10 Common Mortgage Questions

Getting a mortgage and purchasing a home are possibly some of the biggest decisions you'll make in your life. I've compiled a list of 10 commonly asked mortgage questions for you below! Have a question that's not included on my list? Let's connect to discuss it!

1. What’s the best rate I can get?

Rate, rate, rate! Did you know there are a variety of different factors that determine what rate is available for you? A few factors that determine the rate you will receive include your credit score and history, the type of property, who will be living in the property, and your down payment amount. I caution that while rate is important it is definitely not the most important aspect of a mortgage and you should also consider such things as prepayment and porting privileges when opting for a mortgage product.

2. What’s the maximum mortgage amount for which I can qualify?

When we are determining the amount for which you will qualify, there are two calculations we are working with. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and strata/condo fees, if applicable). Generally speaking, this amount should be no more than 39% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,560 in monthly housing expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments, lines of credit, phone bills and credit card bills). Generally speaking, your TDS ratio should be no more than 44% of your gross monthly income. It is importnat to keep in mind that the GDS of 39% and the TDS ratio of 44% are maximums and you should strive for a lower ratio.

I also recommend you obtain a mortgage pre-approval to ensure you know your maximum spending ceiling and to be able to narrow down your price range when you being your home search.

3. How much money do I need for a down payment?

The minimum down payment required is 5% of the purchase price of the home. And in order to avoid paying mortgage default insurance, you need to have at least a 20% down payment.

4. What happens if I don’t have the full down payment amount?

There are programs available that enable you to use other forms of down payment, such as from your RRSPs or gifted funds from an immediate family member.

5. What will a lender look at when qualifying me for a mortgage?

Most lenders look at five factors when determining whether you qualify for a mortgage:

1. Income;
2. Debts;
3. Employment History;
4. Credit history; and
5. Value of the Property you wish to purchase.

One of the first things a lender will review is your total guaranteed income. Next a lender will review your debts which include monthly liabilities such as all loans, credit cards, lines of credit, child support, etc.

Good credit is also very important in qualifying for a mortgage. Keep paying your bills on time, keep your credit utilization below 30%, and ensure you have 2 trade lines reporting for a minimum of two years to help build your credit.

6. Should I go with a fixed- or variable-rate mortgage?

The answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s a good idea to consider a fixed mortgage with predictable payments over the term of your mortgage. If, however, your financial situation can handle the fluctuations of a variable-rate mortgage, this may save you some money over the long run. Another option is to opt for a variable rate, but make payments based on what you would have paid if you selected a fixed rate.

You should also consider whether you will be breaking your mortgage before the term of your mortgage has finished. Variable rates only ever carry a 3-month interest pre-payment penalty while fixed rates have the higher of 3-months interest or the Interest Rate Differential which can get costly fast!

7. What credit score do I need to qualify?

Generally speaking, you’re a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage, but the key for those with lower credit scores is the size of the down payment and potentially a higher interest rate.

8. What happens if my credit score isn’t great?

There are several things you can do to boost your credit fairly quickly. Following are five steps you can use to help attain a speedy credit score boost:

1. Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so the balance is at or below 30% of your limit. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.
2. Limit the use of credit cards. Racking up a large amount and then paying it off in monthly installments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.
3. Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close and keep your credit utilization below 30%.
4. Keep old cards. Older credit helps your credit score. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off.
5. Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation. I can help walk you through the investigation process to get your credit bureau rectified.

9. How much will I have to pay for closing costs?

As a general rule of thumb, it’s recommended that you have a minimum of 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST is charged on new builds. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is around $1500 but it can be more. Other costs include such things as an appraisal fee (approximately $400+), title insurance (approximately $300) and a home inspection (approximately $550).

10. How much will my mortgage payments be?

Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you’re paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments. You can view some useful calculators to find out your specific mortgage payments by downloading my app directly on your phone, My Mortgage Toolbox here.