Hire A Top Class Real Estate Agent Who Will Invest In Your Future
VERICO HUNTINGTON CROSS MORTGAGE Brokerage #12713
Simon Kim Mortgage Agent Lic.#M-17003262 Call me at 416-526-5644
The purchasing of property and your mortgage arrangement is one of the most important financial decisions you will ever make. My goal is to plan a mortgage that best fits your needs today while considering other features that give you options in the future. As a professional mortgage agent with Verico Huntington Cross Mortgage Brokerage, we have partnerships with major financial institutions that give us the buying power to provide you with the best choice of mortgage products, features, and rates to fit the needs of you and your family. My advice is at no cost because there are no arranging fees. The lender pays compensation for my services and solution provided after your mortgage has closed. I look forward to speaking with you in greater detail about the mortgage products and options available in the market today.
I will do my best to arrange the most suitable mortgage for you with long-term banking industry experience.
Each month a portion of your payment goes toward the principal balance and a portion goes towards the interest. There are a few interest types available to borrowers, including fixed, adjustable and variable.
1. Fixed Rate Mortgages
The interest rate and the monthly payment remain the same throughout the course of the loan.
• A fixed rate mortgage gives you 100% confidence that your payments will not change for the entire length of your mortgage term
• Fluctuations in prime will not affect you. You do not have to worry about increasing mortgage payments to account for how the changing rates affect your payment to interest and principal. However, if interest rates drop, you will be paying more interest than those on a variable rate.
• Fixed rates offer you stability and consistency in payment amount.
2. Variable Rate Mortgages
Variable rates operate on the premise that the interest rate will fluctuate over time with the market, but the monthly payment amount will always remain constant. When interest rates are lower, more of the payment will go towards the principal balance. Likewise, when rates are higher, more of the payment is devoted to the interest.
• A variable mortgage typically has a lower interest rate than a fixed rate mortgage.
• If variable interest rates rise higher than what your mortgage payment will cover in interest alone only payments, your bank may increase your mortgage payment or you could extend your amortization
• Historically, variable rates are less expensive
3. Adjustable Rate Loans, commonly called ARMs, are very similar to variable rate loans. An ARM is attractive to many home buyers because you typically start out with a lower interest rate and monthly payment than you would if you opted for a fixed-rate mortgage. However, the interest rate and your payment can increase quickly with an ARM. If you are sure that you can afford the increased payments or if you plan to sell your home in a few years, consider an ARM. The lender will provide you with a schedule of when the interest rates will change over time. Determining how much they will change depends on the market indexes, plus the margin charged by the lender. Their margin is generally disclosed at the time the mortgage is originated, but the market indexes change over time. These mortgages are structured in a way that the rate and payments are fixed for a set period of time in the beginning, and then they will change on an annual basis.
4. Special Mortgage Program
1) Entrepreneurs/ business owners: For self-employed clients who may find it difficult to prove their exact income amount. With good credit, entrepreneurs can qualify based on the income they say they earn, without full documentation
2) Home Equity Line of Credit: Open line of credit secured against property
3) Purchase Plus Improvements: For a home that requires immediate upgrades, you may qualify for 95% of the costs, which would be added to your mortgage amount. Usually used when extra cash is low, and home value increase is desired
4) Reverse Mortgage: Secured over the equity of residential property, the loans are typically promoted to older homeowners and typically do not require monthly mortgage payments.
5) Long Amortization Mortgages: For those who want to lower their payments by amortizing their mortgage for 30 years. 30-year amortizations are not available for high-ratio mortgages i.e., downpayment or loan to value is less than 20%
6) Poor or Damaged Credit: For clients with past credit issues, including bankruptcies. A new mortgage can help improve your credit
7) Vacation property / second home: For recreational properties or secondary homes
8) Investment property: For rental properties, not owner-occupied
9) Private mortgages: An alternative source of financing to borrowers who may not meet the criteria of institutional lenders.
10) Creditor Life Insurance: Pays the balance owing on the mortgage in the event of your death
11) Disability insurance: Covers monthly mortgage payments up to a set amount, when you are unable to work due to medical reasons.
