Mortgages

Canadian mortgages have some quite subtle differences from the UK system so I have no doubt they will be fairly new to most nationalities. Whichever type of home you buy, the chances are you will need to use financing. There are many different methods of financing a home buying purchase that are unique to Canada:

Assuming a mortgage - This involves taking over the sellers mortgage and negates the need to arrange your own financing. The rate you take on may well be fixed lower than the rates on offer and you should not be required to pay appraisal and other setup costs. In some cases you will not have to qualify for the mortgage either, though this depends on the original terms imposed by the lender. Normally, you will have to buy out the part of the mortgage already paid off by the current lender.

New to Canada mortgage - Most major banks will lend up to 65% of the appraised value to immigrants before they have permanent employment as part of a welcome to Canada package. This will depend on individual circumstances and obviously will not be available to all people but in the first 6 years of residing in Canada and 35% down (and no employment verification) you can apply. Once you are working normal rules should apply.

Vendor Take Back - Basically, the seller of the property will lend some or all of the cash required to buy at terms negotiated between you. This is very attractive to buyers who will not normally qualify for a mortgage. The debt may be sold to a third party but the original terms should apply.

With such a major part of your new life on the table it is definitely worth using the services of a Professional Mortgage Broker. That way, all the options for financing will be thoroughly explained, sound advice on the best options for your individual circumstances can be given and access to mortgage funds can be arranged for most people under the most favorable terms.

Obtaining a pre-approved mortgage is a very wise initial step when you are looking to buy a home in the near future and something your broker can arrange. This allows you to secure a rate from the lender for a period of 90 -120 days and lets you know how much you can offer for a property. Having the pre-approval puts you in a position of power since most realtors will not accept an offer unless the client has been pre-approved for mortgage financing. This also enables your realtor to look for the home that fits your financial needs and situation.

Pre-approved mortgages put you in a strong negotiation position and locks in the best possible rate for you while you shop for your home. A mortgage pre approval is based on information you provide with your application and will be subject to verification from the lender.

Under international money laundering laws, ALL mortgage providers will now require proof of origin of any funds used to purchase a property. It is essential that any lawyers closing statements for house sales, money transfer receipts, savings statements and bank records are made available when you apply for a mortgage. Basically ensure you have a verified "paper trail" for your money!

Finally, most Canadian employers will pay every 2 weeks and so it makes sense to pay your mortgage "bi-weekly". This means you will make 13 payments a year instead of 12 and so will pay the mortgage off faster.

Mortgage Loan Insurance

With Canadian home buying , if you have to borrow more than 75% of the appraised value of the home it is considered a high ratio mortgage and Mortgage Loan Insurance will be needed. You can typically expect an insurance underwriting fee of between C$75.00 and C$165.00 for the set up cost of the insurance.

The Canadian Mortgages and Housing Corporation and GE Capital Mortgage Insurance Company provide this cover for loans up to 95% of the value of the home. Premiums were reduced in April 2005 by the CMHC so for the most accurate rates consult your broker or the link above. The table below gives some rough indications of the current rates you will have to pay according to how much you borrow.

Up to and including 75% - 0.50%

Up to and including 80% - 0.75%

Up to and including 85% - 1.25%

Up to and including 90% - 2.00%

Up to and including 95% - 2.75%

Please note that CMHC and GE will check you are not over committing yourself. Your dwelling related monthly expenses must not exceed 32% of your gross household income. Also, your total monthly debt must not exceed 40% of the gross income.

The Loan insurance actually covers the lender in the case that you default on the loan, the property is repossessed (foreclosure) and the lender then sells at a lower value than the original loan. The insurance will make up any shortfall so that the lender does not lose out on the deal.