A mortgage loan is a loan that you can use to purchase a home in Canada. The borrowed amount has to be paid back to the mortgage loan lender with interest within a predetermined time known as the amortization period. Clients who used Loans Geeks to secure their mortgage loans in Canada, typically have about 25 years to pay back their mortgages. The total amortization period is broken down into different mortgage terms having a fixed interest rate. It can range anywhere between 6 months to 10 years, but in Canada, a 5-year term is the most common. After each mortgage term ends, the mortgage has to be renewed for another term, and the interest rates may or may not be changed. This goes on till the mortgage is entirely paid off.
Applying for mortgages in Canada
When you decide to get a mortgage loan in Canada, you have many different options. Some examples of financial institutions that offer mortgage loans are:
- Mortgage Companies
- Caisses Populaires
- Trust Companies
- Loan Companies
- Credit Unions
- Insurance Companies
All these above-mentioned money lenders offer mortgage loans at different interest rates and terms and conditions.
At Loans Geeks we will considerably facilitate this process for you, matching you against top-rated mortgage lenders available in your area, who offer the most competitive rates.
All you will need to do is evaluate the offers before deciding where you want to secure the money from. It is important that you make an informed decision and choose the right loan lender. If you decide to switch the lender at a later time, you might get charged with a prepayment penalty.
The Down Payment
For purchasing any property in Canada, you will typically need to pay a down payment or the upfront money to book the property in your name. Ideally, the minimum required down-payment is about 5% of the total value of the property if its value is below $500,000 and 10 percent of any amount beyond that. The mortgage lender of your choice will provide the rest of the money, and you will be repaying back the mortgage lender over a pre-determined period of time at agreed terms. If you wish to avoid the CMHC insurance premiums, you should increase the worth of the down payment to 20 percent. It is important to note that the down payment is predominantly meant to protect the interests of the mortgage lender. Thus, the higher the down payment you pay, the more eligible you are for a higher mortgage sum. A higher down payment also means that your interest amount, as well as your monthly payments, goes that much lower.
Mortgages in Canada with Zero Down-Payments
it is also possible to secure a mortgage loan in Canada for your house against zero down payment. However, to qualify for it, you need stable employment with an appreciable salary, excellent credit score and other qualifications as set by different mortgage lenders in Canada.
Determining the Mortgage Amount
The mortgage amount is dependent on two ratios – GDS ratio and TDS ratio. GDS stands for Gross Debt Service ratio and is calculated by using the cumulative total of your property cost, interest, and taxes, heat and condo fees if any. The formula used to derive it is
GDS = Payment+Property Tax+ Heat+½ Condo fees
According to CMHC guidelines, this amount should ideally not exceed 32% of your gross income and in extreme cases, never beyond 35% of your monthly income.
The TDS ratio is the GDS ratio amount plus all other debts that the borrower has. This amount too can only be 40 to 42 percent of your total monthly income.
All these calculations are easily calculated using the mortgage affordability calculator and various other calculators devised exclusively for easy calculations.
Amortization period in Canada
Amortization is a term that confuses many mortgage loan borrowers. However, it simply means the length of time that you will need to repay back the entire mortgage loan. You can get CHMC insurance for a maximum amortization period of 25 years. A longer amortization period means a lower monthly payment, though it also means that you will pay a much higher cumulative interest.
CMHC Insurance in Canada
CHMC stands for Canada Mortgage and Housing Corporation. It is the ultimate body that functions as Canada’s authority on housing. It offers various kinds of insurance based on different stipulations of the mortgages in Canada like down payment, amortization, etc. It is mandatory to have CHMC insurance if the down payment is less than 20%. Any mortgage loan in Canada needs CHMC approval.
Mortgage Loans Interest Rates in Canada
While deciding between mortgage loan options, you will also need to choose between two types of interest rates. A fixed interest rate means that you would be paying the same rate on interest throughout the amortization period. The biggest advantage of this type of interest rate is the stability of payment despite paying a higher interest amount at the end.
In contrast to a fixed interest rate, the variable rate can be a money-saver. With mortgages that have variable interest rates, even though your payment remains the same each month, the interest rate can vary based on the specific market conditions. However, before opting for either of these mortgage interest rates, you should consult an expert to fully understand the implications that each of these interest rates would have in your particular case.