Buying a Home for the First Time
First Time Home Buyers, the Wilson Team gives you our 100% guarantee that you will receive the lowest rate from the time of application to funding as we closely monitor rate changes and advise you of any movement in lending rates. While we have excellent relationships with the five major Banks it should be noted that they have made numerous changes to their mortgage packages over the past 4 years. Changes that may affect our clients equity and pocket book should they need to make any changes to their mortgage over the term of the mortgage.
Do not rely on rates and rates only. The major banks fund the most expensive mortgages in Canada. Not necessarily rates as they are competitive but the actual fine print in the term you select and unfortunately clients don’t get to fully see it until they need to port, transfer, refinance or break that mortgage within the stated term of the mortgage when all the fees become apparent. This includes variables for lock in rates as banks work from posted rates ( 4.99% ) after the closing and monoline lenders work from best discount rates (2.99% ). It’s our job to understand your goals and get you the most superior product available in the market that satisfies your goals and budget. Whether a bank or monoline each lender is different.
The best way to get started is to fill out the on line application by clicking on the “Apply Now” button on the right. This will give us the information we need to shop the entire Canadian mortgage market and start to figure out what your goals and needs are as well as offer you some options to consider and present to you some strategies. As well, by utilizing the various Calculators we have available.
What is CMHC Mortgage Insurance?
Canada Mortgage Housing Corporation (CMHC) is a Crown Corporation of the Federal Government of Canada that acts as Canada’s National Housing Agency. It operates as a private sector corporation and plays a very important role for Canadian home-buyers.
When you buy a home in Canada, we are fortunate enough to be able to put as little as 5% down.
CMHC provides what we call Default Insurance which protects the banks mortgage loans in the case the mortgage loan goes into default and cannot be paid back. This means if you cannot pay the mortgage, then the bank is paid back all their costs in-full after the home is “repossessed” and sold. In Canada, you are required to pay default insurance if you do not have a down payment of 20% of the purchase price. This allows borrowers to enter the housing market with as little as 5% down. It’s one way to boost home purchases in Canada.
However, CMHC is not the only source of this Default Insurance. There are two other mortgage default insurance providers in Canada; Genworth and Canada Guarantee. These are private companies, and each determine their own set of rules regarding the types of mortgages they will provide insurance on for the banks. This means if your application is declined with one insurer then the lender can go to another insurer for approval. Each lender usually works with a preferred insurer so working with a Mortgage Broker can be very crucial to the success of your application. Not only do you need the right lender, but you also need the right insurer. For example, a self-employed client who wants to buy a home, may be declined by one bank but approved by another, with the same interest rates, because of their different risk tolerance combined with alternate insurers product offerings. Insurers carry many products that differ, but the banks may only carry a few of them. The bank may also require more due diligence or stricter guidelines for those products to be offered.
Each mortgage lender will sit with their investors and look at all the products available in Canada based on the Federal Regulations. They will select what makes sense for their investors and decide how to underwrite it and at what rate they want to price it. Then they will select the insurer, based on their regulations and guidelines. Each insurer has different risks ratios, products, and options; however, the insurance premiums are equal. The cost to have insurance is the same for each insurer. It’s based on product and down payment.
The insurance premiums charged are rolled into the overall borrowing amount. For example: if you are buying a home for $400,000 and your down payment is 5% ($20,000), then the total loan is $380,000. The CMHC premium is 4% of that total loan of $380,000 which is $15,200. The total mortgage is now $380,000 plus $15,200 which is $395,200. When you are using any mortgage calculator, you don’t want to double count the CMHC fees or forget about them! Also, check with your mortgage broker to see what applicable taxes are being charged on the premium, as that will need to be paid on closing as part of the closing costs.
Scaling Chart for Purchases for Traditional Lending Programs:
It’s important to know that Default Insurance protects the bank and not the client.
Yet, the client is responsible to pay for it. To avoid it you will need a minimum of a 20% down payment unless you are requiring a specialized product such as Self-Employed or Stated Income.
There are three types of mortgages in Canada:
Insured Mortgages have the least mortgage rate options. The borrower has than 20% down payment on the purchase and is charged the full CMHC / Default Insurance premium. The lender has the lowest risk as the mortgage loan is fully paid by the insurer in the case of a default. Also, in the case the insurer becomes insolvent the loan is backed by the Government of Canada.
Insurable Mortgages are when you have the minimum 20% down payment with traditional lending programs. The bank will then go to CMHC, Genworth or Canada Guarantee to buy default insurance on the mortgage at their expense. The client does not pay. Lenders want to have insurance on their loans even if they must pay for it. Lenders want their loans fully secured.
The higher down payment you make results in less costs for the banks but a slightly higher mortgage rate for you. Only at the 35% down payment mark does the risk for the banks becomes low enough that the cost of default insurance becomes negligible. This back-end insurance is sometimes referred to as “Bulk Insurance”.
Non-Insurable mortgages came about in January 2018 when the Federal Government made massive changes to the bank’s securitization. They grouped several mortgage types into a category that exclude the banks from having any default insurance at all. The client cannot pay nor can the bank pay on their behalf. This means that the banks must price their mortgage rates slightly higher as to offset their risk of providing a mortgage to the consumer.
Types of Mortgages Not Eligible for Default Insurance
- Purchase of Property over 1 Million Dollars;
- Non-Owner-Occupied Single Unit Rental Property;
- Refinances (replacing an existing loan for a new mortgage amount or adding a mortgage on an un-mortgaged property);
- Amortizations over 25 Years
This is another great reason why it is so important to call the Wilson Team as these situations are very complicated and each lender may have as many as 15 different resulting interest rates!
There are different supporting document requirements, property types, risk assessments, rates, products and options that apply to this scenario. By hiring a Mortgage Broker, you are ensuring that you are getting the best possible interest rate based on the entire spectrum of market products; not just a banks’ singularly focused offerings.
First Time Home Buyer Incentives
The Home Buyer Incentive Share Equity Program
The First-Time Buyer Incentive is a Federal Government shared equity program designed to reduce mortgage payments for qualifying first-time home buyers who have the minimum 5% down payment required for an Insured Mortgage. The program provides 5% of the cost of a resale home, or 10% for a new-home build. This incentive is not payable until you sell the property and no interest is charged.
As usual, there are caveats:
- If your household income is more than $120,000, you aren’t eligible for the program;
- Your total borrowed amount (including the incentive portion) can’t be more than four times your household income;
- The incentive amount to be repaid is based on the current fair market value of the home.
Example: The maximum down payment for the 5% Incentive is 14.99% and 9.99% for the 10% Incentive. For a household income of $120,000, the maximum eligible purchase price would be approximately $505,000 (with a 5% down payment) or about $565,500 (with a 14.99% down payment). You are required to pay back the incentive after 25 years or when you sell the home. The repayment amount is based on the property’s fair market value, whether it has increased or decreased in value. If you received a 5% incentive and your $500,000 home increases in value to $600,000, then you are required to repay $30,000. If the value deceases to $450,000, you’ll repay $22,500. You can repay the incentive at any time without penalty.
Note: Since repayment is based on market value at the time of repayment, you may want to repay early if your home is increasing in value quickly, or prior to conducting major renovations.