Will you be able to afford the mortgage?
Before shopping for a mortgage, take a close look at your situation – your finances, future plans and lifestyle – and consider how much debt you can comfortably handle.
Consider not just how much money you have today, but your financial position for the length of the mortgage. Ask yourself if you will be able to continue to make the full payments on time. Even if you can, consider how the payments will affect your spending money and your ability to deal with sudden or unexpected financial needs. Will you have difficulties making sure you have enough left for other things you need? Federal Government changes that have been made since 2008 you need to be aware of are:
July, 2008: After briefly allowing the CMHC to insure high-ratio mortgages with a 40-year amortization period, then Conservative finance minister Jim Flaherty moved to tighten those rules by reducing the maximum length of an insured high-ratio mortgage to 35 years.
February, 2010: Responding to concern that some Canadians were borrowing too much against the rising value of their homes, the government lowered the maximum amount Canadians could borrow in refinancing their mortgages to 90 per cent of a home’s value, down from 95 per cent. The move also set a new 20-per-cent down payment requirement for government-backed mortgage insurance on properties purchased for speculation by an owner who does not live in the property.
January, 2011: The Conservative government under Stephen Harper tightened the rules further, dropping the maximum amortization period for a high-ratio insured mortgage to 30 years. The maximum amount Canadians could borrow via refinancing was further lowered to 85 per cent.
June, 2012: A third round of tightening brought the maximum amortization period down to 25 years for high-ratio insured mortgages. A new stress test was also introduced to ensure that debt costs are no more than 44 per cent of income for lenders seeking a high-ratio mortgage. Refinancing rules were also tightened for a third time, setting a new maximum loan of 80 per cent of a property’s value. Another new measure limited the availability of government-backed insured high-ratio mortgages to homes valued at less than $1-million.
December, 2015: The recently elected Liberal government moved to tighten lending rules for homes worth more than $500,000, saying it was focused on “pockets of risk” in the housing sector.
April 6, 2020: A new Benchmark Rate for insured mortgages will replace the Bank of Canada 5-Year Benchmark Posted Rate in determining the minimum qualifying rate (stress test).
The new Benchmark Rate will be:
- The weekly median 5-year fixed insured mortgage rate as calculated by the Bank of Canada from federally-backed mortgage insurance applications adjudicated by mortgage insurers; plus
- A buffer of 200 basis points to be set by the Minister of Finance upon the coming into force.
- The Benchmark Rate will be published on a Wednesday and come into effect the following Monday.
The new Benchmark Rate used to determine the minimum qualifying rate for insured mortgages will come into force on April 6, 2020.
The minimum qualifying rate for insured mortgages will now be the greater of:
- The borrower’s contract rate, which is the mortgage interest rate agreed to by the lending institution and the borrower; or
- The new Benchmark Rate.
The new Benchmark Rate for insured mortgages will be published weekly on the Bank of Canada’s website, and will be based on submitted mortgage insurance application contract rates.
When deciding how much money you can afford to borrow, consider:
Your current financial situation
Your future financial situation
How long you plan to own a home, have a mortgage or sell and buy a different home
Any extra expenses you plan to incur (e.g. buying a car, starting a family etc.)
The economic climate
The total cost of owning a home (e.g., property taxes, home repairs, condominium fees, etc.)
How much your home may increase or decrease in value over time
The potential for higher mortgage payments
The risks of a drop in your income
Your personal tolerance for debt and risk
Costs associated with the purchase of a home include:
- Appraisal fees
- Cost to obtain a survey
- Land transfer taxes (First Time Buyers get a break!! Contact us.)
- CMHC / GENWORTH mortgage insurance (if applicable)
- Moving expenses
- Legal fees
- Home Insurance
- Property Tax Adjustment
- Fuel Adjustment
You may wish to contact us to provide you with estimates of some of these costs. We will be able to give you a reasonable estimate based on your situation. A lawyer should be consulted before you sign any binding documents or make any formal commitments. If you do not have a lawyer, contact us and we will refer you to one for a free initial consultation.
Ongoing housing costs include:
- Property taxes
- Mortgage life insurance (if applicable)
- Heating costs
- Condominium fees (if applicable)
- Operating and maintenance costs
- Monthly mortgage payments
How can I save money on my mortgage?
The easiest way to reduce the interest costs on a mortgage is to pay it off sooner. Here are four ways this can be done:
- Increase Payment Contact us about how paying weekly or bi-weekly, rather than monthly, can save a significant amount of interest.
- Prepay Some institutions offer up to 20-25% of the original principal amount of your mortgage anytime during each year of the term of the mortgage, without penalty or administration fee. Contact us for more info
- Increase or Lump Sum Payments Once each year during the term, institutions offer mortgage payments that may be increased by up to 15-20% of the payment originally established for the term of the mortgage without penalty or administration fee. Contact us for more info.
- Amortization Period Simply defined this period of time measured in years is the maximum length of time it would take to completely pay off a mortgage. By reducing the amortization the mortgage payments will increase, however, the total interest paid against the mortgage will decrease. Contact us for a direct comparison.
