First-time home buyers often have many questions about mortgages. Here are the most common questions they ask, along with quick answers to each.
BASIC MORTGAGE QUESTIONS
1. What is a mortgage, and how does it work in Canada?
A mortgage is a loan used to buy property. You borrow from a lender and repay it over time with interest. The home acts as collateral — if you don’t pay, the lender can repossess it.
2. What types of mortgages are available in Canada (fixed, variable, hybrid)?
Fixed-rate mortgages lock in a rate for the term, while variable rates can fluctuate. Hybrid or combination mortgages split your loan between fixed and variable rates.
3. What is the difference between a bank and a mortgage broker in Canada?
Banks offer their own mortgage products. Mortgage brokers work with multiple lenders to find you the best deal. Brokers often have access to special rates but may charge a fee (usually paid by the lender).
4. What’s the difference between being pre-qualified and pre-approved?
Pre-qualification is a quick estimate of what you might borrow. Pre-approval is a more formal process with a credit check and supporting documents. It gives you a specific amount and rate for 60–120 days.
AFFORDABILITY AND BUDGETING FOR MORTGAGES
1. How much mortgage can I afford based on my income and expenses?
Lenders look at your gross debt service (GDS) and total debt service (TDS) ratios. Typically, housing costs shouldn’t exceed 32–39% of your gross monthly income, including debts.
2. What’s the minimum down payment required in Canada?
You need at least 5% down for homes under $500,000. For amounts between $500,000–$999,999, it’s 5% on the first $500,000 and 10% on the rest. Homes over $1 million require 20%.
3. What is the First-Time Home Buyer Incentive, and am I eligible?
It’s a federal program offering 5% or 10% of your home’s purchase price as a shared equity loan. You must have a household income under $120K ($150K in some areas) and meet borrowing limits.
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4. How do I use the First Home Savings Account (FHSA)?
The FHSA lets you save up to $40,000 tax-free for a home. Contributions are tax-deductible like RRSPs, and withdrawals for a qualifying home are tax-free like a TFSA.
5. What is the Home Buyers’ Plan (HBP), and how do RRSPs factor in?
The HBP lets you withdraw up to $60,000 from your RRSP tax-free to buy your first home. You must repay it over 15 years, starting the second year after withdrawal.
MORTGAGE RATES, TERMS AND INSURANCE
1. Should I choose a fixed-rate or variable-rate mortgage?
Fixed rates give stability — your payment stays the same. Variable rates may start lower but can change with the Bank of Canada rate. Choose based on risk tolerance and economic outlook.
2. What is the difference between amortization and mortgage term?
The term is how long your contract lasts (e.g., 5 years), while amortization is the total time to repay the loan (e.g., 25 years). You’ll renew terms multiple times during amortization.
3. What is the typical amortization period in Canada?
Most mortgages have a 25-year amortization. If your down payment is 20% or more, you may qualify for a 30-year period, which lowers monthly payments but increases total interest.
4. What is mortgage default insurance (CMHC/Genworth/Canada Guaranty)?
It protects lenders if you default. Required if your down payment is under 20%. Premiums are added to your mortgage and vary based on loan size and down payment amount.
5. Do I need CMHC insurance if I put down less than 20%?
Yes. It’s mandatory by law to protect lenders when borrowers have a high loan-to-value ratio. It enables buyers with less than 20% down to still get approved.
6. How do I calculate my total cost with interest over time?
Use a mortgage calculator (https://www.scotiabank.com/ca/en/personal/mortgages/mortgage-calculator.html) to estimate monthly payments and total interest over the amortization. The longer the amortization and the higher the rate, the more interest you’ll pay in total.
MORTGAGE PROCESS AND REQUIREMENTS
1. What documents do I need to get pre-approved or approved for a mortgage?
You’ll need ID, employment letters, pay stubs, tax returns, proof of down payment, bank statements, and possibly your credit report. Self-employed buyers may need additional documentation.
2. What is a stress test, and how does it affect my approval?
The stress test ensures you can afford payments if rates rise. You must qualify at the higher of 5.25% or your rate plus 2%. It may reduce how much you can borrow.
3. How long does mortgage approval take in Canada?
It can take a few days to a week, depending on how fast you submit documents and how complex your finances are. Conditional approval usually comes first, followed by final approval.
4. What credit score is considered “good” for mortgage approval?
A score above 680 is ideal for most lenders. Some accept scores as low as 600, but you may face higher rates or need a larger down payment.
QUESTIONS ABOUT MORTGAGE FEES, COSTS AND PAYMENT
1. What are closing costs, and how much should I budget (e.g., 1.5–4% of purchase price)?
Closing costs include land transfer tax, legal fees, title insurance, and adjustments. Expect to pay 1.5–4% of the purchase price here in Haldimand and Niagara — it would be higher in large cities like Toronto with additional land transfer tax.
2. What other fees are involved — appraisal, legal, land transfer tax?
You may pay for an appraisal ($300–$500), lawyer fees ($1,000–$2,500), title insurance, and provincial land transfer taxes. Some costs vary by province and whether you’re a first-time buyer.
3. How do property taxes and utilities factor into monthly payments?
Property taxes may be included in your mortgage payments or paid separately. Utilities are not part of your mortgage but must be budgeted monthly. Ask for recent bills from sellers.
4. Can I make lump sum payments or increase my monthly payments?
Yes, most lenders allow annual lump sums (e.g., up to 15–20%) or increases to monthly payments. These prepayment privileges help reduce your principal faster and save on interest.
FUTURE CONSIDERATIONS WHEN IT COMES TO A MORTGAGE
1. What happens at the end of my mortgage term — do I renew or refinance?
You’ll renew your mortgage at a new rate and term. You can also switch lenders or refinance to access equity. Always shop around — your current lender isn’t guaranteed to offer the best rate.
2. Can I transfer or “port” my mortgage if I move?
Many lenders let you port your mortgage, keeping the same rate and terms when buying a new home. You must meet lender conditions and usually buy and sell within a short window.
3. What are the penalties for breaking a mortgage early in Canada?
Penalties vary by lender and rate type. For fixed-rate mortgages, it could be several thousand dollars. Variable-rate penalties are typically three months’ interest. Always ask for a penalty estimate.
4. What happens if I miss a payment or lose my job?
Missing a payment can affect your credit and incur fees. Contact your lender immediately — they may offer deferrals or payment plans. Mortgage protection insurance can help in case of job loss.
5. How can I pay off my mortgage faster in Canada?
Make extra payments, increase your payment frequency (e.g., bi-weekly accelerated), or use lump-sum prepayments. Reducing your amortization saves significant interest over time.
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Please don’t hesitate to contact us with any questions you may have about this or any other topic related to your insurance.
