Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you must have a minimum of 20% down payment of the purchase price, with the mortgage not exceeding 75% of the appraised value of the home.
In cases where your down payment is less than 20%, you could qualify for a high-ratio mortgage. However, this type of mortgage requires loan insurance, which can cost an additional 0.5% to 3.75% of the principal mortgage amount. In Canada, high ratio mortgages must be insured with either the Canadian Mortgage and Housing Corporation (CMHC) or a private insurer like Genworth Financial Canada. Buyers should be aware that this type of mortgage comes with additional costs as it is the mortgagor’s responsibility to pay the insurance premium. With this type of mortgage you could also be limited to a maximum house price.
If for whatever reason, you are unable to add on to your existing mortgage, you may wish to consider a second mortgage, provided that there is sufficient equity in your home to do so. Each mortgage uses your home as security for the loan and gives the mortgagee the right to force the sale of your home if you default on your loan. The first mortgagee gets paid first in cases of default and has the best chance of recovering all of its money. With this said, second mortgages often come at a higher cost to the borrower due to the inherently higher risk to the lender.
No two lending institutions are created equal. Each offers different customizable mortgage options, oftentimes specializing in different market sectors. When searching for a lender, explore the various options offered by each lender and determine what options best fit your lifestyle and mortgage requirements.
This is a wonderful option if you receive regular bonuses or if your income fluctuates throughout the year. With a pre-payment privilege, you have the right to make payments toward the principal portion of your mortgage over and above the monthly payments. A mortgage with a pre-payment option is closed. An open mortgage means you can pay the entire principal sum without notice of bonus.
Portability is one option you'll want to discuss with your lender. It can save your valuable time, and sometimes, money when looking to finance your next home purchase. Quite simply, it means transferring the balance of your current mortgage at the existing rates and with the existing terms and conditions, to your new home. Most lending institutions assume that you are not likely to remain in the same home for the duration of the mortgage amortization period and include this feature in their mortgage packages. Be sure to make the appropriate inquiries though and ensure that this feature is built into your mortgage.
Some lenders allow for the assumability of the mortgage associated with the property in question. For example, let’s assume that the owner of the home you are interested in purchasing has negotiated an exceptional rate and mortgage terms. Provided the lender allows for that mortgage to be assumed, you the buyer, could take over the obligations of that mortgage; benefitting from its great terms and rate. This is a wonderful feature especially if the terms are more favourable than the existing market conditions would allow. Keep in mind, when it is time for you to sell, you may still be liable for any mortgage you allow the buyer to assume. This means if the buyer stops making payments, you could be accountable for the payments. Be sure to have the subsequent buyer approved for the assumption of the payments, thereby avoiding and potential risks.
If you need additional funds down the road, will your mortgage terms allow you to increase the principal amount? Usually, your new rate will be a blended amount of the initial mortgage rate and the prevailing rates. It's a great option to discuss with your lender if you foresee large expenses in your future, like renovation or education costs.