available in a full range of terms from six months to 25 years.
Open mortgages offer greater flexibility than closed mortgages since they can be repaid either in part or in full at any time without breakage costs. Open mortgages are generally available only in terms of six months or one year.
An open mortgage may be a good option if you are planning to move in the immediate future or if you believe that interest rates are going down. Interest rates for open mortgages are generally higher than for closed mortgages because of the added flexibility.
A convertible mortgage is a fixed rate mortgage that gives you the same security as a closed mortgage, but which can be converted to a longer, closed mortgage at any time without penalty. If you think rates may drop, this allows you to wait until you feel the time is right to lock in your rate.
Mortgage Rates: Fixed and Variable
From the security of a fixed rate mortgage to the flexibility of a variable rate mortgage, you have several choices when it comes to interest rates.
Fixed Rate Mortgage
The interest rate for a fixed rate mortgage is locked in for the full term of the mortgage. Payments are set in advance for the term, providing you with the security of knowing precisely how much your payments will be throughout the entire term. Fixed rate mortgages can be open (may be paid off at any time without breakage costs) or closed (breakage costs apply if paid off prior to maturity).
Variable Rate Mortgage
With a variable rate mortgage, mortgage payments are set for a term of one or two years, even though interest rates may fluctuate during that time. If interest rates go down, more of the payment is applied to reduce the principal; if rates go up, more of the payment is applied to payment of interest. Variable rate mortgages may be open or closed.
A variable rate mortgage provides you with the flexibility to take advantage of falling interest rates and to convert to a fixed rate mortgage at any time.
Talk to a Mortgage Specialist
From determining how much you can afford, to explaining how to use your Registered Retirement Savings Plan (RRSP) towards your purchase, our mortgage specialists are ready to help guide you every step of the way. Speak to a mortgage specialist in your home or workplace.