1. Determine Affordability
Lenders are looking for a few key indicators of a worthy borrower such as;
1) GDS & TDS Ratios:
GDS (Gross Debt Service) Ratio: GDS considers the payments associated with your household. A percentage of approximately 35% (or less) is typically what lenders will look for to ensure you are able to carry your mortgage.
GDS = (Mortgage Payment (Principal + Interest) + Property Taxes + Heating Costs) / Gross Annual Income
TDS (Total Debt Service) Ratio: TDS is used to estimate how much you can afford to put toward your mortgage while considering other debts. A percentage of approximately 42% (or less) is typically what lenders look for to ensure you are able to carry your mortgage.
TDS = (Mortgage Payment(Principal + Interest) + Property Taxes + Heating Costs+ Other Debt Payment) / Gross Annual Income
* Principal and Interest: Payments should be based on the applicable amortization period and loan amount, including the Mortgage Insurance(CMHC, Genworth) premium.
* Condo Fees: If applicable, 50% of the condominium fees must be included in the GDS and TDS calculations.
* Heat Costs: The monthly heating costs are for the subject property and use the actual heat cost records if provided by the prospective borrower. Where no history is readily available, the heat costs used must be a reasonable estimate taking into consideration factors such as property size, location and/or type of heating system. Such estimates are to be based on a sound rationale, providing an accurate estimate that is reflective of the characteristics of the property being purchased.
* Rental Income: Rental income can be included in the calculation of the debt service ratios and form part of the prospective borrower’s total gross annual income. (depend on the rental nature 50%~100%)
2) B20 Stress Test: To qualify for a mortgage loan at a bank, you will need to pass a “stress test”. You will need to prove you can afford payments at a qualifying interest rate which is typically higher than the actual rate in your mortgage contract. If you’re renewing your existing mortgage, you can avoid the stress test but only if you stick with your current lender, which denies the possibility to shop around for a better rate. Credit unions and other lenders that are not federally regulated do not need to use this mortgage stress test. The qualifying interest rate your lender will use for the stress test depends on whether you need to get mortgage loan insurance.
The bank must use the higher interest rate of either:
- the Bank of Canada’s conventional five-year mortgage rate (as of Dec. 31, 2018. 5.34%)
- If you need mortgage loan insurance, the interest rate you negotiate with your lender. If you don’t need mortgage loan insurance, the interest rate you negotiate with your lender plus 2%
* Financial Consumer Agency of Canada developed Mortgage Qualifier Tool website for an individual.
3) FICO Score: The FICO Score is a credit score generated by the Equifax Credit Bureau to provide lenders with insight on an individual's creditworthiness. Scores can range from 150 to 934 with higher scores given to higher credit quality borrowers. Most lenders will consider a borrower to have good credit with a score of 700 or higher.
4) Loan to Value (LTV): up to 80% Conventional Mortgage / over 80% High Ratio Mortgage
2. DOWN PAYMENT OPTIONS
1) Savings or Short-Term Investments
If you’ve saved for your down payment, you may need to show three or more months of banking history, and explain any large deposits during this time period. Copies of statements for other investments and savings accounts may also be required.
2) Monetary Gift Letter
If you have been gifted your down payment, you may have to provide a letter stating that the gift given is from an immediate relative (parent or sibling) and that the gift is not repayable. You also need to confirm that the funds are in your possession at least 15 days prior to closing. See our sample “Gift Letter” in the Appendix.
3) Property Sale
When your down payment comes from a property sale, you must provide a firm offer to purchase, along with a mortgage statement showing the balance owing.
4) RRSP home buyers’ plan
You can use your RRSP savings as a down payment. The Home Buyers’ Plan (HBP) is a government program that allows first-time homebuyers to borrow up to $25,000 from their registered retirement savings plans (RRSPs) to buy or build a principal home. The money you withdraw is not subject to tax but must be paid back to the RRSP account over a 15-year period. * Minimum annual repayments are required. Visit the Canada Revenue Agency’s website for more detailed information, including a detailed guide and the required forms:
You can borrow your down payment (e.g., personal loans, lines of credit, lender cash-back incentives), although there are typically increased insurance premiums or fees and higher credit criteria.
