Speak with a North Vancouver mortgage professional as soon as possible.  This will allow you to shop in a price range that is realistic for your situation.  At the same time, make sure you are prepared financially for the standard costs associated with a purchase of real estate.  Some of these costs may include:

  • Deposit – Once you have an accepted offer on a place, there is generally a 1 week period to remove subjects (ie. Inspection, financing, etc.)  Once those subjects have been satisfied, you are required to put down a deposit on the property.  This amount varies, so make sure to ask your realtor.
  • Property Purchase Tax – If you are a first time home buyer and you meet the qualifications, this does not apply to you.  However, if you have ever owned property, anywhere in the world, this tax will be charged on your purchase completion date.  You calculate the amount by taking 1% of the first $200,000 and then 2% of anything over that.
  • GST – When purchasing a brand new property, GST will be charged.  Your realtor will advise you of this amount, and it does not apply to used homes.
  • Closing/Legal Fees – Be prepared for a legal bill of approximately $1000 for a standard purchase or sale.  If you are buying and selling at the same time, budget approximately $2000 for this expense.
  • Property Tax Adjustment – This is calculated at the lawyers office.  A person is always responsible for the property taxes due during the time lived in the home.
  • Appraisal – Depending on the lender and how much money you have down, an appraisal of the property may be required.  A standard, residential appraisal will have a charge of $250 – $350, and is due at the time of appraisal.  Different properties will have a higher cost, so ask your mortgage professional once you have decided on a property.
  • Insurance Premium (If Applicable) – In Canada, if you are financing a property to more than 80% of the property value, the mortgage needs to be insured (This is called a “high ratio” mortgage).  This is generally done through CMHC, Genworth Financial, or Canada Guaranty and they charge an insurance premium that is added to your total mortgage.  The percentage that you pay will vary depending on how much money you have down, and how straight forward the approval is.  If you have a 20% down payment, or you are refinancing to no more than 80% of the property value, a fee is generally not charged.  A typical fee ranges from 1.75% to 3.10% of the mortgage amount.

Your credit score, also known as a beacon score, is generated by 2 main organizations in Canada; Equifax and Trans Union.  They have a system which tracks any personal loans, credit cards, or lines of credit that you have.  The system gives you a score somewhere between 300-900, with 300 being the worst and 900 being the best.  In order to obtain the very best mortgage rates, you generally need to have a score of 660 or better, however exceptions are made when it makes sense.  If your credit score is not this high, there are a whole other group of lenders willing to help you out, but generally at a higher cost.

What determines your score?

All of your creditors will report monthly to Equifax or Trans Union.  They report how much you owe, what your monthly payment is, and whether you have made your payment on time.  A record is kept for as long as you have the debt, showing how many times you have ever been 30 days late, 60 days late, or 90 days late.  It will also show if the account has ever been sent to a collection company.  The longer that you have had credit reporting to the credit bureau without late payments, the higher your score will climb.  Also, if you have credit cards or lines of credit, try to keep your outstanding balance under 50% of the limit.  Points are deducted for high balances in comparison to the limit, late payments, collections, and too many inquiries for credit.

Important things to note:

  • Your utility bills, cell phone, gym membership, car insurance, etc., do not give you credit for paying on time.  They will never show up on the credit bureau unless you don’t pay them.  If you plan on arguing or disputing a charge with one of these companies, expect it to show up as a collection on your credit bureau and drastically lower your credit rating.  It’s generally better to just pay the amount owing, and dispute your case after the fact.
  • Unless your mortgage is with a credit union, it probably doesn’t report to the credit bureau either.  So, even though you might pay your mortgage perfectly for 5 years, you won’t have any credit score at all unless you have established some unsecured personal credit. (ie..credit card, car loan, personal bank line of credit, etc)
  • Bankruptcy and Credit Counseling programs make it near impossible to qualify for a mortgage until you have been finished with the program for at least a year or two, and reestablished some new credit for another year or two.  If you are considering one of these options, don’t just take your trustee’s advice.  Make sure to talk to a mortgage broker about how this will affect your ability to purchase a home.

There are a lot of programs for different situations these days, which is why it’s best to start your home buying process with a call to a mortgage broker.  However, here are some general guidelines that you’ll want to follow.

  • Unless you are a self employed person (need to prove self employment), be prepared to obtain a job letter from your employer, as well as a recent paystub.  The mortgage amount that you qualify for, will be based on how much income you can verify per year.  If you are self employed, and your credit is good, you can qualify for mortgages without having to prove all of your income.  (call me to discuss this)
  • If you have a good credit rating and verifiable income, you can purchase a home with as little as a 5% down payment.   If you have no down payment, there is even an option where the lender gives you the down payment, but you pay a slightly higher interest rate.  If you are tired of renting and would like to get into the market, please call me to discuss your options.
  • Unless you are new to the country, or brand new to credit, you will likely need to have at least 12 months worth of credit history on your credit bureau.  So, if you have always paid cash for everything, please keep in mind that this will make it very difficult to qualify for a mortgage.  Try getting a line of credit at your bank, credit card, auto loan, or small personal loan to begin establishing your credit score.  For new immigrants, there are purchase programs with no credit if you have at least 10% down payment.
  • Properties – Most standard houses, townhouses, and apartments are fine with the majority of lenders.

