Mortgage FAQs

It is important to understand that a credit score is only one piece of your financial picture that a lender will use in making credit decisions. For example, in mortgage lending, the lender will take into account the property being purchased and the homeowner's equity. Each lender will have its own policies and I can help you understand these policies as they vary from lender to lender.

I encourage all consumers to request and review their credit report on a regular basis. By doing this, you can ensure that your report contains information that accurately reflects your credit history. You have the right to dispute any discrepancies by immediately notifying the credit reporting agency.

In most cases, using my services will cost you nothing!

Select Mortgage is not big on secrets, so here's how it works: I am generally paid by the lending company where the mortgage is placed - not by the client. In cases where private financing or commercial financing is arranged, or where there are complex financing situations, a fee may be charged, but ALWAYS with my client's consent, so there are no surprises.

The actual amount that I am paid can vary by the lender, but is based on the mortgage amount and not on the interest rate you arranged on your behalf. Because compensation is tied to mortgage size rather than rate, clients are assured that I am not “holding back” on giving the best rate in order to be paid more. This means that you will always be offered the best interest rate when you work with me.

After working with you to determine your mortgage financing needs, I prepare and send your mortgage application package to the lenders that best suit your needs.

1. The lenders will review your application and send their responses to me for discussion with you.
   
   
2. That lender will then issue a “Mortgage Commitment” which must be accepted and signed by the borrower. A Mortgage Commitment will usually have a number of conditions and documentation requirements and your Mortgage Specialist will prepare this documentation for you and send it to the lender on your behalf. This documentation usually includes confirmation of your employment and income, verification of your down-payment, appraisal of the property to confirm value (your mortgage specialist will arrange this on your behalf as well), and review of your credit history.
   
   
3. Next, a Solicitor will work on your behalf to review The offer to purchase, Copies of the Mortgage Commitment, Any Potential encumbrances, liens, easements, restrictions, encroachments, or other claims registered on title. Contact the lending institution and arrange transfer of the funds Contact the utilities and property tax department to determine amounts, if any, required for closing the mortgage.
   
   
4. You then meet with the Solicitor shortly before the closing date to review and sign closing documents (mortgages, deeds, declarations, undertakings etc.). On the closing day, your Solicitor and the vendors’ Solicitor exchange documents, funds, keys and register all documents on title.

Qualifying for a mortgage in Canada is about four main factors, stable income, a good credit history, making a sound choice on the property you are purchasing, and how much (if any) of a down payment you have. All four of these factors work together to determine which mortgage options will suit your situation best, and the rate you will receive by the mortgage lender.

Stable Income, whether employed or self-employed, is something mortgage lenders will want to confirm. Most mortgage lenders will required a letter of employment confirmation as well as recent pay stubs and the last two years Notice of Assessment forms from CRA (these are the notices you receive after you file your taxes each year that show your income and show whether any taxes are owing). The lender, at their discretion, may also call your employer to confirm the details in your employment confirmation.

Credit History is a piece of information always reviewed by mortgage lenders. If your credit isn't perfect, there are programs available to you while you rebuild your credit. A credit score of 680+ is most desirable by lenders. Please see Your Credit Score for information on how your score is calculated. A credit history is always pulled by your mortgage broker when you apply for credit or seek pre-approval so that we can determine which programs will suit your situation.

Property choices also impact the mortgage qualifying process, as the real estate is the lender's security - if for some reason - you are unable to repay the mortgage. The mortgage lender will want to be sure that the property is in good condition and that if they needed to market the property it would sell quickly. For example, condos that have previously been "leaky" are often rejected by lenders for this reason. A property appraisal is almost always ordered and involves a physical inspection of the property for the lender by a certified appraiser who assesses the condition and market value of the property to be mortgaged.

Down payments vary as there are mortgage programs that provide 90% financing for qualified purchasers. If you have a down payment of 20% or more of the purchase price, this is known as a "conventional" mortgage, and the mortgage lender will not require default insurance (and related premiums). If you have less than 20% down, the mortgage lender will insure your mortgage against default. If you have no down payment, you generally will still need to have some cash to put down for your real estate purchase deposit and for Closing Costs (estimated at 1.5% of purchase price). Our Mortgage Qualifier calculator will help you get a ball-park idea on how big of a mortgage you may qualify for.

For specific advice on how much you qualify for, contact me anytime or request a pre-approval by clicking apply.

