Mortgage loans: FAQ

Here are the answers to your questions about mortgage loans.

What is the minimum down payment?

You need to put down at least 20% of the selling price to qualify for a mortgage. If you don’t have 20%, you can take out mortgage insurance and you’ll only need to put down 5%. In both cases you need to prove you have 1.5% of the selling price to cover start-up costs.

How can some builders have properties for sale without requiring a down payment?

Some builders do offer Canada Mortgage and Housing Corporation (CMHC)-approved programs that don’t require a down payment. However, the programs usually have very specific eligibility criteria and the down payment is often just delayed.

There are really only a few exceptions to the legal requirement to make a down payment when buying a property. The best way to lower your down payment is to insure your mortgage with CMHC or Genworth. Insurance can get your down payment to 5%.

As with traditional mortgage loan insurance, every down payment has to come from the buyer’s own resources or close relatives.

Debt-savvy buyers can put 5% down and access many resources, including a loan or lender incentives, as long as the down payment is from a source that is arm’s length to and not tied to the purchase or sale of the property. Contact your lender to see if they can offer you mortgage insurance and if you’re eligible.

Is it true that the financial institution where we have our municipal tax account is required to manage it when we take out an insured loan and only put down 5%?

Yes, you need to open an account for your municipal taxes when you take out an insured loan. The financial institution is responsible for transferring money from your personal account to your tax account every month so you can make payments. You still control the account and make the payments. Some municipalities allow preauthorized payments for municipal taxes, in which case you need to show your financial institution proof of pre-authorized payments to avoid having to open a tax account.

My spouse and I want to buy a house with an occupied rental unit. Is it easier to get financing for this type of property even if we’re first-time homebuyers?

Yes, houses with a rental income make it easier to get a mortgage. Bring the lease to your financial institution and they’ll assess your personal balance sheet, taking into account the income on the property as well as how much it will cost to maintain it.

You’re required to make a 20% down payment on the selling price, unless the building has more than five units, in which case different conditions apply. If you live in the building you can qualify for mortgage loan insurance, and your down payment could go down to 5%. In both cases you need to prove you have 1.5% of the selling price to cover start-up costs.

How long do I need to be employed to qualify for a mortgage from a financial institution?

You need to demonstrate at least one year of stable, full-time employment. If you’re self-employed, you need to demonstrate two years, open up your books, and provide your notices of assessment to prove you don’t have any unpaid taxes.

Can my mother co-sign my loan if I don’t have stable employment? If yes, what happens when I have the necessary job stability? Can I remove her as guarantor without having to see a notary?

Yes. Your mother can guarantee your loan until you have the job stability you need. Removing her as guarantor is easy and you don’t need to go back to the notary. However, if you don’t meet other eligibility criteria, for example, your income isn’t quite high enough, the financial institution might require your mother to be a co-owner, in which case she isn’t a guarantor, but a joint borrower, and changing the loan agreement does require a trip to the notary.

I have a 35-year mortgage. If I sell my house and buy a new one, can I take advantage of the 35-year term for my new loan?

No. By law, the maximum mortgage term is 25 years. You might be able to transfer your loan and keep the 35-year term if the amount of the loan you need is the same as your current mortgage balance.

Which is better: fixed-rate or variable-rate?

Studies show that a variable-rate loan is better since you’ll save a lot of money by the end of the term. Nevertheless, a big majority of homebuyers choose fixed-rate loans for the peace of mind they provide. Some combined products give you a variable rate while still giving you benefits of both fixed-rate and variable-rate loans. Fill out a borrower profile when you first meet your financial advisor about prequalifying; they’ll be able to offer you the right mortgage product for your situation.

Can I change a 5-in-1 mortgage to a fixed-rate mortgage before the end of the loan term?

Yes, you can change a 5-in-1 to a fixed-rate for the remainder of the initial contract. A 0.30% reduction applies to the applicable rate. For example, if the fixed rate is 3.75%, you’d be eligible for a rate of 3.45%.

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Source: Isabelle Paradis | Desjardins Group