Explanation of Mortgages in Canada

Mortgages are ideal for those who do not have enough cash to put down to purchase a home. There are certain requirements that a person has to meet in order to qualify for these specialized loans but depending on the mortgage type; they can be easily obtainable to many.

If you’re considering a mortgage in Canada to purchase a home, learning more about the mortgages available, as well as pre-approval can help you get in the best position to purchase the home of your dreams.

We’ve gathered the information necessary to help you along the way. Read on to find out more about Canadian mortgages and what requirements you have to meet to obtain them.

Quick Links

1. Types of Mortgages Offered in Canada and Their Requirements
2. Qualifying for the Loans
3. Mortgage Pre-Approval
4. Frequently Asked Questions About Explanation of Mortgages in Canada 

Types of Mortgages Offered in Canada and Their Requirements

There are several mortgages offered throughout Canada depending on the type of home you’re looking to purchase and your specific situation. Looking into each one can prove to be a great way to find out which one is the most ideal for your situation.

Conventional

Those who have 20% or more to put down on their new home should look into a conventional mortgage. This is a traditional mortgage that provides specific insurance and rates based on your credit worthiness.

Open Mortgages

The length of this mortgage is generally shorter than the other options, ranging up to a year to pay back most of the mortgage amount that you’re given. The interest rates are comparable to a closed mortgage.

Variable Rate Mortgages

These are calculated by the financial institution, and you’re given a payment amount every month. The interest rate goes off the market rates for that time. This means that if those rates change, so will your payments over the life of your loan.

Capped Rate Mortgages

The variable rate for these mortgages are capped by the institution you’re borrowing from. This means that even though the rates in the mortgage might change, you’re never charged more interest than what you agreed upon originally. However, there are usually prepayment penalties that come with these mortgage types.

Closed Mortgages

Lock in your interest rate over the length of the loan with a closed mortgage. It provides more stability in terms of a loan, and you can get pretty low rates with this option of mortgage.

Convertible Mortgage

Get a fixed rate on a term of up to a year, where you can go for an extended term to lock the rate in place or a short term with a flexible rate.

Reverse Mortgages

Depending on your age, you may not qualify for this type of mortgage. It allows older individuals to transfer the equity of their home into cash value. This can then be put back into the home and used to pay off the mortgage, if so chosen.

The more equity, and older the homeowner, the more money they’re able to borrow from this type of mortgage.

Each one of these mortgages comes with their own set of specific requirements, with some of them being specific to the financial institution that is going to be used for the loan.

Qualifying for the Loans

To qualify for the mortgage, you have to have a specific credit score, history and debt-to-income ratio. This will show the lender that you’re easily able to afford the loan over the life of it without struggling.

It is recommended that the person have a credit score of 680 or higher to get the best mortgage rates. Some mortgage companies will take lower credit scores, though they do not provide the best rates.

Mortgage Pre-Approval

A mortgage pre-approval is essential when purchasing any home. This is great to do when you’re shopping for the right lender and want to know more about what they can provide you with.

Take a look at your finances and figure out where a comfortable amount per month might be to obtain a house. Different lenders have different stipulations, ex: one might want a 650 credit score, and another would want a 680, and so on.

Having a pre-approval before choosing a home will give you an idea of what you are able to find a house for, as well as what to expect with interest rates and other payment information. They is the loan pre-shopping before choosing an actual home with the loan.

Once you’ve secured your pre-approval from the financial institution, work with a realtor to find the perfect home.

Frequently Asked Questions About Explanation of Mortgages in Canada

Do I absolutely need a pre-approval in order to get a mortgage or home?

No. You do not need to have a pre-approval for a mortgage to get a home but it is highly recommended. This will ensure that you have secured funding already, have an amount you’re safely able to spend, and can purchase a home because you’ve done all of the financial footwork to do so.

What exactly will I need to qualify or to show the mortgage company to get the loan?

You should be prepared to show proof of a lot of things in your life, such as your income, place of residence, proof that you can pay for the closing costs and down payment on the home, the level of debt you have, any other assets yu might have, and proof of employment.

Some institutions might ask for more or less, depending on who you’re going through so it is important to be prepared in the event that something specific is needed to secure your mortgage.

Are there other costs associated with the mortgage?

Yes. There are other costs that you will have to cover when it comes to getting a mortgage. Depending on the amount you’re borrowing, you will have to put a percentage down on the loan. This will be calculated depending on the size of the loan and the specific mortgage you’re getting.

Consider these extra costs associated with a mortgage:

• Moving costs
• Closing costs
• Down payment on the home, depending on the size of the loan, this amount varies
• Legal fees
• Ongoing maintenance and repairs for the home