The debt ratio
First and foremost, the borrower must inquire as to the maximum amount of financing he can obtain based on his income, financial commitments and credit rating. The team is specially trained to help you optimize your options.
All financial institutions are governed by federal legislation that governs financing in Canada. Thus, they must take into account the ratio of indebtedness in calculating the maximum amount of a mortgage. Once the borrower knows the maximum amount of borrowing possible, he can then direct his shares, using his mortgage broker, to properties that are within his budget.
The mortgage rate
In periods of economic growth, interest rates are rising to control the level of indebtedness of Canadians. In a recession, rates are going down, stimulating the economy by making financing more accessible to consumers and businesses.
Since most buyers choose to amortize their acquisition over a long period of time, they face the risk of rate fluctuations during mortgage renewals. It is for this reason that the law requires financial institutions to qualify their clients at a rate set by the government, not the actual rate. This allows consumers to be able to adapt to possible mortgage rate increases.
Variable-rate or fixed rate?
A borrower can opt for a variable rate mortgage, fixed or combined. This last option can be explained to you by your mortgage broker.
One of the ways to hedge against the risk of rate fluctuation for a predetermined period of time is to opt for a fixed mortgage rate over a period of up to ten years.
When acquiring the first property, new homeowners quickly realize there are unforeseen expenses, such as:
- repairs on the property;
- a new fence;
- expenses incurred by professionals (surveyor, notary, etc.)
Thus, it may be wiser to opt for the stability of payments for a certain period, the time to adjust its budget accordingly. However, when renewing, the borrower will have to revise their priorities according to the new rates offered by their financial institution.
The floating rate, meanwhile, follows market fluctuations throughout your term. Since it is lower than the fixed-rate, it allows you, among other things, to repay your mortgage faster and therefore to save interest. However, your payments also fluctuate each month, depending on the application of the new rate in effect. Be aware that if this method makes you nervous, your banking institution, subject to certain conditions, can set your rate in the term.
The down payment
Once the maximum loan amount is set, the borrower must ensure that he has the minimum amount requested for the initial down payment.
Financial institutions can finance up to 80% of the purchase price and the market value without an insurer. However, if a borrower does not have the 20% down payment, the loan must be provided by a mortgage insurer. The down payment must then be at least 5%. In addition, an insurance premium will be required and added to the amount of the mortgage.