Question 1

What is a Mortgage?

Accepted Answer

A mortgage is a loan specifically used to purchase real estate. The property itself serves as collateral for the loan. You'll make regular payments (usually monthly) over a set period, typically 15-30 years, until the loan is fully repaid.

Question 2

How Much Down Payment Do I Need?

Accepted Answer

In Canada, the minimum down payment depends on the purchase price (rules updated Dec 15, 2024):

• Less than $500,000: 5% minimum
• $500,000 to $1,499,999: 5% on first $500K, 10% on the remainder
• $1,500,000+: 20% minimum

Note: With less than 20% down, you'll need mortgage default insurance (CMHC, Sagen, or Canada Guaranty). The insured mortgage cap was raised from $1M to $1.5M in December 2024.

Question 3

What is Mortgage Default Insurance?

Accepted Answer

If your down payment is less than 20%, you're required to purchase mortgage default insurance. This protects the lender if you default on your loan. The premium is added to your mortgage amount and ranges from 2.80% to 4.00% of the loan amount, depending on your loan-to-value ratio:

• 5%–9.99% down (LTV up to 95%): 4.00%
• 10%–14.99% down (LTV up to 90%): 3.10%
• 15%–19.99% down (LTV up to 85%): 2.80%

A 0.20% surcharge applies if you choose a 30-year amortization. The three approved insurers in Canada are CMHC, Sagen, and Canada Guaranty.

Question 4

Fixed vs Variable Interest Rates

Accepted Answer

• Fixed Rate: Your interest rate stays the same for the entire term. This provides payment stability and protection from rate increases.

• Variable Rate: The rate fluctuates with the prime rate. Payments may change, but you might benefit from rate decreases. Generally starts lower than fixed rates.

Question 5

What is Amortization?

Accepted Answer

Amortization is the total length of time it will take to pay off your mortgage in full.

• Insured mortgages (less than 20% down): Maximum 25 years - except first-time buyers and buyers of newly built homes qualify for up to 30 years (rule effective Dec 15, 2024)
• Conventional mortgages (20%+ down): Up to 30 years

Longer amortization means lower monthly payments but significantly more interest paid overall.

Question 6

What is a Mortgage Term?

Accepted Answer

The term is the length of time your mortgage agreement and interest rate are in effect. Common terms are 1-5 years. At the end of each term, you'll need to renew your mortgage, and can negotiate a new rate and terms. Most mortgages require multiple terms to reach full amortization.

Question 7

What are Closing Costs?

Accepted Answer

Beyond your down payment, expect to pay 1.5-4% of the purchase price in closing costs:

• Legal fees ($1,500-$2,500)
• Home inspection ($400-$800)
• Property appraisal ($350-$600, if required by lender)
• Land transfer tax (varies by province; first-time buyer rebates available in ON, BC, and others)
• Title insurance ($200-$400)
• Home insurance (first year, required at closing)
• Property tax adjustments

Tip: Budget closer to 3-4% in high-cost cities like Toronto or Vancouver where legal and land transfer costs are higher.

Question 8

Why Should I Know My Budget Before Looking at Properties?

Accepted Answer

Knowing your buying power before house hunting is one of the most important steps in the process:

• Avoids heartbreak: Falling in love with a home you cannot finance is emotionally and financially costly.
• Protects your deposit: In Canada, purchase offers typically require a deposit. If financing falls through due to unverified capacity, you risk losing it.
• Gives you negotiating power: Sellers and realtors take pre-qualified buyers more seriously. In competitive markets, it can make the difference between winning and losing a bid.
• Sets a realistic price ceiling: Your qualifying amount is calculated from your specific income, debts, and down payment - not a general estimate. Without it, you are guessing.
• Saves time: Realtors typically will not show properties to buyers who have not verified their financing capacity.
• Stress test reality check: You may qualify for less than you expect once the OSFI stress test is applied. Knowing this early lets you plan accordingly.

Question 9

What is a Co-Borrower and How Does It Help?

Accepted Answer

A co-borrower (also called a co-applicant) is someone who applies for a mortgage with you and shares equal responsibility for repayment. Unlike a co-signer, a co-borrower is typically also on the property title.

