Mortgage Basics

It's always a great idea to shop for a mortgage before starting the home buying process. The purpose of a mortgage pre-approval is to provide you with a financial commitment from your partnering mortgage broker or financial institution, as well as, to help you understand just how much you can afford to borrow.

The word mortgage is derived from the French word mortir literally translated as "to die". The original idea during feudal times was that people would sooner die than pay off their mortgage. But things have changed. Now we have legislation in place that dictate the overall period that it will take to fully pay off the mortgage, known as the amortization period. Whereas the amortization period may be 25 years, mortgages are negotiated for a shorter term, typically a five-year term. The interest rate is set for the duration of this term making payments more predictable.

So, How much can you borrow?

Lenders follow two affordability rules to determine how much you can afford:

Your monthly housing costs should not exceed 32% of the gross monthly income from all persons on title. Housing costs include principal, interest, taxes and heating expenses. This figure is known as your Gross Debt Service (GDS) ratio. When purchasing a condominium, 50% of the condominium fees are added in the calculation.
Lenders will also want to ensure that your total monthly debt load does not exceed 40% of the gross monthly income from each person on title. This calculation includes housing costs and other debts such as car loans/leases and credit card payments. This figure is known as your Total Debt Service (TDS) ratio.

Main types of mortgage products

Conventional Mortgage applies when your downpayment is 20% or more of the purchase price.
Hi-Ratio Mortgage applies when your downpayment is less than 20% of the purchase price.

Rate Guarantees

Depending on policy, mortgage brokers and financial institutions may guarantee your interest rate for a selected term up to 120 days or more prior to your closing date. This time frame must encompass the date set for completion.

Mortgage Loan Insurance

Provided by Genworth Financial and CMHC against mortgage default for high ratio mortgages where the down payment amount is less than 20%.

Required for High Ratio Mortgage - every loan in excess of 80% of the purchase price.
Protects the Lender in the event of buyer default.
Available through your lender from CMHC or private insurer.
Premiums are based on the amount of the loan.
Premium costs may be added to your total mortgage payment or paid up front.

Making Use of your Registered Retirement Savings Plan (RRSP)

If you're eligible, the RRSP Home Buyers Plan allows you and your spouse to withdraw funds from your RRSP to help you purchase or build a home.

Refer to our Government Home Ownership Incentives page for more information.

Bridge/Interim Financing

Short-term financing to provide a buyer with the downpayment and bridge the gap between the closing date on the purchase of a new home and the closing date on the sale of the current home. The need for this type of financing often results from mismatched closing dates. Certain conditions apply.

Insuring Your Mortgage

Separate from Mortgage Loan Insurance, this insurance product protects your mortgage in the event of a job loss or life loss and is offered by most financial institutions.