Consultation with Agent
Choose Suitable F.I
Use, Term, Interest, Security, Income, Credit Score
A Bank, B Lender,
Each F.I have different income verification, credit requirements
Search and select the most suitable Financial Institution based on the Borrower’s GDS/TDS,
Credit Score, Collateral
Appraisal, Income, fund source etc. for Final Approval.
A Lawyer will process Mortgage
This mortgage takes care of everything automatically for you. For Purchases, it includes Solicitor's legal fees and standard disbursements to close the purchase and mortgage; Title transfer; Title Insurance from LandCanada for the clients; CMHC application fee or Appraisal fee; 1% Cash-Back to cover Land Transfer Tax; Registration of Deed and Mortgage. For Refinances, it includes Legal fees and standard disbursements to prepare and close the mortgage; Title Insurance from LandCanada; CMHC application fee or appraisal fee; 1% Cash-Back; Registration of new first mortgage; Registration of discharge of existing first and second mortgage. The minimum available is a 5 years term.
Amortization is the paying off of the mortgage debt in regular installments over a period of time, i.e. 30 years. If you pay the same monthly amount according to the terms of your note, then your debt will be paid in the exact number of years outlined for you. You may, however, make additional monthly payments which are applied directly to the principal amount thus reducing your mortgage term substantially. Understand negative amortization. Some home loans offer attractive monthly mortgage payments but at times those low payments don't cover the interest portion of the loan. When that happens, part of the principal amount is deducted, resulting in what lenders call "negative amortization." Simply put, it means you are losing equity in your home.
Closed mortgages grant the security of fixed payments for terms between 6 months to 10 years. The interest rates are significantly less than open mortgages. They can deliver as much as 20% prepayment of the original principal, which is more than the majority of what people prepay on a yearly basis. However, if you want to pay off the entire mortgage before the maturity, there will be a penalty charge for breaking that mortgage. This penalty is customarily three months interest, or the interest rate differential.
When interest rates go down, or you suspect that they will in the approaching future, the 6-month convertible mortgage gives you a temporary commitment at fixed payments, with the bonus ability that while within the term, the mortgage is fully adaptable to a longer term from 1 year to 10 years. When the 6 month period is over the mortgage becomes fully open, and it can be renewed with the current lender or moved to another lender. This type of mortgage is offered at most financial institutions, but each lender’s terms are different.
Discount points are prepaid interest and allow you to buy down your interest rate. One discount point equals 1% of the total loan amount. Generally, for each point paid on a 30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a percentage point. When shopping for loans ask lenders for an interest rate with 0 points and then see how much the rate decreases with each point paid. Compare the monthly difference in payments with the total discount points you are willing to pay and see how many months you need to stay in the home to recoup your money. Points are tax deductible when you purchase a home and you may be able to negotiate for the seller to pay for some of them.
The amount of money a buyer needs to pay down on a home is one of the most misunderstood concepts in home buying. Some people think they need to make a down payment of 50 percent of the home's price, but most loans are based on a 20 percent down payment. There are mortgage options now available that only require a down payment of 5% or less of the purchase price. If a 20 percent down payment is not made, lenders usually require the home buyer to purchase private mortgage insurance (PMI) to protect the lender in case the home buyer fails to pay. Ask about the lender's requirements for a down payment, including what you need to do to verify that funds for your down payment are available. Make sure to ask if PMI is required for your loan, and also find out what the total cost of the insurance will be.
Equity mortgages are evaluated based on the equity of the home (market value minus the mortgage amount). You can receive as much as 80% of the purchase price or value of the property. These are generally offered to applicants that do not meet the normal income and/or credit qualifying mortgage guidelines (i.e. little or no income verification, self-employed, and/or less-than-perfect credit).
Established by your lender, an escrow account is set up to manage monthly contributions to cover annual charges for homeowner's insurance, mortgage insurance, and property taxes. The borrower contributes 1/12 of the annual costs monthly so that the lender will have sufficient money to pay for the taxes and insurances. Escrow accounts are a good idea because they assure money will always be available for these payments.
