Frequently Asked Questions

View all answers
 
Q. What is a Mortgage?
A.

A mortgage is nothing more than a large loan secured by real estate. If you keep this simple concept in mind, everything else will fall into place nicely. For most people, the big unknown is figuring out how much of a mortgage they can get. Again, it's fairly simple. Generally, you will qualify for a mortgage of about three times your family's gross annual income-assuming that you have steady employment, a good credit history and relatively little debt.

Q. Should I rent or buy?
A.

Do you enjoy moving often? Do you prefer using your savings for such things as vacations, retirement or starting your own business? Do you enjoy not having to worry about regular maintenance and repairs?

If you answered yes to any of these questions, you may not be ready to own a home yet. While you probably have a lot of good reasons for wanting to buy a home, you also have to consider your reasons for not wanting to.

Remember that buying a home is one of the biggest emotional and financial decisions you'll ever make, so prepare yourself to make a knowledgeable decision.

Although buying a home usually seems like a great idea, it is important to understand what home ownership involves. Being a homeowner is something to be proud of, but it also means having to invest money, time and energy, and taking on added responsibilities. Before you decide to buy a home, make sure you're ready.

Here are some of the main advantages of owning a home:

  • Financial Security. If housing prices rise, your home will provide you with some financial security due to capital appreciation.
  • Flexibility. You can decorate or renovate your home to meet your own personal tastes and needs.
  • Stability. Not being vulnerable to the whims of landlords and roommates.

Here are some of the main disadvantages of owning a home:

  • Financial Stress. Pulling together a down payment, meeting regular mortgage payments and other ongoing costs will tie up a lot of your cash, and can put considerable stress on your finances.
  • Maintenance. Keeping your home in good shape requires time and money.
  • Higher Costs. You may pay more each month for housing than you did as a renter. There are also extra costs for maintenance and property taxes.
  • More Responsibility. You alone are responsible for payments, repairs and maintenance.

  • Home ownership can be an affordable and a great investment. For what you are paying in rent, you could own your home.

Q. What are the steps to getting a mortgage?
A.

Just so you know, Buyingblock can assist you with all the steps or any step where you would like our help.

  • Make the decision to rent or buy.
  • Put together a team of professionals who can help you.
  • Determine the cost of a mortgage.
  • Create a budget to buy a home.
  • Define the house price you can afford.
  • Do a credit check on yourself.
  • Determine the downpayment required.
  • Understand how banks make their decisions.
  • Get a mortgage pre-approval.
  • Do you need mortgage insurance?
  • Decide what to buy.
  • Make an offer to purchase (aka Agreement of Purchase and Sale).
  • Choose the type of mortgage.
  • Act once your offer has been accepted.
  • Maintain your investment.

Q. How do I choose a mortgage?
A.

Today, financial marketing gurus have been working overtime to give consumers a myriad of mortgage options. Choice is great, but it does tend to muddy the waters.

Try to keep it simple. This principle works in almost every facet of life, including mortgages. Weeding through all of the marketing gimmicks and sticking with the basic options you need in a mortgage will save you a lot of grief.

The most important issue with any mortgage is the cost. Your goal is to minimize your cost, so be very conscious of interest rates and how they are calculated. Don't be inticed by low introductory rates; these are usually gimmicks. You need to look at your effective rate over the full term of your mortgage. Most mortgages have their interest calculated semi-annually, but there are several new products on the market that compound their interest monthly. The more often a mortgage rate is compounded, the higher your effective rate is. In other words,: semi-annually is good, monthly is bad.

Something else that's important is your mortgage term. The term you choose will usually dictate how long your interest rate is guaranteed for. Typically, the yield curve for mortgage rates slants upwards and to the right, meaning that the longer your term, the higher yor interest rate. Choosing the long term mortgage is a form of insurance. You are guaranteed that your interest rate and payment amount will not change for the term you choose. Whether you need this type of insurance is dependent on your personal financial situation. Do you have a good cash flow? Can you afford to pay an extra few hundred dollars a month if your interest rate goes up? There is no right answer but you want to be darn sure you don't roll the dice and end up losing your home.

A recent hot product is the variable rate mortgage. As interest rates have dropped steadily over the last few years, a lot of consumers saved a bundle by choosing a variable rate. Most variable rate mortgages base their rates on the bank's prime rate. When the prime rate goes up, your rate goes up; when the prime rate goes down, your rate goes down. Every lender has put their own twist on their own variable rate mortgage. Remember to cut through the fluff and look at the bottom line when comparing variable rate mortgages. What is your effective interest rate over the entire term, not just the introductory period? Remember that these mortgages may have a long term (e,g, 5 years) but your interest rate is not guaranteed. If you are the type of person who is conservative or has a tight cash flow, this is not the product for you.