Other Costs to be Aware of When You Buy
This is a list of possible extra costs involved in buying a home. Some of them are one-time costs and others, such as condominium maintenance fees and property insurance, will be ongoing monthly expenses. The good news is that not all of these costs may apply in your circumstances. The 7% GST applies to new housing. However, there is a rebate, to a maximum of 2.5%, if your home costs less than $450,000. There is no GST on resale housing unless the home has been substantially renovated, and then the tax is applied as if it were a new home. In some provinces, the GST has been replaced by a Harmonized Federal and Provincial Sales Tax known as the HST. Also in other provinces, provincial taxes may be applicable.
- Appraisal fee: If your loan is not insured, your lender may require a property appraisal at your expense. A basic appraisal for mortgage purposes will probably cost between $250 – $350. Actual cost should be confirmed as it may vary with the location and complexity.
- Property taxes: Taxes are always a certainty. If you have a high-ratio mortgage, your lender may require that you have your property tax installments added to your mortgage payments.
- Survey fee: Your lender will require an up-to-date survey. Ask the vendor to provide one as a condition of your Offer to Purchase, or you will have to pay to have one done.
- Property insurance: This insurance covers the replacement value of the structure of your home and its contents. Your lender will insist on this because your home is the security for your mortgage.
- Prepaid taxes or utility bills: You will have to reimburse the vendor on a prorated basis if some bills have been prepaid beyond the closing date.
- Land transfer tax: This applies in most provinces. It varies as a percentage of the property’s purchase price.
- Service charges: You’ll be charged a fee to hook up new services and utilities, such as your telephone, at your new home.
- Lawyer (notary) fees: Even a straightforward home purchase requires a lawyer to review the Offer to Purchase, search the title, draw up mortgage documents and tend to the closing details. Lawyer’s fees for a mortgage range widely depending on the complexity of the deal but will probably be at least $700.
- Mortgage loan insurance premium and application fee: If you have a high-ratio mortgage, your lender will require mortgage loan insurance provided by CMHC or a private company. The insurance will cost between 0.5% and 3.25% of the amount of the total mortgage (additional charges may apply) and can be included in the mortgage. The application fee will range from $75 to $235 depending upon how the lender processes your application.(consult your local lender for further details.) Homeowner mortgage loan insurance premiums vary according to loan-to-value ratio.
Applicable Premiums (Owner-occupied properties)
Premium on Total Loan Amount
Premium on Increase to Loan Amount for Portability
for Portability*** 0.60%
Up to and including 65%
Up to and including 75%
Up to and including 80%
Up to and including 85%
Up to and including 90%
Up to and including 95% Traditional Down Payment*
Non-traditional Down Payment**
For portability, the premium is the lesser of Premium on Increase to Loan Amount or the Premium on Total Loan Amount. Where new Premium on Total Loan Amount is paid, a premium credit may be available under certain conditions. Premiums in Manitoba, Ontario, Quebec and Saskatchewan are subject to provincial sales tax – the sales tax cannot be added to the loan amount.
* Traditional sources of down payment include:Applicant’s savings, RRSP withdrawal, funds borrowed against proven assets, sweat equity (< 50% of minimum required equity), land unencumbered, proceeds from sale of another property, non-repayable gift from immediate relative, equity grant (non- repayable grant from federal, provincial or municipal agency).
** Non-traditional sources of down payment include:Any source that is arm’s length to and not tied to the purchase or sale of the property such as borrowed funds, gifts and 100% sweat equity. The premium is higher for non-traditional down payments on Increase to Loan Amount.
*** Where there is an increase to the loan amount, the amortization period of the existing CMHC-insured loan and the loan increase may be blended using a weighted average provided the resulting amortization does not exceed the remaining economic life of the property. A 0.60% blended amortization surcharge to the loan increase applies to the Premium on Increase to Loan Amount.
Premium Credits (where new Premium on Total Loan Amount is paid)
Time from original Closing Date*
Premium credit based on the Mortgage Loan Insurance Premium Previously Paid on the Current CMHC-Insured Loan
Within 6 months
Within 12 months
Within 24 months
*Mortgage Loan Insurance is portable beyond 2 years; however, a premium credit will not apply.
- Mortgage broker’s fee: A broker may charge a fee to find you a lender*.
- Moving costs: Don’t forget the cost of a professional moving company or a rental truck if you move yourself. Fees for a professional mover can range from $50 $100 an hour for a van and three movers. These costs may be 10% 20% higher at the end of the month and in the summer.
- Estoppel or Status Certificate: A certificate that outlines a condominium corporation’s financial and legal state. The certificate and supporting documents will cost you up to $50. (Does not apply in Quebec.) Condominium fees: Condominiums charge monthly fees for common-area maintenance, such as groundskeeping and carpet cleaning. Fees range widely depending on the type of structure but will probably be at least a few hundred dollars per month. Home inspection fee: Inspectors are unregulated in many provinces, so fees range widely, from about $150 $350 for a home priced under $300,000. Larger, more expensive homes cost more to inspect. A two-hour inspection carried out by an engineer who provides a written report will cost closer to the upper limit. Municipalities can also supply any available inspection reports on the property for a fee.
- Renovation and repairs: A home inspection may indicate that the home needs major structural repairs such as a new roof. Don’t forget to factor these costs into the price of the home.
- Water quantity and quality certification: If you’re buying a home with well service, you’ll have to pay a fee from $50-$100 to certify the quantity and quality of the water.