Understanding Financing

PRE-APPROVAL

It is important to be qualified or pre-approved for financing before you start looking for a home. This lets you and your REALTOR® know what you can afford as well as providing a written confirmation or certificate for a fixed interest rate good for a specific period of time. To obtain pre-approval, contact your REALTOR® or mortgage broker. The benefit of a mortgage broker is that he or she operates independently of the lender and therefore can assist you in finding the best financial product at the best rate from a variety of sources and
usually at no expense to you.

CONVENTIONAL MORTGAGES

The maximum amount of conventional mortgage is 80% of the purchase price. The amortization or length of time in which to repay the loan is usually 25 years. The term of the mortgage is the number of months or years, usually six months to five years, for which the rate of interest is set.

HIGH RATIO MORTGAGES

For most people the hardest part of buying a home – especially the first one – is saving for the necessary down payment. With mortgage loan insurance, you can put as little as 5% down. Mortgage loan insurance, protects the Lender and, by law most Canadian lending institutions require it. The cost of high ratio mortgage loan insurance is in the form of a premium. The premium is calculated as a percentage of the principal and can be paid in a single lump sum or be added to your mortgage and included in your monthly payments.

DOWN PAYMENT LOAN INSURANCE

5% to 9.9% 2.75%
10% to 14.9% 2.00%
15% to 19.9% 1.75%
20% to 24.9% 1.00%
25% to 34.9% 0.65%
**loan insurance may vary due to mortgage product and
amortization length

HIGH RATIO MORTGAGE EXAMPLE

Purchase price $350,000.00
5% down payment $ 17,500.00
Mortgage required
Insurance premium
$332.500.00
$ 9,143.75 ($332,500 x 2.75%)
Total mortgage amount $ 341,643.75 ($332,500 + 9,143.75)

THE 5% DOWN PAYMENT

The down payment is usually derived from a Buyer’s accumulated savings or a gift from an immediate relative. The Buyer may also be eligible either, one to receive a “cash back” from the lender, which can be used as the down payment, or two to borrow the required funds.

USING YOUR RRSP TO PURCHASE A HOME

This program allows each RRSP plan holder to borrow up to $25,000 from the plan to use toward the down payment of a home. Couples with separate plans can borrow up to $25,000 each to a total of $50,000. Home buyers using this program have up to fifteen years to return the monies, interest free, to their RRSP. Using these funds towards the purchase of a home does not deregister the plan unless the monies are not returned as agreed, thereby allowing participants to retain the tax advantages the RRSP offers.

HERE ARE THE MAJOR GUIDELINES FOR THIS PROGRAM

• You are a first-time home Buyer or have not owned a principal residence in Canada during the past four years;
• The RRSP must have been in existence for at least 90 days;
• You must be a resident of Canada both at the time the funds are withdrawn and at the time the home is acquired;
• A minimum of 1/15 of the amount is withdrawn has to be repaid annually;
• Repayment of more than 1/15 of the borrowed amount in any particular year will be carried forward and can be applied towards a future year’s repayment.

Not every RRSP is eligible under this program. Check with your investment firm to see if you qualify. Also, advise your lawyer well before closing that you will be using these funds.