When are you financially prepared?
This step guides you through some simple calculations to figure out your current financial situation, and the maximum home price that you should consider.
How Much Are You Spending Now?
Calculate Your Household Expenses
Calculate Your Monthly Debt Payments
Do you know how much debt you are carrying? You need this information to figure out whether you are financially ready for homeownership. If you decide to buy a home, mortgage lenders will ask for this information.
How Much Can You Afford?
Affordability Rule 1
If you are thinking of buying a condominium or leasehold tenure
For a condominium, PITH also includes half of the monthly condominium fees.
For leasehold tenure, PITH also includes the entire annual site lease.
Lenders add up your housing costs and figure out what percentage they are of your gross monthly income. This figure is called your Gross Debt Service (GDS) ratio. To be considered for a mortgage, your GDS should be 32% or less of your gross household monthly income.
Affordability Rule 2
Your Maximum House Price
Calculate Your Maximum House Price
Mortgage Loan Insurance
Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment starting at 5% — with interest rates comparable to those with a 20% down payment.
The minimum down payment requirement for mortgage loan insurance depends on the purchase price of the home. For a purchase price of $500,000 or less, the minimum down payment is 5%. When the purchase price is above $500,000, the minimum down payment is 5% for the first $500,000 and 10% for the remaining portion. For CMHC-insured mortgage loans, the maximum purchase price or as-improved property value must be below $1,000,000.
The CMHC Mortgage Loan Insurance premium is calculated as a percentage of the loan and is based on a number of factors such as the intended purpose of the property (owner occupied or rental), the type of loan (i.e. purchase/construction or refinance loan), and the size of your down payment. The higher the percentage of the total house price/value that you borrow, the higher percentage you will pay in insurance premiums. The cost for mortgage loan insurance premiums is usually offset by the savings you get from lower interest rates.
Financing Required Premium % of Loan
Up to and including 75% 0.75
Up to and including 80% 1.25
Up to and including 85% 1.80
Up to and including 90% 2.40
Up to and including 95%
Traditional Down Payment
Non-traditional Down Payment
* Premiums in Manitoba, Ontario and Quebec are subject to provincial sales tax. The provincial sales tax cannot be added to the loan amount.
Get a Mortgage Pre-Approval
Even if you haven’t found the home you want to buy, having a pre-approved mortgage amount will help keep a good price range in mind.
Bring these with you the first time you meet with a lender:
• Your personal information, including identification such as your driver’s license
• Details on your job, including confirmation of salary in the form of a letter from your employer
• All 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 and deposit
• Proof of source of funds to cover the closing costs (these are usually between 1.5% and 4% of the purchase price)
Make Your Mortgage Work for You
Amortization refers to the length of time you choose to pay off your mortgage. Mortgages typically come in 25 amortization periods but they can be as short as 15 years. Usually, the longer the amortization, the smaller the monthly payments. However, the longer the amortization, the higher the interest costs. Total interest costs can be reduced by making additional (lump sum) payments when possible.
This usually means one extra monthly payment per year.
Interest Rate Type
With a variable rate, the interest rate you pay will fluctuate with the rate of the market. Usually, this will not modify the overall amount of your mortgage payment, but rather change the portion of your monthly payment that goes towards interest costs or paying your mortgage (principal repayment). If interest rates go down, you end up repaying your mortgage faster. If they go up, more of the payment will go towards the interest and less towards repaying the mortgage. This option means you may have to be prepared to accept some risk and uncertainty.
A protected (or capped) variable rate is a mortgage with a variable interest rate that has a maximum rate determined in advance. Even if the market rate goes above the determined maximum rate, you will only have to pay up to that maximum.
tions, such as financing, home inspection, etc., your deposit may not be refundable and you may be sued for damages. The size of the deposit varies. Your realtor or lawyer/notary can help you decide on the amount.
s you to have property insurance because your home is security for the mortgage. Property insurance covers the cost of replacing your home and its contents in case of loss. Property insurance must be in place on closing day.
As Your Realtor
I will provide the trusted, transparent, thorough and timely service that you would expect and deserve in dealing with your critical real estate assets.
Let’s me care for real estate needs. Let’s begin the conversation…
Please contact me at firstname.lastname@example.org or 905-632-2199 my RE/MAX Escarpment Office.