If, however, you are considering one of the following property types, please call to discuss as it may be more difficult:

  •  leased land
  • mobile homes
  • former grow ops
  • leaky condos
  • remote areas
  • farm land

When you select a mortgage approval, you will have a term and an amortization.

The Term, is anywhere from 6 months to 10 years, and this is the length of time that your negotiated rate applies.  At the end of the term, your mortgage is up for renewal and you can then decide if you’d like to change lenders or programs.

The Amortization is the length of time to pay the mortgage down to $0.00.  This is traditionally 25 years, but lenders are now offering amortizations as long as 35 years.  This longer period of time will lower your monthly payment and enables you to qualify for a larger mortgage amount.  You do, however, end up paying a lot of extra interest for those extra years.

Here is an example on a $300,000 mortgage.

  • Mortgage Amount – $300,000
  • Interest Rate – 4.15%
  • Term – 5 years
  • Amortization – 25 years
  • Monthly payment – $1602.55
  • Balance at the end of 5 years – $261,839.87
  • Now with a 35 year amortization:
  • Monthly payment – $1349.02
  • Balance at the end of 5 years – $278,697.60

With a 35 year amortization, your monthly payment will decrease by $253.53, but your balance after 5 years will be higher by $16,857.73

Don’t forget to include things like property taxes and strata fees (if applicable) when deciding on a comfortable payment.

A good rule of thumb for approval is to add up the monthly mortgage payment, 50% of monthly strata fee, monthly property taxes and heat, and make sure that it doesn’t exceed 35% of your gross monthly income (however if your beacon score is higher than 680 we have some lenders who allow us to have 35% changed to 39% and it increases your affordability.

Ex. Income of $50,000/year = $4166/m

$4166 x 35% = $1458/m

Therefore, you need to keep your mortgage payment, taxes, strata, and heat, below $1458/m if your total income was $50,000/yr.  There are exceptions to this, depending on your amount of down payment and your credit score.

This is something that your mortgage broker can discuss with you when it comes time to purchase or refinance, but there are some main types of mortgages that are best to know about.

Fixed Rate Closed Mortgage – This is the most common mortgage chosen by clients.  The rate is the same for whatever term you choose, your payment is the same for the whole term, and they generally allow you to prepay up to 20% extra on the mortgage each year.  This works best for those who are on a set income, want a firm budget to work with, and likely won’t have an excessive amount of money to put down on the mortgage throughout the term.  If paid out in full, before the end of the term, a prepayment penalty will generally apply.

Variable Rate Closed Mortgage – This is also for a set term, allows for extra payments each year, and would have a prepayment penalty if you decided to pay it out in full before the end of the term.  The difference is that your rate fluctuates with Prime rate.  Prime rate is decided on by The Bank of Canada, and they meet 8 times per year to evaluate the economy and make a decision on whether to raise prime, lower prime, or keep it the same.  The variable rate that you’d receive from a lender should be a fair bit lower than their fixed rate offer, therefore saving you money immediately.  The risk, however, comes with the fact that your rate goes up if The Bank of Canada decides to raise Prime.  If they were to raise it enough times, your rate could exceed the fixed rate offer that your lender mentioned at the beginning, and your mortgage would now be costing you more money.  Over time, the majority of variable rate mortgage holders will pay less interest on their mortgage than those holding a fixed rate mortgage.  If your budget allows for a potential fluctuation in your mortgage payment, this may be the route for you.

Open Mortgage – Some lenders will offer both fixed and variable rate mortgages, but with an open term instead of a closed term.  This simply means that you are free to pay as much extra as you like at any time, without penalty.  To compensate for the fact that the lender could get paid out at any time without warning, the interest rate is generally higher on an open mortgage.  This is best for someone with large fluctuations in income, those expecting an inheritance, or those planning to buy and sell in a fairly short period of time.

Line of Credit Mortgage – Instead of giving you a set amount of money upfront, to be paid back over a set period of time, some lenders will offer a secured line of credit.  This means that they register a mortgage for the full value of your home and you then advance funds off that line of credit whenever you like.  It is generally accessed via cheques or a bank card.  The minimum monthly payment is usually interest only, based on your monthly balance.  The interest rate generally runs at Prime or higher, so it will go up and down whenever The Bank of Canada changes Prime.  The main benefit with this product, is that you can re-access funds that you’ve paid down without having to reapply.  Also, there are no prepayment penalties for paying extra or paying off this mortgage in full.

There is a lot to know about buying, selling, and refinancing, but a mortgage professional can help make the process a whole lot easier.  As a licensed Mortgage Advisor, I work ethically and honestly to get you the best approval available, while explaining and assisting with each step along the way.

The best part of it all, is that my professional service generally doesn’t cost you a penny!  In any situation where your mortgage is being funded by an institutional lender, the mortgage broker receives a referral fee directly from the lender’s wallet, not yours.

I will take your information once, present it to multiple lenders for review, have them compete to give you the best rate, and make all the necessary arrangements along the way.  Remember, I work for you, not any specific lender.  This means that I have no obligation to send your application to a certain lender; I simply send it to whomever is going to give you the best mortgage.

I work via phone, email and fax, but am also quite flexible with making in-person appointments throughout the Greater Vancouver, at your convenience.  If you have any questions, need some assistance, or know of anyone else that may be dealing with a mortgage, please feel free to call or email me.

Sincerely,

Ramin Aminian

Mortgage Advisor

604-787-8462