Mortgages

Mortgages in Canada

For most people, a home purchase is one of the biggest transactions of their life, so it’s important to get the right mortgage for your situation. Whether you are looking for a first mortgage or a mortgage refinancing, we can help connect you with the best mortgage providers in Canada. At Smarter Loans, all companies we deal with have been reviewed and approved by a panel of industry experts, so that you know you are in good hands when you deal with them. Even if you have less than perfect credit, our partners can help you obtain a great mortgage with easy approval. Check out the list of providers below, or apply here so that we can connect you with the best mortgage provider for your situation.

We can help connect you with the top mortgage providers in Canada.

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Top Mortgages Providers in Canada

Company
Amount
Interest Rate
Reviews
Terms
$50,000 and Up
Varies
1 - 10 years
$50,000 - Unlimited
Varies
Varies
$10,000 - $25,000
Varies
12 - 60 months

What is a Mortgage and How Does it Work?

A mortgage is a loan you can use to purchase real estate. When you take out a mortgage with a lender, you’re entering into a legal agreement to borrow money in exchange for the lender taking title of your property.

In order for your mortgage to be approved, you’ll need to satisfy various lender conditions. Common conditions include providing income documents (T4’s, notices of assessment, job letters, etc.), down payment documents (bank and investment statements) and getting a satisfactory appraisal (often at your own expense). Once all the lender conditions have been signed off on, then your mortgage should be approved.

Before your mortgage funds, you’ll need to choose your mortgage payment frequency. Every lender offers different payment frequencies, but the most common ones are weekly, biweekly, semi-monthly and monthly.

mortgages

Most lenders give you the option of accelerated versus non-accelerated payments. Accelerated payments as the name suggests means you’re paying off your mortgage faster. When you make accelerated payments, although you’re making the same number of payments, you’re saving interest because your mortgage payments are slightly higher versus non-accelerated. (You’re paying the equivalent of 13 months of interest instead of only 12 months.)

To better understand how your mortgage payments are calculated, it helps to look at your amortization schedule (a table that your lender should provide you with that summarizes your mortgage payments). You pay the most interest when you initially take out your mortgage. Depending on the size of your mortgage and the interest rate, it’s quite possible that over half of each mortgage payment will go towards interest at the beginning. As you pay down your mortgage, more of your money will go towards principal. The amount going towards principal will finally outweighs the amount going towards interest before you pay it off entirely.

Running into tough financial times? If you fail to repay your mortgage according to its terms, you could face penalties, such as fees, legal action and in a worst case scenario foreclosure or a power of sale. It’s best to be proactive and contact your lender ahead of time and work out an arrangement to avoid an unpleasant situation like this.

By The Numbers:

Fixed rate mortgages are the most popular mortgage types with Canadians. For homes bought with a mortgage in 2018, 68% of homebuyers chose fixed mortgages, while 30% chose variable rate.

 

Source: Mortgage Professionals Canada

Pros:

Cons:

  • Leverage: When you buy a home by way of a mortgage, you’re doing it with the assistance of someone else’s money. This is known as leverage. If you buy your home in a stable real estate market and pay down your mortgage, eventually you’ll have a mortgage-free home that’ s hopefully worth more.

     

  • Good debt: When you take out a mortgage, it’s considered good debt. That’s because you’re investing in an asset that usually goes up in value. Since a home is typically the single biggest investment of your lifetime, it can have a big impact on improving your net worth over the long-run.

     

  • Forced savings: When you buy a home, it’s considered forced savings. If you’re like most people, you’ll most likely put your mortgage ahead of everything else. (That’s because if you stop paying your mortgage, pretty soon you’ll no longer have a roof over your head.) When you eventually pay off your mortgage, you’ll save yourself money by not paying interest anymore.

     

  • Home equity loans: When you pay down your mortgage, you can take out a home equity loan and borrow money from the equity that you’ve built up in your home at a low interest rate.