When buying a new place, there are other costs to be aware of. Here is an overview - not all will apply to your situation.?

1. BC Property Transfer Tax: This is a provincial tax charged every time a property changes hands. The cost is 1% on the 1st $200,000 of value, and 2% thereafter. If you are a first time home buyer, there is a program to provide full or partial relief from this tax on qualifying properties. I can help you find out if you qualify.  Note that if you are not a Canadian resident, the property transfer tax is 15% of the purchase price.
   
   
2. GST: If you are buying a newly subdivided lot or a new home, GST will generally be charged at 5% on the full amount of the purchase. If you are building the home, the situation varies as some contractors include the GST, and others may refund partial GST to themselves or to the purchaser, so it is important to find out at the time you make your offer.
   
   
3. Appraisal: Most lenders will require an appraisal of the property to support the lending value of the property. Fees are higher for revenue properties, rural properties, commercial properties and atypical properties, but expect at least $300 plus tax for a standard residential appraisal.
   
   
4. Property Inspection: Not required by lenders, but good protection for you as a purchaser to have your new property inspected. A licensed inspector provides a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. An inspection can cost anywhere between $300-$600 but the cost is well worth identifying any major cost repairs required.
   
   
5. Title Insurance: To protect the lender's interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem, many lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property. Expect to pay $150-$250 depending on property type.
   
   
6. Survey: Lenders may require a survey to support the transaction but usually will take Title Insurance as an alternative. A survey is a drawing by a certified surveyor of the property lines and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighbouring properties, etc. The cost of the survey varies for size/complexity of the property but standard neighbourhood lots have a survey cost of about $300-$400.
   
   
7. Mortgage Insurance: The term "Mortgage Insurance" is used in two different ways, and each have different and specific purposes:
   
   
   • Life/Disability Insurance: This optional insurance is often recommended by lenders to ensure that you are able to meet the mortgage payments should you or your co-borrower become disabled or die during the term of your mortgage. Rates and Coverage vary widely, so let us help you make sure you are getting the most coverage for your money.
     
     
   • Default Insurance: Default insurance is usually required on loans where the borrower is borrowing more than 75% of the value of the property. Genworth and CMHC provide this insurance and the cost varies with the amount borrowed relative to the property value.
     
     
8. Realtor Commissions: If you are purchasing and use a Realtor to help you, the seller will pay for their Realtor and yours. If you are selling, fees vary, but are often 6 or 7% on the 1st $100,000 and 2- 4% thereafter. There are a number of lower commission Realtors, and their fees will vary. Realtor fees are also subject to GST.
   
   
9. Legal fees: If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration. Items often included in the legal fees:
   
   
   • Interest Adjustments: This is the interest that you will pay for receiving the mortgage funds for periods outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you owe 8 days interest for those days before normal payment cycles commence.
     
     
   • Property Tax Adjustments: Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.
     
     
   • Rental Deposit Adjustments: If the property has a rental suite the vendor must transfer the tenant’s security deposit to the purchaser. If completion takes place mid-month, adjustments must also be made for rent collected by the vendor and pro-rated payment made to the purchaser.
     
     
10. Property Insurance: If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood etc. Note that the insurance must be for the full property value rather than just the mortgage amount. In the event of a loss, it is standard practice mortgaged property generally notes the financial institution as the payee. There is a fee of about $35 for the insurance company to confirm coverage in this manner and is often referred to as a “binder.”

Shopping for your new home is easier with the peace of mind provided by a mortgage pre-approval. A mortgage pre-approval is like applying for the mortgage itself, but it ties the lender, and not you, to the rate they have provided for up to 120 days. To get an idea of how much you can qualify for, click Mortgage Qualifier Calculator.

During mortgage pre-approval, your credit history and income will be reviewed. If satisfactory to the lender, a mortgage pre-approval is granted for a specific amount, mortgage rate and term, subject to providing verification of income, down payment, and any other conditions the lender requires. It is always wise to still include a “subject to financing” clause in your real estate offer, to protect yourself against unforeseen issues. Apply for your mortgage on-line or contact me anytime for mortgage preapproval and mortgage advice.

Amortization - the length of time over which your mortgage is financed. This may be anywhere up to 30 years, with 25 years being the traditional amortization. Note that mortgage amortization is different than "mortgage term" which is the length of your agreement with the mortgage lender.

