FAQs

FAQs
Questions

Affordability

What is total debt service ratio?

What is gross debt service ratio?

How can I determine what mortgage amount is affordable to me?

How do lenders use the debt service ratios to determine the size of mortgage that they can give you?

What programs and grants are available to help make property purchasing more affordable to me?

Amortization & Terms

What is the Amortization Period of a Mortgage?

How does the Amortization Period affect the size of each payment?

How does the Amortization Period affect the total amount of interest paid?

What is the term of a Mortgage?

Why and how does the interest rate vary by the term of the mortgage?

Default

What are my options if I lose my source of income and am no longer able to pay off my mortgage?

What are my options if I am late on a mortgage payment? What are the penalties?

Miscellaneous

What is the difference between Co-signer and a Guarantor?

What is a second mortgage and how do I obtain one?

How can I use my RRSPs for my downpayment?

Mortgage Insurance

What is CMHC Mortgage Insurance?

Which types and sizes of mortgage typically require CMHC Mortgage Insurance?

What are the sizes of the insurance premiums for CMHC Mortgage Insurance?

If I have CMHC Mortgage Insurance, can I still get the same overall mortgage rates that others with larger down payments can get?

What is Mortgage Life Insurance?

What benefits does Mortgage Life Insurance offer?

Where can I obtain Mortgage Life Insurance?

Payment Options

How often do I have to make my Mortgage payments?

What are the advantages of more frequent payment options?

How much of my mortgage am I allowed to pay down on top of my regular payments without penalty?

What is the advantage to making additional payments?

What methods can I use to make my mortgage payments (e.g. credit card, cheque, automatic withdrawal from bank account?

What is an open mortgage?

What is a closed mortgage?

What are the rate differences between the open and closed mortgages?

Sources for Financing

What are the sources for mortgage financing?

Which one would be the best source for mortgage financing for me?

Answers

Affordability

What is total debt service ratio?

– The ratio of the annual mortgage payments such as principal, interest,
property taxes and estimated heating costs plus payments on all other debts
such as bank loans, car loans, credit card debt, etc. to the annual gross
income of the borrower.

What is gross debt service ratio?

– The ratio of annual principal, interest, property taxes and estimated heating costs to the gross annual income of the mortgagor.

How can I determine what mortgage amount is affordable to me?

– Use the mortgage calculators on our site to determine what mortgage amount will be affordable to you.

www.citywidemortgage.ca/calculators.php

How do lenders use the debt service ratios to determine the size of mortgage that they can give you?

– Most lenders have a certain maximum gross debt service ratio or total debt service ratio that they will allow their borrowers to have.

– Most lenders will not grant mortgage amounts that will create a gross debt service ratio of 40% or more for the borrowers.

What programs and grants are available to help make property purchasing more affordable to me?

– Home owner grants can result in a reduction in your property taxes by as much as $570.00.

– Some buyers may be property purchase tax exempt (see Do You Have to Pay Property Purchase Tax? in our Buying a Home Section).

www.citywidemortgage.ca/buying_a_home.php

Amortization & Terms

What is the Amortization Period of a Mortgage?

– The certain period of time during which mortgage debt will be paid off by means of
regular equal payments composed of principal and interest.

How does the Amortization Period affect the size of each payment?

The longer the amortization period, the more time is given to pay off the mortgage date. Hence, each payment is smaller than it would be during a shorter amortization period.

How does the Amortization Period affect the total amount of interest paid?

– For longer amortization periods, mortgage debt is being borrowed over a longer period of time, which results in the total amount of interest being paid over the life-time of the mortgage being larger than for a shorter amortization period.

What is the term of a Mortgage?

– The term is the actual length of time that the money in a particular loan is loaned out, at a certain rate of interest.

Why and how does the interest rate vary by the term of the mortgage?

– For fixed rate mortgages, the interest rate is incrementally higher as the term is longer. This is because the lender is guaranteeing the rate for a longer period of time and the higher rate compensates for possible increases in the future.

Default

What are my options if I lose my source of income and am no longer able to pay off my mortgage?

– Obtain legal advice from a lawyer.

What are my options if I am late on a mortgage payment? What are the penalties?

– Penalties will vary from lender to lender and will also depend on how late you are. If you know you will be late it is best to contact the lender immediately and make arrangements. Most lenders will work with you to get back on track in as short a time as possible. Avoiding the lender will usually cause great problems and possible foreclosure action.

Miscellaneous

What is the difference between Co-signer and a Guarantor?