     

  • Down payment: Lenders will only allow you to borrow so much. You’ll need to save at least the minimum down payment in order to qualify for a mortgage. If you’re buying a property with less than a 20% down payment, you’ll be required to pay mortgage default insurance. Although this can help you get into the housing market sooner, it can be quite costly over the life of your mortgage.

  • Mortgage stress test: Buying a house isn’t as easy as it used to be. You’ll need to pass the mortgage stress test in order to qualify. If you have too much debt or are buying in an expensive real estate market, you may have a tough time qualifying for a mortgage large enough to purchase the home you’d like to live in.

What to Look Out For


 

There’s a lot to a mortgage than simply finding the lowest interest rate. While the interest rate matters, here are three other important factors to consider.

Prepayments:

If your goal is to be mortgage-free sooner, prepayments come in handy. Prepayments are those extra payments that most lenders let you make above and beyond your regular mortgage payments. Common prepayments include lump sum payments, increasingly your payment and doubling up your payment.

While increasing your mortgage payment is helpful to get it paid down sooner, be careful about increasing it by too much. Some lenders tie you to the higher payment schedule. If you lose your job or fall on tough financial times, you might not be able to go back to your original lower mortgage payment amount without facing a penalty.

Penalties:

If you break your mortgage during its terms, you’ll most likely face a mortgage penalty. Not all mortgage penalties are the same though. Some lenders calculate penalties differently than others. Sometimes in exchange for a lower mortgage rate, you’ll face a higher mortgage penalty. That’s why it’s so important to read the fine print and make sure you know what you’re signing up for.

The penalty for variable rate mortgages is typically three months of interest. However for fixed rate mortgage, it’s a little more complicated. You’ll typically pay the great of three months of interest or something called the interest rate differential (IRD). The IRD looks at the interest rate you’re currently paying on your mortgage versus the rate your lender is charging to borrowers today. If rates are substantially lower today, that’s when you can face a hefty mortgage penalty.

Portability:

You can avoid a hefty mortgage penalty by “porting” your mortgage. When you port your mortgage, you take it with you to a new property that you’re buying. If you’re buying a more expensive property, you can “blend and extend” your mortgage by combining your existing mortgage with a new mortgage, all without paying a penalty.
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Frequently Asked Questions About Mortgages


What kind of home can I purchase with a mortgage?

A residential mortgage can be used to purchase many different kinds of home, including newly constructed homes, heritage homes, single-family homes, multi-unit properties, townhouses, condominiums, vacation properties, land, and even mobile homes. Mortgages can also be used to finance home renovations and fees associated with the purchase of a property.

How do I qualify for a mortgage?

Qualifying for a mortgage means clearing some basic financial hurdles. First of all, your credit score will be analyzed. Most lenders have a minimum required credit score of around 600, although options are available for those with lower scores. The size of your down payment, your existing debts, your employment status and your income are all also important in assessing your eligibility. Although traditional lenders, like banks, have fairly uniform and stringent requirements, online lenders and other lenders have plenty of alternatives with more flexible prerequisites.

How do I apply for a mortgage?

Applying for a mortgage requires some paperwork. Start by gathering together your supporting documents. This includes two forms of ID, proof of employment and pay stubs (if you are self-employed, you may need to speak to the lender to verify what income documentation is acceptable), proof of down payment and its source, and other financial documents showing your assets, savings and debts. You will need to combine these items with the application form, and submit for review. Depending on your situation, the lender may ask for additional information.

I’m self-employed. Can I get a mortgage?

Getting a mortgage while self-employed can pose some challenges, as many lenders require proof of employment for the past two years and standard pay stubs. However, this does not mean that you can’t get a mortgage if you lack these. Some lenders will accept tax returns for the past two or three years in lieu of pay stubs; others may require a higher credit score than standard, or a larger down payment; or you may be asked to show business income documents and more detailed bank statements. As long as you can show some form of income and that you can afford the mortgage, you will have some options.

What’s the longest mortgage I can get?