Assumable - this means that your mortgage MAY be taken over by another party if, for example, you sold your house and the buyer wanted to take over your mortgage payments. This may be of an advantage to a buyer if the rate on your mortgage is lower than current rates. Even though the mortgage is assumable, the borrower MUST qualify to the satisfaction of the mortgage lender.

Appraisal - The process of determining the value of property, usually for mortgage lending purposes. This value may or may not be the same as the purchase price of the home. A qualified appraiser physically inspects the property making note of condition, special features and then assesses the value including assessment of comparable properties.

Blend and Extend - Taking your existing mortgage and adding to the term and combining the old and new rate into a blended rate on a weighted basis. It can be a good way of avoiding prepayment penalties if you are moving and increasing the size of your mortgage.

Blended payment - usually refers to a payment that includes principal and interest.

Bridge Financing - This is temporary financing that can be arranged for a variety of purposes, but generally for situations where a new home has been purchased but the old one not yet sold, or where borrows want to stay in their existing home while a new one is being constructed. Borrowers must still be able to service the debt as required by the mortgage lender.

Closed Mortgages - A closed mortgage means that you have to pay a penalty if you wish to payout your mortgage completely during the contractual term of your mortgage. Many closed mortgages allow some prepayment, up to 20% per year. These partial prepayment terms vary among lenders and need to be understood. The benefit of a closed mortgage is that they are often available at the most favourable interest rates. This may suit your needs if you do not anticipate wanting to pay down your mortgage before term expires.

Closing Costs - see FAQ page

CMHC - Canada Mortgage and Housing Corporation (CMHC) operates a Mortgage Insurance Fund which protects approved lenders from losses resulting from borrower default. CMHC insurance can insure for loans where the mortgage amount is greater than 80% of the value of the property, and insures for a variety of other specialty lending situations. A premium is charged for the insurance.

Credit Bureau - an organization that collects payment data.  For more information, see our FAQ page.

Construction Mortgages - If you are building a home here in BC, we can arrange a construction mortgage for you. Typically, there are three or more disbursements made by the mortgage lender as construction of the building progresses. The mortgage lender will conduct appraisals during the course of construction and will advance funds in accordance with the appraised value of the partially completed building. Course of Construction Mortgages are often at a slightly higher rate than a standard mortgage, but the advantage is that the borrower is not paying interest on the whole amount of the mortgage at the beginning of construction. Instead, the advancing of funds as the project moves along saves interest costs, particularly where construction takes an extended period of time.

Conventional Mortgage - A mortgage where the mortgage amount is 80% of the property value or less.
Discharge - Process where lawyer removes mortgage from title registered at Land Titles.
Debt-Service Ratio - The percentage of the borrower's gross income that will be used for monthly payments of principal, interest, taxes, heating costs and any strata fees.

Deposit (Purchase Deposit) - A sum of money paid by the purchaser when making an offer to be held in trust by the vendor's agent, broker, lawyer or notary until the closing of the transaction.

Equity - The value the owner has in a property over and above all mortgages against the property. It is usually the difference between the market value of the property and any outstanding encumbrances.

Equity Line of Credit or Line of Credit  - An Equity Line of Credit gives you access to the equity in your home, usually up to a maximum of 80% of its appraised value. The advantages are that if you need to renovate, travel, pay down other debt, etc., the rate of interest on home equity loans is generally less than other types of personal loans and credit cards. Lines of Credit are generally tied to the prime rate, see rates.

Fixed-Rate Mortgage -  A fixed rate mortgage is a mortgage has the rate set for a specific period of time. Generally known as the mortgage term, these terms can range from 6 months up to 10 years. Whether you should lock in for a long term or stay short depends on the interest rate trend in the market, as well as your financial situation and degree of risk tolerance.  Most fixed-term mortgages allow you to make partial prepayments towards the principal balance during the term; however these privileges vary from lender to lender. We will assist you in making the best decision and can set you up on an accelerated payment plan that can save you thousands of dollars in interest. See current rates.

Foreclosure - A process undertaken by lawyers where the lender obtains ownership of the property after the borrower has not made regular payments per the loan agreement.

Gross Debt Service (GDS) Ratio - The percentage of gross income required to cover monthly payments associated with housing costs. Most lenders recommend that the GDS ratio be no more than 32% of your gross (before tax) monthly income.