How it helps:
• Combined incomes improve your GDS/TDS ratios, increasing your maximum purchase price
• A co-borrower with strong credit can strengthen the overall application

Things to consider:
• Lenders assess the full profile of all borrowers - a co-borrower with high debt or poor credit can hurt the application
• Both parties are equally liable for the mortgage regardless of who makes payments
• Common co-borrowers: spouses, partners, parents, or siblings

Note: A co-signer differs from a co-borrower - a co-signer guarantees the loan but may not be on title and has no ownership rights.

Question 10

What is the Mortgage Stress Test?

Accepted Answer

The OSFI Stress Test (Guideline B-20) requires all federally regulated lenders to qualify borrowers at a rate higher than their actual contract rate. You must prove you can afford payments at:

• The higher of: your contract rate + 2%, OR the OSFI floor rate (currently 5.25%)

For example, if your contract rate is 4.34%, you qualify at 6.34%. This reduces your buying power by roughly 15-20% compared to qualifying at your actual rate.

The stress test applies to:
• All new mortgages
• Refinances
• Renewals where you increase the loan amount

Exemption (Nov 2023 OSFI update): Uninsured mortgage holders switching lenders at renewal without increasing the loan amount are no longer subject to the stress test — making it easier to shop for better renewal rates.

Question 11

What Incentives Exist for First-Time Buyers?

Accepted Answer

Canada offers several programs for first-time buyers:

• FHSA (First Home Savings Account): Tax-free savings account - contribute up to $8,000/year ($40,000 lifetime). Contributions are tax-deductible and withdrawals for a home purchase are tax-free.

• HBP (Home Buyers Plan): Withdraw up to $60,000 from your RRSP tax-free for a home purchase. Must repay over 15 years.

• First-Time Home Buyers Tax Credit: $10,000 non-refundable federal tax credit (~$1,500 in tax savings).

• Land Transfer Tax Rebate: Available in Ontario (up to $4,000) and some other provinces for first-time buyers.

• 30-Year Amortization: First-time buyers with insured mortgages can now access 30-year amortization (Dec 2024 rule), lowering monthly payments.

Question 12

Should I Get Pre-Approved Before I Start Looking at Properties?

Accepted Answer

Yes! Mortgage pre-approval:

• Shows sellers you're a serious buyer
• Locks in an interest rate (typically 90-120 days)
• Helps you understand your budget
• Speeds up the purchase process
• Costs nothing and involves a credit check

Pre-approval is not a guarantee, but gives you confidence when house hunting.

Question 13

How Much Can I Afford?

Accepted Answer

Lenders use two key ratios (current OSFI/CMHC limits):

• GDS (Gross Debt Service): Housing costs should be <=39% of gross income
• TDS (Total Debt Service): All debt payments should be <=44% of gross income

Housing costs include mortgage payment (at the stress test rate), property taxes, heating ($150/mo estimate), and 50% of condo fees. These ratios are applied at the stress test rate - not your actual contract rate - making qualification stricter than it appears.

Question 14

What is Mortgage Refinancing?

Accepted Answer

Refinancing means replacing your existing mortgage with a new one, often to:

• Get a better interest rate
• Access home equity for renovations or debt consolidation
• Change your amortization period
• Switch from variable to fixed rate (or vice versa)

Note: Breaking your mortgage early may incur penalties. Refinancing also involves legal fees and appraisal costs.

Question 15

Can I Pay Off My Mortgage Early?

Accepted Answer

Most Canadian mortgages allow prepayment options:

• Lump sum payments: Usually 10-20% of original principal annually
• Increased payments: Often up to 20% more per payment
• Double-up payments: Make extra payments when you can

Check your mortgage contract for specific prepayment privileges. Some lenders charge penalties for paying beyond these limits.

Question 16

What are Prepayment Penalties?

Accepted Answer

If you break your mortgage contract early, you may face penalties:

• Variable Rate: Usually 3 months' interest
• Fixed Rate: Greater of 3 months' interest or Interest Rate Differential (IRD)

IRD can be substantial, especially if rates have dropped. Calculate penalties before refinancing or breaking your mortgage.

Question 17

How Does Credit Card Debt Affect My Mortgage Qualification?

Accepted Answer

When lenders calculate your Total Debt Service (TDS) ratio, they do not use your actual monthly credit card payment — they apply the 3% Rule.