There are two time periods of importance with a mortgage: the term (the length of time you are locked into a specific loan with a specific lender), and the amortization period (the length of time it takes to pay off your entire mortgage). The average mortgage term in Canada is five years, and the range is from six months to ten years. In addition, most Canadian mortgages have an amortization period of 25 years. It is possible to go up to 40 years for amortization, but these longer mortgages have other complications, such as not being insured by the CMHC.

What’s the average interest rate on a mortgage?

Mortgage interest rates can be fixed (set at a single rate for the length of the loan) or variable (fluctuating in accordance with a base index). Which of these you choose will affect the rate you qualify for. Average fixed rates in Canada are currently around 3%; variable rates are a little lower at 2%, but can go up (or down) at any point. A variable mortgage is a bet on the state of the economy, so be sure you know you can afford the changing rate before agreeing to this option.

How much do I need for a down payment?

The amount you need for a down payment depends primarily on the value of the home you’re buying. The government stipulates down payment requirements in a tiered fashion: homes under $500,000 need at least a 5% down payment; homes worth between $500,000 and $1 million need 5% of the first $500,000 and 10% of the remainder of the cost of the home; and homes worth over $1 million need a 20% down payment. Different lenders may have their own, stricter guidelines, depending on your credit score, income level, and their policies.

What fees come with a mortgage?

There are a lot of costs to contend with when buying a house, and you need to account for them all when deciding what you can afford. Mortgages come with multiple fees: application fee, property appraisal fee, home inspection fee (if the lender requires one), title search fee, title insurance fee, and loan origination fee. You also have to contend with legal fees, broker fees, mortgage insurance fees, and potentially others. Generally, all of these together will come to somewhere between 2% and 5% of the loan amount.

What is mortgage insurance?

Mortgage loan insurance is provided by the Canada Mortgage and Housing Corporation (CMHC), an arm of the federal government. It’s required by law for all borrowers with less than a 20% down payment to have this insurance on their mortgage, to help protect lenders in case of default. The cost ranges from 0.5% to 7% of the mortgage, and for simplicity it can be added to the cost of the mortgage and administered by the lender.

What is mortgage pre-approval?

Mortgage pre-approval is where you submit your information to a mortgage lender for consideration, before you find a property to buy. The lender will be able to tell you whether you qualify for a mortgage with them, how much you can borrow, and what rate you qualify for. All of this information can then inform your home search, to ensure you stay within budget and can move quickly when you do find a home to buy. Pre-approval for a mortgage is not mandatory, and lenders still have to officially approve you, but it can be of significant help – especially as with some pre-approvals, you lock in a certain interest rate for a set period of time while you househunt, protecting you against rate changes.

Can I get a joint mortgage?

It’s possible to split a mortgage between up to three people in Canada. This can mean access to better rates, as the combined financial situation of all parties is analyzed. For new buyers or those with eligibility difficulties, getting a mortgage with their partner can be a smart way to access financing. However a joint mortgage does not necessarily equal joint ownership of the property, and it means that the responsibility for paying the mortgage back falls on both partners equally, regardless of income disparity. So entering into this kind of agreement should be done with full understanding of its consequences.

I’m a first-time buyer. What extra help can I get?

The Canadian government has several programs to help first-time buyers get a foot on the property ladder. The First-Time Home Buyer Incentive allows eligible buyers to finance a portion of their purchase through the government. The Home Buyer’s Plan allows you to withdraw up to $35,000 from an RRSP to assist with your purchase. There are also tax incentives: the Home Buyer’s Amount provides up to $5000 in tax credits, and there are also GST and HST rebates available. Always check to see what help you’re eligible for, as it may prove valuable.

Types of Mortgages offered:

  • First Mortgage
  • Residential Mortgage
  • Second Mortgage
  • Commercial Mortgage
  • Mortgage Refinancing
  • Home Equity Line of Credit
  • Fixed Rate Mortgage
  • Debt Consolidation
  • Variable Rate Mortgage
  • Cashback Mortgage
  • First Time Homebuyers
  • Construction Mortgage
  • Self Employed Mortgages
  • Bridge Financing

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