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How Mortgage Works in Canada? 9 Essential Tips

So, you’re Canadian eh? Well, good news, we are too!

Canadian through and through, our Mortgage Station team understands how mortgages work and function across our great nation. Although headquartered in Lefroy Ontario, our mortgage brokers provide solutions and advice across Ontario and beyond – to serve Canadians with the highest quality of mortgage service available.

To continue our mission to provide education on mortgages and the options available to you and your family, we’ve compiled the following list of nine things you should know about mortgages in Canada:

1. Canadian Credit Scores

Having a good credit score will allow you to access loans that can help you to buy a property you wish to invest in. Credit scores in Canada average between 300 and 900, but a score of 740+ unlocks the best rates for Canadians.

Canadian credit is based on:

    • 35% the record of timely payment on other loans
    • 30% the amount of outstanding debt
    • 15% the length of credit history
    • 10% the number and types of accounts opened recently
    • 10% the mix of credit accounts, credit cards, department stores, finance companies, bank loans, etc.

Don’t forget: Most Canadians lenders (at minimum) need to see at least two accounts, with two years of history, and limits over $2,500. Missing one of these items can cause issues, especially if the individual in question has a history of poor repayment.

Note: No credit is like bad credit as there is no history to vouch for your ability to pay back credit on time. Therefore, if you’re looking to invest in property, you must first begin to build a healthy credit history.

For more information on mortgage rates, check out our article, “ How Credit Works”.

2. Pre-Approval For Canadians

Getting a pre-approval on a mortgage can guarantee an interest rate for a stated period while you look seriously to purchase a home. Through pre-approval, Canadians can identify what homes are in their price range. Pre-approval can also unlock financial benefits that will save you money in the long run!

3. Down Payments In Canada

In Canada, it is expected that a homebuyer must be prepared to pay a 5% down payment of the total cost of the property they wish to buy. However, those who are able to pay 20% may have some financial flexibility in their ability to avoid paying the high ratio mortgage insurance premium (CMHC).

4. Closing Costs For Canadians

On average, Canadians need anywhere between 1.5 to 2.5% of their home purchase price to cover land transfer taxes, PST on CMHC premium, home inspection fees, legal fees, appraisal fees, property tax, property insurance, fire insurance, utility hook-ups, and so much more.

Note: Those purchasing property in Toronto and other large cities should expect to pay even more as land transfer and municipality property taxes are added and enhanced in these areas.

5. Canadian Interest Rates

Canadians have the option of leveraging the following mortgage interest rate types:Fixed Mortgage Rate
66% of Canadians currently have a fixed mortgage, which locks them into a fixed mortgage payment term – most commonly for five years at a time.Variable Mortgage Rate
Some 30% of Canadian’s have a variable mortgage, which is tied to a lender’s prime rate.

To learn more about mortgage rates and why they rise, please visit our blog ‘Why Do Mortgage Rates Rise?”

6. Mortgage Payment Schedules

In Canada, citizens have the option of paying for their mortgage once every month, twice every month, every two weeks, or every week. This flexibility allows individuals to choose the payment plan that works best for their lifestyle and opens up the potential of becoming mortgage free even faster.

7. Mortgage Pay Back Time Period

The longer your pay back plan, the smaller the monthly payments you will have to make. However, your total interest paid will be much higher than if your payment plan was shorter.

To lessen the length of your payment plan, our tip is to make additional payments when possible – such as when you receive a bonus, a raise, or inheritance.

8. Mortgage Terms In Canada

A mortgage term is a period in which Canadians are “locked in” to particular mortgage rate. This period can be as brief as six months or as lengthy as five or more years. Once this period expires, Canadians can renegotiate the terms of their mortgage and re-evaluate their financial plan. You can even consider changing to a new bank or lender (without penalty) to achieve your goals!

9. Mortgage Types For Canadians

Open Mortgages
An open mortgage allows Canadians to pay off their mortgage without penalty. Open mortgages allow for renegotiation of the mortgage at any time. However, these mortgages come with higher rates as increased flexibility comes with a price.

Note: A penalty may be incurred to break the mortgage.

Closed Mortgages
Closed mortgages often have lower interest rates but do not offer the same flexibility that an open mortgage does.

Contact The Mortgage Station Today

Should you have any questions about your mortgage, contact us today at 1-877-512-0007. By consulting a trusted financial advisor, you’ll be able to make the most strategic and smart decision when it comes to purchasing your next or first property.

We look forward to hearing from you!

by | Dec 12, 2017 | Uncategorized