Mortgage Basics

Why Choose a Mortgage Broker?

Mortgage Broker:

A licensed mortgage specialist who has access to multiple lenders and mortgage rates. A mortgage broker can find the right mortgage product for you, negotiate a better rate on your behalf and pass on volume discounts to you.

Fixed versus Variable

A fixed interest rate means your interest rate will not change throughout the term of your mortgage loan, and neither will the amount of your principal and interest payments. If you’re a first-time home buyer and are happiest knowing exactly what to budget for, a fixed rate mortgage is a wise choice.

With a variable rate mortgage, the interest rate can fluctuate along with any changes in our Mortgage Prime Rate. Your principal and interest payments will stay the same for the term, but if the Mortgage Prime Rate goes down, more of your payment will go towards the principal. If the Mortgage Prime Rate goes up, more will go towards interest.

Rent versus Buy

Should you rent or should you buy your home? It takes more than looking at your mortgage payment to answer this question. The first steps in buying a house are ensuring you can afford to place at least 5% of the purchase price of the home as a down payment and determining your budget. This calculator helps you weed through the fees, taxes and monthly payments to help you make a good financial decision.

What is CMHC?

Canada Mortgage and Housing Corporation (CMHC) – The Canada Mortgage and Housing Corporation is a mortgage default insurance provider. This insurance protects the mortgage lender against loss if a borrower defaults. This also means you could put as low as a 5% down payment or as high as a 15% down payment and CMHC will insure the rest for a premium.

What is LTV?

Loan-to-Value Ratio (LTV):

A term used to express the ratio of your mortgage loan compared to the value of the property. For example, if you borrow $300,000 to purchase a $350,000 home, your LTV ratio is $300,000 / $350,000 or 86%. To make up the full 100%, you would have to make a 14% (100% – 86%) down payment, which in this case would be $50,000. The higher your LTV ratio is, the riskier your loan is for the lender.

What is GDS?

Gross Debt Service Ratio (GDS):

The debt service ratio calculation used to determine how much you can afford to pay each month to own a particular property. Your lender adds up your monthly mortgage payment, property taxes and utilities, and divides the total by your gross monthly income. If the answer equals less than 32 per cent (industry standard), your lender can feel confident in your ability to pay your monthly housing costs. The absolute maximum GDS allowed is 39%.

What is TDS?

Total Debt Service Ratio (TDS):

The debt service ratio calculation used to determine how much you can afford to pay each month to own a property and fulfill your other debt commitments. Your lender adds up your monthly mortgage payment, property taxes, utilities and minimum debt repayments, and divides the total by your gross monthly income. If the answer equals less than 40 per cent (industry standard), your lender can feel confident in your ability to make all of your monthly payments. The maximum TDS allowed is 44%.

Tax Credits for New Home Buyers

Purchasing a home can often seem stressful and overwhelming, BUT IT DOESN’T HAVE TO BE! Get the gist on tax credits and rebates that will put a smile on your face.

Glossary of Mortgage Terms