High Ratio Mortgage - Mortgages of less than 20% of the lesser of the purchase price or appraised value of the property. Contrasted to conventional mortgages - High ratio mortgages require default insurance.

Hold-back - Money withheld by the lender during the construction or renovation of a house to ensure that construction is satisfactorily completed at every stage.

Inter Alia Mortgage - A single mortgage covering more than one property. The term is Latin for "amongst other things."

Interest Adjustment Date - is a date from which interest is calculated when mortgage funds are advanced before a regular payment cycle. For example if a mortgage is advanced March 29th and regular monthly payments commence May 1st, there will be an interest adjustment for 3 extra days.

IRD - Interest Rate Differential - is a common prepayment penalty method where the difference between current interest rates and the mortgage interest rate is charged for the remainder of the term. IRD is generally only applicable if current interest rates are lower than that of the original mortgage and are intended to compensate the lender for the difference in interest income it will receive.

Interim Financing - Short-term financing to help a buyer bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home.

Maturity Date - Last day of the mortgage term.

Mortgage Insurance - Both mortgage life insurance and mortgage disability insurance are available and should be considered by all buyers. Many buyers are qualifying based on two incomes and they should consider how they would pay their mortgage payments if one income ceased due to disability or death. If mortgage insurance is declined, it common practice to have a waiver signed to protect all parties.

Mortgagee and Mortgagor - The lender is the mortgagee and the borrower is the mortgagor.

Mortgage Term - The length of time the current mortgage agreement applies between mortgagee and mortgagor -usually range from six months to 10 years.

Open Mortgage - A mortgage which can be prepaid at any time, without penalty. Interest rates are usually higher for open mortgages.

Payment Frequency - How often you want to make payments: every week, every other week, twice a month or monthly.

P.I.T. - Principal, interest and taxes. These make up the regular payment on a mortgage if the lender is including property taxes in your mortgage payments

Porting - This means that you can take your mortgage with you to another qualifying property without having to lose your existing interest rate and avoid prepayment penalties.

Prepayment Charge - A fee charged by the lender when the borrower prepays any part of a closed mortgage beyond what is allowed in prepayment privileges set out in the mortgage agreement.

Prepayment Privileges - Lenders generally offer some prepayments without penalty like 20% per year lump sum plus 20% increase in regular payment but vary based on the mortgage agreement.

Principal - The amount of money borrowed for a new mortgage.

Private Mortgages - In some cases, borrower from a private lender can make the most sense.  Financial Institutions have fixed policy guidelines that work for most people, but not all cases.  Where a borrower's situation falls outside the box, a private mortgage may be the best solution.  Fees apply when we arrange private financing for our clients. I can help you decide if this is your best option. 

Property Transfer Tax - Provincial Tax when property changes hands. Tax is calculated at 1% of the first $200,000 and 2% thereafter. Note that this tax is 15% for non-residents.

Refinancing - Renegotiating your existing mortgage agreement. You may be increasing the principal or paying out the mortgage in full and arranging a new mortgage.

Renewal - At the end of a mortgage term, a mortgage can be renewed if the terms and conditions acceptable to both the lender and the borrower. Otherwise, the lender will be repaid in full and the borrower will arrange financing elsewhere. It is never advisable to just renew without having your mortgage broker review available options.

Term - The length of the current mortgage agreement. This is different than amortization which is the length of time it will take to pay off the mortgage in full. The term is the length of time that the existing terms and conditions (like interest rate and prepayment privileges) apply.

Title Insurance - Title insurance is different from all other types of insurance. Policies are available for lenders AND for homeowners. Lenders often request title insurance to protect their interests if a property survey is not available (title insurance is usually faster and less expensive than getting a new survey done). A homeowner policy protects your ownership or title against losses incurred as a result of undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of your home, there are instances such as real estate title fraud, when your title can come into question.

Total Debt Service (TDS) Ratio - The percentage of gross income needed to cover monthly payments for housing and all other debts and financing obligations.

Variable Rate Mortgage - A variable-rate mortgage often allows you to take advantage of the lowest rates available. The variable rate is usually tied to a mortgage lender's prime rate and are generally the same as the Bank of Canada prime rate. These rates are often quoted as prime minus .5% or prime plus 1%, etc.  Variable-rate mortgages have been attractive when market experts feel that rates will drop or stay level for a period of time. Variable rate mortgages have the downside of offering little security in a rising-rate environment and payments and interest expense can rise when rates rise. See current rates.