WHAT CLIENTS ASK THE MOST

What You Should Know

Applying for a mortgage can bring up numerous questions, and we understand that clarity and information are crucial during this process. While every mortgage is unique and certain details, such as rates, require a thorough application review, there are several commonly asked questions that we can answer upfront. We've compiled a list of our most frequently asked questions to provide you with the essential information you need. So if you're curious about the mortgage journey, take a look at these helpful answers!

WHAT IS THE DIFFERENCE BETWEEN A FIXED RATE AND AN ADUSTABLE/VARIABLE RATE MORTGAGE?

When considering a mortgage, one of the key decisions to make is whether to opt for a fixed or variable rate. This choice is highly personal and depends on factors such as risk tolerance and understanding of the differences between these two products.

The fixed rate mortgage is the most common and well known mortgage product, particularly the five year fixed rate mortgage. With a fixed rate mortgage, you enjoy the stability of a specific interest rate that remains unchanged throughout the term. This product is ideal for those seeking low risk and who value predictability in their payments. Additionally, knowing that your rate won't change provides peace of mind and allows for better budgeting and financial planning.

On the other hand, variable rate mortgages are tied to the prime rate, either with a plus or minus adjustment. For example, your interest rate might be Prime - 0.60%. If the prime rate at that time is 5%, your interest rate would 4.40%. It's important to note that with a variable rate mortgage, your interest rate is susceptible to fluctuations based on changes in the prime rate. This option is better suited to individuals with a higher risk tolerance and higher loan-to-value, offering potential cost savings if interest rates decrease but also the possibility of increased payments if rates rise.

By understanding your own risk tolerance and considering the stability of fixed interest rates versus the potential savings of variable rates, you can make an informed decision that aligns with your financial goals.

HOW MUCH CAN I AFFORD TO BORROW?

Understanding how much you can afford to borrow is a very important step in the home buying process as it allows you to set realistic expectations when shopping for homes as well as make informed decisions about your mortgage options. There are several key factors that go into determining how much you can afford to borrow, these include, your income, the amount of debt you're carrying, and current interest rates.

When assessing income lenders look at the stability of your income and calculate what percentage of your income is being used to cover your current debts and then how much is left over to cover the cost of carrying a mortgage as well as the additional liabilities of owing a home, such as property taxes and heating costs. These ratios are called debt serving ratios and are the main criteria used in determining how much you can afford to borrow.

As mentioned above debt plays a large roll in how much you can qualify for, the more debt you have the less you can qualify for as your income has to cover that debt before it can go towards the mortgage funds. Lenders also look at the type of debt you're carrying, the length of time you've had accounts open, and how close to the limit your balances are. Typically speaking a lender would like to see you have at least two active accounts with at least a two year history. This shows active credit use with a good history of accounts.

Current interest rates effect the amount that you can borrow because you will have to qualify for the mortgage funds based on the interest rate at the time of borrowing. The interest rate effects the monthly payment making it either higher or lower depending on rates at the time. For example if you start your home shopping journey in a low interest rate environment but while you're looking interest rates begin to rise then the amount that you qualify for will begin to drop as rates rise. With the increase in rates the monthly payment will also increase, and as the monthly payment increases so does the income needed to cover that payment, if your income stays the same then the mortgage amount will have to adjust down to account for the higher interest rate.

WHAT DOCUMENTS DO I NEED TO PROVIDE FOR A MORTGAGE APPLICATION?

The documents required for a mortgage will vary borrower to borrower depending on their unique situation, but for the purposes of this guide we have narrowed down the most common circumstances and documents required. Borrowers tend to fall into two categories of employment, those who are employed and receive a T4 each year and those who are self employed.

If you are an employee then you'll be asked to provide a letter of employment, a recent pay stub, and likely two years worth of T4's depending on how long you've been with the employer. You will also need to provide your most recent Notice of Assessment from Canada Revenue Agency. If you are self employed then you will either be a sole proprietor or incorporated and the documents required will differ based on how your business is set up.

If you are a sole proprietor then you will be asked to provide two years worth of T1 Generals with all schedules, most importantly your Statement of Business and Professional Activities. You'll also be asked to provide two years of Notice of Assessments to prove that you have no personal taxes owing to Canada Revenue Agency. If you are incorporated the document burden is a little heavier as you'll need to provide your Articles of Incorporation, shareholder registry, corporate financials, along with any T slips the corporation provided you with (T4's if paid a salary or T5's if paid in dividends).

All borrowers regardless of how their income is generated will need to provide Government issued photo ID.