Flexibility is the other variable to look at. How flexible is the mortgage? Can you pay weekly, bi-weekly, semi-monthly, or monthly? Can you make extra payments at any time or just once a year? Is your mortgage convertible to a longer term? What rate will they give you, the posted rate or a discounted rate?

Having a mortgage that is flexible is nice, but the most important factor is cost. You need to look at the effective interest rate of the mortgage over the term you choose. If you keep things simple, you will choose the right mortgage every time.

Q. What tasks does a lawyer perform?
A.

You need a lawyer to protect your legal interests, which includes ensuring that the property you are considering is not associated with any building or statutory liens or charges, or work or clean-up orders. Your lawyer will review all contracts before you sign them, especially the Offer (aka Agreement of Purchase and Sale) to purchase. Having a lawyer involved in the process ensures that things go as smoothly as possible, adding to your peach of mind.

Lawyer/notary's fees range widely and depend on the complexity of the transaction. Shop around for rates.

Remember that a lawyer/notary:

  • Should be a licensed full-time lawyer/notary.
  • Should be local and understand real estate laws, regulations, and restrictions.
  • Should have realistic and acceptable fees.
  • Can explain things in plain language.

Budget: $800-$1,200.

Q. What tasks does an inspector perform?
A.

You should consider having any home you are thinking of buying inspected by a knowledgeable and professional inspector.

The Home inspector's role is to inform you of the property's condition, letting you know if something is not functioning properly, needs to be changed or is unsafe. You will also be informed of repairs that need to be done. A home inspector may even be able to tell you where there may have been problems in the past.

Every inspection should include an evaluation of at least the following:

  • Foundation
  • Doors and windows
  • Roof and exterior walls
  • Attics
  • Plumbing and electrical systems
  • Heating and air conditioning systems
  • Ceilings, walls and floors
  • Insulation
  • Ventilation
  • Septic tanks, wells or sewer lines
  • Any other buildings, such as a detached garage
  • The lot, including drainage away from buildings, slopes and natural vegetation
  • Overall opinion of structural integrity of the buildings
  • Common areas (in the case of a condominium/strata or co-operative)

There is presently no uniform certification and no requirement for home inspectors to take any courses or to have passed any tests. Anyone can say that they are a home inspector. However, a good home and property inspector generally belongs to a provincial industry association, such as the Canadian Association of Home and Property Inspectors.

Budget: Home inspector fees are generally $395 and more, depending on the size and condition of the home.

Q. What tasks does an appraiser perform?
A.

Having an independent appraisal done on a property before you make an offer is a good idea. It will tell you what the property is worth and help ensure that you are not paying too much. Your lender can also ask for a recognized appraisal in order to complete a mortgage loan.

The appraisal should include an unbiased assessment of the property's physical and functional characteristics, an analysis of recent comparable sales and an assessment of current market conditions affecting the property.

Budget: $250-$350 in most areas of a typical single-family house.

Q. What tasks does a real estate agent perform?
A.

No one plays a more important role in helping you find a home than your real estate agent. Your real estate agent's job is to:

  • Help you find the ideal home
  • Helps you write up an Offer (aka an Agreement of Purchase and Sale)
  • Negotiate on your behalf to help you get the best possible deal
  • Provide you with important information about the community, arrange and coordinate the home inspection, and essentially save you time, trouble and money.

When the time comes to select a real estate agent, don't be afraid to ask questions - especially about any possible service charges. Sellers normally pay a commission to the agent, but some agents will still charge buyers a fee for their services. If you would like to know more about a real estate agent's ethical obligations, you can visit the Canadian Real Estate Association's website or call your local real estate association.

Budget: 2.5 to 6 per cent of the sales price is typically charged to the seller, then split between the buyer's agent and the seller's agent (who is also called a listing agent).

Q. What tasks does an insurance broker perform?
A.

An insurance broker can help you with your insurance needs, including property insurance and mortgage life insurance. Lenders insist on property insurance because your property is their security for your loan. Property insurance covers the replacement cost of your home, so premiums may vary depending on its value.

Your lender may also suggest that you buy mortgage life insurance. Mortgage life insurance provides coverage for your family should you die before your mortgage is paid off. This type of insurance is often available through your lender, who then simply adds the premium to your regular mortgage payments. However, you may want to compare rates between both an insurance broker and your lender.

Be careful not to confuse property or life insurance with mortgage loan insurance, which may be required for high-ratio mortgages.

Q. What tasks does a builder/contractor perform?
A.

If you are buying a newly constructed home or require renovations to a resale home, you will have to hire a builder or contractor. Make sure to ask for references and talk to other customers about the builder's performance. This could include:

  • Check with the New Home Warranty program in the area.
  • Visit other housing developments that the company has built.
  • Ask builders or contractors if they are members of a local homebuilders' association or ask for a provincial license number.