The 3% Rule (CMHC / OSFI Standard):
Lenders use the greater of:
• Your actual minimum monthly payment, OR
• 3% of your total outstanding credit card balance

Example:
You have $20,000 in credit card debt and pay $300/month.
→ 3% × $20,000 = $600/month
→ Lender uses $600 in your TDS (not $300)

Why it matters:
Paying the minimum on a high balance can silently reduce your qualifying mortgage amount by tens of thousands of dollars.

Tip: Pay down your credit card balances before applying — even partial reductions meaningfully improve your TDS ratio.

Note: Lines of Credit (LOCs) follow a similar rule. Car loans use the actual contractual monthly payment.

Question 18

Does Rental Suite Income Count Toward My Mortgage Qualification?

Accepted Answer

Yes — but only 50% of it.

The 50% Rule (CMHC Standard):
If the property you are purchasing has a legal rental suite (a self-contained unit with a private entrance, kitchen, and bathroom), most prime lenders will add 50% of the expected monthly rent to your gross qualifying income.

How it works:
• A property with one 2-bedroom suite renting for $1,800/month
→ $1,800 × 50% = $900/month added to your income
• This improves your GDS and TDS ratios, increasing your maximum purchase price

What qualifies as a rental suite?
• A self-contained, legally built secondary unit within the property
• Also called: basement suite, in-law suite, laneway house, garden suite
• Short-term rentals (Airbnb) generally do not qualify

Where to find average rents:
• Vancouver Island (average): 1BR $1,000–$1,300 | 2BR $1,800–$2,200
• Lenders may request a market rent appraisal or comparable rental listings to confirm the amount

Important: The suite must be legal and permitted by the municipality. An unpermitted suite is unlikely to be recognized by lenders.

Question 19

How Is Part-Time Employment Income Treated for Mortgage Qualification?

Accepted Answer

Part-time income is treated more conservatively than full-time income by prime lenders. The rules differ based on whether your hours are guaranteed.

Permanent Part-Time (Guaranteed Hours in Writing):
• If your employment letter confirms a fixed number of hours per week, lenders can use your income without a 2-year history requirement
• Treated similarly to permanent full-time employment
• Bring a current Letter of Employment (LoE) confirming your guaranteed hours

Variable Part-Time (Irregular or Non-Guaranteed Hours):
• Requires a 2-year income history to qualify
• Lenders average your T4 slips from the last 2 years — these can come from different employers
• If you have less than 2 years of T4 history for part-time work, that income may not be usable for qualification

Example:
• 18 months part-time at Job A + 6 months at Job B = 2-year picture ✓ (most lenders accept this)
• 14 months at current part-time job, no prior T4s = income may not qualify ✗

What about switching jobs?
• If you recently moved from part-time to full-time (permanent), only your new job matters — full-time has no minimum history requirement
• If you switched from one part-time job to another, the lender counts your combined T4 history across both employers

Note: Some lenders apply stricter rules than the CMHC baseline — always confirm with your mortgage broker or agent.

Question 20

Mortgage Broker vs Bank: What's the Difference?

Accepted Answer

• Mortgage Broker: Works with multiple lenders to find you the best rate and terms. Free service (paid by lenders). Can access more options including private lenders.

• Bank: Offers only their own mortgage products. May have special promotions for existing customers.

Brokers often secure better rates, but banks may offer relationship benefits like bundled accounts.

Question 21

What Credit Score Do I Need?

Accepted Answer

Credit score requirements in Canada:

• 680+: Qualify for best rates with major lenders
• 600-679: May qualify but with higher rates
• Below 600: Limited options, may need alternative lenders

Beyond the score, lenders review your credit history, looking for on-time payments and responsible credit use. Check your credit report before applying and dispute any errors.

Question 22

What is Home Equity?

Accepted Answer

Home equity is the portion of your home that you actually own:

Equity = Home Value - Outstanding Mortgage

For example, if your home is worth $600,000 and you owe $400,000, you have $200,000 in equity. Equity grows as you pay down your mortgage and/or your home appreciates in value. You can borrow against equity through refinancing or a HELOC.

Question 23

Can I Transfer My Mortgage When I Move?

