Frequently asked questions about mortgages.
Here are some simple but important answers to the basic questions asked about residential mortgages. If you have a specific question, then click on "Talk with an advisor" to reach a Kingside mortgage professional.
How much can I afford?
Take your gross taxable income and the amount of monthly debt obligations and determine your estimated household costs. These include mortgage payments, property taxes, and heating costs and / or half of your condominium maintenance fees.
With this information, your Kingside mortgage professional will be able to calculate the Gross Debt Service Ratio (a comparison of how much of your gross income is required to cover the carrying cost of your home). This should not exceed 32% of your gross income.
A Kingside Mortgage Consultant will then calculate your Total Debt Service Ratio (a comparison of how much of your gross income is required to cover all of your monthly debt and contractual obligations including loans, credit cards, leases and loan payments. This should not exceed 40% of your gross income. When these calculations are completed, they will be able to provide you with a mortgage amount that you should realistically be able to afford. With this amount and your down payment, you will then be able to determine the price level of a home that you can afford. TOP
What is the minimum down payment I can put on a purchase of my principal residence?
You can actually purchase your principal residence with a zero down payment. There are programs through various lenders that will allow you to do this. You must be able to show that you can afford all closing costs such as legal fees, land transfer tax and any other disbursements (estimate at least 1.5% of your purchase price). With this kind of financing you will require insurance.
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Why should I get pre-approval of my mortgage?
In today's competitive marketplace, pre-approval gives you the edge. You know ahead of time how much money is available to you. Pre-approval for a mortgage lets you put together a credible offer quickly. More importantly, it eliminates the need to make your offer conditional upon financing. In a multiple bid situation, the cleanest offer - with the fewest conditions - has the best chance of success. So, pre-approval simply means being prepared. Your Kingside mortgage professional will assist you in getting pre-approval, so when you see the home you want, you're ready!
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What is amortization and how does it affect the interest I pay?
Mortgages are typically 'amortized' (from the French word 'mort', meaning killed off) over a period of time, usually 25 years. In the early years a greater portion of your payment will be interest rather than the principal of your debt. If you shorten the amortization period, you start paying down the principal faster and the interest payable decreases. Here is a comparison between 25-year, 20-year and 15-year amortization periods for a $200,000 mortgage with an interest rate of 6%:
• With a 25-year amortization the monthly payments are $1279.61
• With a 20-year amortization the monthly payments are only increased by $144.77 to $1424.38. By paying the principal down quicker you would save paying $21,558.38 in additional interest compared to the 25-year amortization.
• With a 15-year amortization the monthly payments are increased by only $400.16 to $1,679.77. The savings in interest would be $59,589.48 as compared to the 25-year amortization.
* The example assumes the interest rate will remain constant through the whole amortization period.
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What difference does payment schedule make?
Most mortgage Lenders offer various payment frequency alternatives. Weekly, bi-weekly, or monthly payments are most common. The weekly and bi-weekly choices also have a great effect on the overall interest payments. Most lenders will calculate your weekly payments at 25% of your monthly payment of your bi-weekly payment at 50% of your monthly payment. By doing so, they allow you to make the equivalent of 13 monthly payments over the period of a year. The additional payment helps to pay down your principal balance quicker thus reducing your amortization period and saving you any additional interest that you would normally pay over you original amortized mortgage.
The example of a $200,000 mortgage with an interest rate of 6.0% over a 5-year term:
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$319.90 |
$172,065.43 |
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$639.81 |
$172,118.88 |
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$1,279.61 |
$179,673.61 |
What is an alternative lender?
Alternative lenders provide sources of funding beyond the big banks. The average consumer does not have access to alternative lenders. The alternative lenders generate their business directly from Mortgage professionals. They would include some trust companies, Finance companies, mortgage investment companies, Mutual Fund companies and Private Lenders.
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Are Kingside mortgage professionals regulated?
Yes. We are regulated by the provincial government (Ministry of Finance) with input from Provincial and National Associations (e.g. Canadian Institute of Mortgage Brokers and Lenders).
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What is a high ratio mortgage?
A high ratio mortgage is any mortgage that exceeds 75% of the property value (based on the lesser of the Purchase price or the appraised value) that is financed by a lender regulated under the Bank Act, Trust Company or the Credit Union Act. These high ratio mortgages are required to be insured according to the Acts and the lenders will use CMHC or GENWORTH Financial to obtain this type of insurance.
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What are the benefits of using a Kingside Mortgage professional versus a bank mortgage representative?
Simply put - accessibility, affordability and flexibility. A Kingside Mortgage professional will provide advice regarding the purchase or refinance of your home. They will also provide options and mortgage product consultation from over 40 lenders. A bank representative can only provide information regarding mortgage options and products offered by the bank they represent. A Kingside Mortgage professional will search for the best rate and products that fit your mortgage needs from the variety of lenders including Banks, Credit Unions, Pension Funds, Insurance Companies, Trust Companies, Mutual Fund Companies, and alternative lending sources. We shop the market for you to get the best deal. We do business at your convenience and keep the paperwork simple.
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My bank declined my mortgage. Why will Kingside consider me?
At Kingside we know that life and business and finances are not all black and white. We understand that if you are an entrepreneur, self-employed or seasonally employed, or have past credit issues, then you may fall between the lines of the banks' rigid criteria. Our mortgage professionals know from experience how to assess risk - on the part of the borrower and the lender - and to arrange the best mortgage possible.
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