If you are having a custom home built, remember that:

  • You may want to hire an architect.
  • Builders of custom homes usually work on either a fixed-price or a cost-plus basis. Authorize any changes to your contract by writing your name or initials beside the change.

On a final note, make sure your contract is as specific as possible about construction details, right down to the brand name or model number of any finishes. Make sure that you initial any changes to your contract.

As a member, you are welcome to check out our qualified professionals.

Q. What tasks does a land surveyor perform?
A. If the seller does not have a Survey or Certificate of Location, you will probably need to get one for your mortgage application. If the Survey in the seller's possession is older than five years, it will probably need to be updated. Remember that you must have permission from the property owner before hiring a surveyor to go onto the property. Ask your real estate agent to help co-ordinate this with the owner.

Budget: $750-$1,000

Q. What tasks does the lender or mortgage broker perform?
A.

If you haven't already gone through the mortgage pre-qualification process, you will need to find a good lender to assist you during the purchasing process and for as long as you have your mortgage.

Remember that many different institutions lend money for mortgages, such as: banks, trust companies, credit unions, caisses populaires, pension funds, insurance companies and finance companies. Shop around and speak with more than one lender because terms and options will vary.

Some people find it helpful to use a mortgage broker. Mortgage brokers don't work for any specific lending institution. Their role is to find the lender with the terms and rates that will best suit the buyer.

To find a lender or mortgage broker, you can get a referral from your real estate agent, family members, friends or other professionals. Look in the Yellow Pages under Banks, Credit Unions or Trust Companies for a lender and under Mortgage Brokers for a broker. Better yet, utilize BuyingBlock to get you the best rate.

Budget: No cost to you. The Mortgage broker gets a commission paid directly by the lender.

Q. Should I check my credit rating?
A.

Yes. That way, there will be no surprises when you meet with a lender. Credit rating company Equifax states that a score of 600 or more, is good enough to secure a mortgage at the best rates (provided you have enough of a down payment and the income to support the payments). If you're hoping for a zero-down mortgage, the number to beat is 680. Being aware of your score ahead of time lets you know whether you'll be accepted or rejected when you go knocking on lenders' doors. If you find you don't make the grade, you can start fixing the problem. If you're unaware of your credit history, you may be paying more interest than you should, or even be denied unfairly. There may also be mistakes in a person's credit history that ultimately affects the score and can be easily corrected.

Credit scores are available for a fee online through both Equifax (equifax.ca) and TransUnion (transunion.ca). Both come with a credit history and tips on how to improve your score. Equifax will provide a free credit history, without a credit score, through the mail. If you find an error, notify the lender of the mistake. You might also want to inform the organization that made the mistake and/or Equifax.

Q. How can I ensure my credit rating is good?
A.

    • Pay your bills promptly, especially credit cards.
    • Borrow only what you need and what you can afford.
    • Try to pay off loans on time and as quickly as possible.
    • Keep your outstanding balances at below 50% of credit limits

Q. What can I use as my down payment?
A.

The lender will need to confirm where your down payment is coming from. Acceptable sources include:

    • Registered Retirement Savings Plan
    • Gift from immediate family
    • Accumulated savings
    • Sale of existing home
    • Investment partner

Q. What is a mortgage pre-approval?
A.

Based on your current financial situation and a satisfactory credit review, a pre-arranged mortgage determines:

  • The amount you can borrow
  • The interest rate of your mortgage
  • How much your mortgage payments will be

This information, along with your down payment, makes it easier for you to shop within your price range with an assurance that financing is available (subject, of course, to the bank's approval of the property appraisal). A pre-arranged mortgage is free of charge and carries absolutely no obligation.

With financing pre-arranged, you may be able to negotiate a better price on the home you want. You're guaranteed a fixed interest rate for up to 90 days from the date you receive your pre-arranged mortgage confirmation to the closing date. You're protected from interest rate fluctuations. If mortgage rates go up during that time, the lower guaranteed rate applies.

Q. What is required to obtain a mortgage?
A.

In most cases:

  • Full-time employment or stable income
  • Proof of income
  • Good credit rating
  • Verifiable down-payment
  • Filling out a Mortgage Pre-Approval Application

Q. What’s a fixed rate mortgage?
A.

The interest rate for a fixed rate mortgage is locked in for the full term of the mortgage. Payments are set for the term, providing you with the security of knowing precisely how much your payments will be throughout the entire term. Fixed rate mortgages can be open (may be paid off at any time without breakage costs) or closed (breakage costs apply if paid off prior to maturity).

Click here to read an article about variable vs. fixed mortgages written by Michael Pezzack, our Mortgage Specialist.