Down Payment

Big banks, Credit Unions and monoline lenders (known as A lenders) give you a default insured mortgage when you put less than 20% down payment on a home worth under $1,000,000. In this scenario, a tiered payment approach is used for the down payment:

When purchasing with 20% + or purchasing a home worth $1,000,000+, these are called uninsured, conventional mortgages. This is because there is no longer a requirement for default insurance. These mortgages are much more flexible and now you have the following options:

• 30 – 40 – year amortization (enabling you to reduce the mortgage payments)
• Proceed with B lenders that have less restrictive income and credit criteria
• Private equity lenders that have no formal income assessment

With default insured mortgages, you can have the lowest rates on the market, but with restrictive qualifying criteria:

• Maximum amortization 25 years (makes the payments higher compared to 30 and 40 years)
• Impeccable credit score 650+ with no derogative comments / issues on credit history
• Maximum income to debt ratio of 39% gross debt servicing and 44% total debt servicing

Mortgage Payments  

When you are approved for a mortgage, depending on the lender, you have the option of paying either weekly, bi-weekly, accelerated bi-weekly, or monthly. You can select your preference, and this can be changed by contacting the lender, directly. Your mortgage payoff will be sped up by selecting accelerated payments as you will pay 13 instalments rather than 12 over a single year. This can shorten the time it takes to pay off your mortgage, while saving you hundreds in interest costs.

Prepayment Privileges

Many Canadians want to be mortgage-free sooner. One way to make this happen is If you have additional cashflow from a pay-raise or investments, you can either increase your payments or pay a lump-sum by utilizing the pre-payment privilege. This is a set maximum percentage (usually 15-25%) of the original amount borrowed that you can payback for each year of your term without incurring a penalty. For example, if you borrowed $500,000 with 15% pre-payment privilege, this means in one year, you can payback a maximum of $75,000. When you start the next year of your mortgage, the 15% restarts again and you can then pay another maximum $75,000.

Interest Payments

An interest rate is used to determine the total monthly payment you’ll make to your lender. This ensures that you cover the cost of the loan. Mortgage interest rates come in two forms: fixed-rate and variable-rate.

Fixed Rate

This is your best option if you want to rely on regular mortgage payments, without worrying about increasing monthly payments in the event of an interest rate increase. For the entire loan duration, your payments and interest rate won’t change. The downside to fixed mortgages is that if you wish to pay out / break your mortgage, there is usually a hefty penalty to pay.

Variable Rate

This is a great option and most popular mortgage type with Canadians. You benefit from much lower interest rates than the best fixed rate mortgages, and the penalty to break the mortgage is much lower and an easy calculation. As a bonus, most lenders allow you to convert the variable into a fixed mortgage, if needed.

Your interest rate will fluctuate when the Bank of Canada changes its rate. This means there can be periods of paying less interest when rates decrease or paying more interest on your mortgage when the rates increase. Overall, most Canadians have saved thousands of dollars proceeding with a variable rate mortgage when compared with the fixed rate mortgage due to the lower starting rate and lower penalty to break the mortgage.