Accepted Answer

Yes! Many mortgages are portable, meaning you can transfer your existing mortgage to a new property:

• Keeps your current interest rate
• Avoids prepayment penalties
• Must qualify for the new property
• May need to 'blend and extend' if borrowing more

Portability is especially valuable if you have a low rate locked in. Not all mortgages are portable. Check your terms.

Question 24

What Happens at Mortgage Renewal?

Accepted Answer

At the end of your mortgage term (not amortization), you'll need to renew:

• Your lender will send a renewal offer 30-120 days before term end
• You can negotiate a new rate and terms
• You can switch lenders without penalty
• Shop around! Don't just accept the first offer

Renewal is a great time to reassess your mortgage strategy and potentially save thousands with a better rate.

Question 25

High-Ratio vs Conventional Mortgage?

Accepted Answer

• High-Ratio Mortgage: Down payment less than 20%. Requires mortgage default insurance (CMHC, Sagen, Canada Guaranty). Maximum 25-year amortization - except first-time buyers and new build buyers qualify for 30 years (Dec 2024 rule). Maximum insured purchase price: $1.5M.

• Conventional Mortgage: Down payment 20% or more. No insurance required. Can choose up to 30-year amortization.

While insurance adds cost, high-ratio mortgages allow you to enter the market sooner with less savings.

Question 26

Can I Get a Mortgage If I'm Self-Employed?

Accepted Answer

Yes, but requirements are stricter:

• Typically need 2 years of income history
• Must provide Notice of Assessment from CRA
• Business financial statements may be required
• Larger down payment may help (20%+)
• May need a stated income mortgage (higher rates)

Work with a mortgage broker who specializes in self-employed borrowers. They know which lenders are more flexible.

Question 27

What is a Second Mortgage or HELOC?

Accepted Answer

• Second Mortgage: A separate loan secured against your home equity. Higher interest rates than first mortgages. Used for renovations, debt consolidation, or major purchases.

• HELOC (Home Equity Line of Credit): Revolving credit line secured by your home. Borrow as needed up to your limit. Interest-only payments. Rates typically prime + 0.5%.

Both use your home as collateral. Failure to pay could result in foreclosure.

Question 28

How Are Property Taxes Paid?

Accepted Answer

You have two options:

• Through Your Mortgage: Lender collects taxes monthly with your payment and pays the municipality on your behalf. Ensures taxes are always paid on time.

• Directly: You pay the municipality yourself (annually or in installments). Requires discipline but you keep the money longer.

Some lenders — particularly for high-ratio mortgages (less than 20% down) — may require taxes to be collected as part of your mortgage payment. Others offer the choice regardless of your down payment. Confirm the arrangement with your lender at the time of approval.

Question 29

Do I Need Mortgage Life Insurance?

Accepted Answer

Mortgage life insurance pays off your mortgage if you die:

• Offered by lenders at closing
• Premiums stay the same, but coverage decreases as you pay down mortgage
• Beneficiary is the lender, not your family

Alternative: Term life insurance is often cheaper and your family receives the payout directly, giving them more flexibility. Compare both options before deciding.

Question 30

Can I Rent Out My Property?

Accepted Answer

It depends on your mortgage type:

• Owner-Occupied Mortgage: You must live in the property. Renting requires lender approval and rate may change.
• Investment Property Mortgage: Designed for rentals. Higher rates and larger down payment (20% minimum).

Renting without permission violates your mortgage terms and could trigger full repayment. Always inform your lender and get proper insurance.

Question 31

What Documents Do I Need to Apply?

Accepted Answer

Typical mortgage application documents:

• Proof of income (pay stubs, T4s, Notice of Assessment)
• Employment letter
• Photo ID
• Proof of down payment (bank statements, investment statements)
• List of assets and liabilities
• Property information (purchase agreement, MLS listing)
• Credit report consent

Self-employed? Add 2 years of tax returns and business financial statements.

Question 32

What If I Miss a Mortgage Payment?

Accepted Answer

Missing payments has serious consequences:

• Grace Period: Usually 15 days, then late fee applied
• After 30 days: Reported to credit bureaus, credit score drops
• After 90 days: Mortgage in default, lender may start foreclosure

If you're struggling, contact your lender immediately. Many offer:
• Payment deferrals
• Extended amortization
• Interest-only payments temporarily

Proactive communication can prevent foreclosure and protect your credit.

Mortgage 101

Common Questions