Can I Get a Mortgage - and How Much ?
Very few people can afford to pay cash for a home but clearly it puts you in a stronger bargaining position if you can offer without lengthy financing subjects so it's worthwhile to get pre-approved for a mortgage. Some general guidelines are set out on this page, but talk to your bank, and check out the links below to find out exactly how much you can expect to borrow.
To establish how much you can borrow, lenders will look at two main items - how much of a down payment can you make, and what is your income.
Down payment: If your down-payment is 25% or more of the purchase price, it is considered a conventional mortgage, and you can skip straight to the next paragraph.
If, however, your deposit is less than 25% it is considered a "high ratio mortgage" which requires default insurance from the Canada Mortgage and Housing Corporation or GE Capital. This default insurance costs a premium ranging from 1% of the mortgage amount if the loan-value ratio is between 75-80%, up to 2% for a 85-90% mortgage or 3.25% if you qualify for a 95% mortgage, and the premium is usually added to the mortgage amount. (Note - Effective 1st March 2004, CMHC will waive the requirement for minimum 5% to come from own cash resources and may accept this from lender incentives or borrowed funds)
Example: You are buying a home for $ 150,000 and seeking a mortgage of 90% or $135,000. If the default insurance premium of $2700 is added you have $135,000 towards the cost of your home, but your interest/principal payments are calculated on the total of $137,700.
Income: The bank will assess your ability to repay the loan based on "Gross Debt Service Ratio" (GDS) and "Total Debt Service Ratio" (TDS).
GDS - your total mortgage expenses, principal, interest, property taxes, heating and maintenance fees (for condos) should not exceed 30-32% of your gross annual income.
TDS - total of all debt payments, mortgage, car loan, credit cards, utilities, insurance etc should not exceed 37-40% of your gross annual income..
Interest rates are currently at very low levels, and Variable Rate Mortgages are available as low as 4.0% per annum, but of course this may increase in the near future so you may prefer to lock in a fixed rate for 3 or 4 years at around 5.5% or 5 years at 6%. What does this mean in real money? For every $100,000 borrowed your repayments would be $526.02 per month at 4%, $610.39 at 5.5% or $636.67 at 6%.
One of our in-house mortgage specialists will be happy to give you some more specific ideas on what is currently available.