– A Co-signer is placed on the mortgage and is registered on the title.

– A Guarantor signs a document that personally guarantees the mortgage.

– Most banks will do both. Some banks prefer that co-signer live on the property.

What is a second mortgage and how do I obtain one?

– See our second mortgage section above under our services for more details.

www.citywidemortgage.ca/second_mortgage.php

How can I use my RRSPs for my downpayment?

– Please see our Using Your RRSP Towards Your Down Payment section.

www.citywidemortgage.ca/buying_a_home.php

Mortgage Insurance

What is CMHC Mortgage Insurance?

– Mortgage loan insurance is a protection for lenders against mortgage payment default.

Which types and sizes of mortgage typically require CMHC Mortgage Insurance?

– When the down payment for the property is 20% of the property sale price or less, lenders will require CMHC Mortgage Insurance.

– CMHC mortgage insurance may be required for other mortgages in some circumstances as well. Please talk to one of our mortgage specialists for more information.

What are the sizes of the insurance premiums for CMHC Mortgage Insurance?

– Insurance premiums are one-time payments (paid when the mortgage is registered) and amount to a certain percentage of the total mortgage size. Generally, the smaller the downpayment, the larger the insurance premium payment:

5% down – 2.75%
10% down – 2.00%
15% down – 1.75%
20% down – 1.00%

These are based on a 25 year amortization. For each additional 5 years up to a maximum of 35 years add 0.20% to each level. For example, 35 years on 5% down would be 3.15%.

e.g. For a mortgage of $160,000.00 on a property sold at $200,000.00 (20% downpayment – $40,000.00), the amount of the insurance premium will be 1% * $160,000.00 = $1,600.00 premium.

If I have CMHC Mortgage Insurance, can I still get the same overall mortgage rates that others with larger down payments can get?

– Yes. Having a smaller downpayment and having to obtain mortgage insurance will not necessarily mean you have to pay higher rates.

What is Mortgage Life Insurance?

– Mortgage Life Insurance guarantees that your remaining mortgage at the time of your death will not be a burden to your estate. It is separate from CMHC Mortgage Insurance.

What benefits does Mortgage Life Insurance offer?

– Upon the death, terminal illness, or accident of the mortgage principal, the mortgage life insurance will pay the following benefits:

– Your entire outstanding mortgage principal amount, less outstanding arrears, up to $500,000.

– Up to five years of accrued interest.

– Any debit balance in your tax account.

Where can I obtain Mortgage Life Insurance?

– Many private insurance companies and banks offer mortgage life insurance.

Payment Options

How often do I have to make my Mortgage payments?

– There are various options, including:
– Monthly
– Semi-monthly.
– Bi-weekly.
– Bi-weekly (accelerated)
What are the advantages of more frequent payment options?

– Generally, the more frequent the payment option, the less total interest you will pay in the long run.

– Bi-weekly and bi-weekly accelerated payments will result in less interest being paid in the long run than monthly or semi-monthly payment options.

How much of my mortgage am I allowed to pay down on top of my regular payments without penalty?

– Each lender has a pre-determined amount that is allowed to be paid over and above the regular payments (pre-payment options). Please speak to your Mortgage Planner for exact amounts based on the lender.

What is the advantage to making additional payments?

– It will allow you to pay off the mortgage more quickly by decreasing the principal upon which the interest is calculated.

– It will also decrease the total interest that you have to pay in the long-run.

– Ask one of our mortgage specialists for more details!

What methods can I use to make my mortgage payments (e.g. credit card, cheque, automatic withdrawal from bank account?

– All mortgage payments must be taken from a chequing account normally.

What is an open mortgage?

– An open mortgage allows a borrower to repay most or all of the loan before the end of the term without penalty.

– Open mortgages usually have shorter terms than closed mortgages.

What is a closed mortgage?

– A closed mortgage can’t be paid out fully, renegotiated or refinanced before maturity without paying the lender a compensation penalty.

What are the rate differences between the open and closed mortgages?

– Depending on the economic climate, an open mortgage may have higher or lower interest rates than a closed mortgage. See our learning centre above for more details.

Sources for Financing

What are the sources for mortgage financing?

– There are a variety of individuals and organizations that are involved in mortgage financing. Some include:
– Banks.
– Credit unions.
– Insurance companies.
– Private individuals.
– Loan companies.
– Trust fund companies.
– Pension funds.
– Other financial companies.

Which one would be the best source for mortgage financing for me?

– Your best option is to speak with one of our Mortgage Planners.