The costs banks and mortgage companies charge usually include the following:
- Application fee - the money paid to the lender for processing the mortgage documents
- Insurance - homeowner's coverage for fire and casualty to the home
- Origination fee - A fee, often a percentage of the total principal of a loan, charged by a lender to a borrower on initiation of the loan
- Closing costs - The numerous expenses (over and above the price of the property) that buyers and sellers normally incur to complete a real estate transaction.
- Interest - the cost of using the money, based on a percentage of the amount borrowed.
Every lender or broker should be able to give you an estimate of their fees. Many of these fees are negotiable. Some fees are paid when you apply for a loan, and others are paid at closing. In some cases, you can borrow the money needed to pay these fees, but doing so will increase your loan amount and total costs. "No cost" loans are sometimes available, but they usually involve higher rates.
The interest rate is the monthly effective rate paid on borrowed money and is expressed as a percentage of the sum borrowed. A lower interest rate allows you to borrow more money than a high rate with the same monthly payment. Interest rates can fluctuate as you shop for a loan, so ask lenders if they offer a rate "lock-in" which guarantees a specific interest rate for a certain period of time. Remember that a lender must disclose the Annual Percentage Rate (APR) of a loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage and other fees included in the loan. If interest rates drop significantly, you may want to investigate refinancing. Most experts agree that if you plan to be in your house for at least 18 months and you can get a rate 2% less than your current one, refinancing is smart. Refinancing may, however, involve paying many of the same fees paid at the original closing, plus origination and application fees.
Multiple Term Mortgages
This type of mortgage provides the convenience of the lower rates of a short-term mortgage and the security of a long-term, in one mortgage. Your mortgage can be split into as many as five parts, all having different terms, rates, and amortizations, but in one convenient monthly payment. However, you should be aware of any market changes with this mortgage. This type of mortgage is not for everyone, as the amount of time and stress involved is quite high.
With an open mortgage, you have the ability to repay the mortgage at any time without penalty. The available options are reduced to shorter terms (6 months or 1 year only), and the interest rate is higher than closed mortgages as much as 1%, or more. This type of mortgage is typically favored by those thinking of selling their home, or if they are going to pay off the entire mortgage (i.e. through the sale of another property, an inheritance, etc.).
Secured Lines of Credit
This allows you to use the equity in your home to purchase investments (where interest costs would be deductible against the earned income), renovate your home, buy a car, etc., with rates as low as prime. Up to 75% of the purchase price or value of the home can be arranged. It is very easy to access the available credit, with many lenders also providing an issued credit and/or debit card. The money does not have to be drawn until you need it, and you can pay off your balance at any time or make monthly payments. As the balance is paid down, there is much more available credit (revolving credit). As it is a secured product, the conventional legal and appraisal fees are applicable. Now and then, there are promotions where a lender will cover part or all of these costs. You should be cautioned that although these lines are very flexible and versatile it can be extremely tempting to use it for unnecessary purchases.
The credit score is calculated by a statistical process and provides a guideline for lenders to extend credit (and if so, how much) to a borrower. Mortgage companies, banks, and insurance companies determine the interest rate they will charge based on the borrower's credit score. The credit scoring process encompasses both your payment history and the amount of credit you currently have. The credit score is a substantial portion of the entire credit report.
Low Credit Scores will result in higher payments on loans, credit cards, and insurance.
The credit score is sometimes called the FICO Score, which is an acronym for the creators of the FICO score, Fair Isaac Credit Organization. Below is a table showing different score ranges
|720 - 780||Excellent|
|675 - 720||Average|
|620 - 690||Fair|
Don't assume that minor credit problems or difficulties stemming from unique circumstances, such as illness or temporary loss of income, will limit your loan choices to only high-cost lenders. If your credit report contains negative information that is accurate, but there are good reasons for trusting you to repay a loan, be sure to explain your situation to the lender or broker. If your credit problems cannot be explained, you will probably have to pay more than borrowers who have good credit histories. Ask how your credit history affects the price of your loan and what you would need to do to get a better price. Lenders now offer several affordable mortgage options, which can help first-time homebuyers, overcome obstacles that made purchasing a home difficult in the past. Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or poor credit history, have quite a bit of long-term debt, or have experienced income irregularities. There are companies who specialize in consumer credit repair. Back to Top
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