YOU WILL NEED TO PROVIDE THE FOLLOWING INFORMATION: ›› If a salaried employee, your most recent pay stub and an employment letter. You will need to ask your company to prepare a letter on company letterhead outlining your name, salary (or hourly rate), position and length of service. In some cases, your most recent T4 may also be required. ›› If you are self-employed, you will need to provide your two most recent personal tax returns, together with the notice of Assessments from Revenue Canada. ›› A list of all of your assets, including: the balances of all chequing and savings accounts, RRSPs and investments. In order to obtain a pre-approval, you will need to fill out an application which allows the broker to obtain your credit report and see your full financial profile, including all of your liabilities. On top of your employment details, there are two other main considerations that mortgage lenders look at. The first is your credit worthiness. The mortgage consultant will likely obtain a credit report from Equifax (Canada’s largest credit reporting agency) that provides a “beacon score” for each individual based on several factors, including your repayment history on credit cards, loans and lines of credit, the balance you keep on these debts and how long you have had them active. The stronger your credit rating, the more likely you will gain access to preferred pricing. The second consideration is the amount of down payment you have for your home. First-time buyers have the option of putting down as little as five per cent of the purchase price. However, with anything less than a 20-per-cent down payment, you will have to obtain mortgage insurance from Canada Mortgage and Housing Corp. (CMHC), Genworth Financial or Canada Guaranty, for which a premium is charged and added to your mortgage balance. This insurance protects the lender, not you, in the event that the mortgage is not paid. This is not to be confused with life, disability or job loss insurance, which you may also need.
WITH ANYTHING LESS THAN A 20-PER-CENT DOWN PAYMENT, YOU WILL HAVE TO OBTAIN MORTGAGE INSURANCE FROM CANADA MORTGAGE AND HOUSING CORP., GENWORTH FINANCIAL OR CANADA GUARANTY, FOR WHICH A PREMIUM IS CHARGED AND ADDED TO YOUR MORTGAGE BALANCE. BENEFITS OF PRE-APPROVAL: ›› Provides a guaranteed interest rate for up to 120 days ›› If rates go down, you gain the benefit of the lower rate. If rates go up, you are protected against the increase ›› Helps you manage your expectations and minimize stress with respect to the amount of mortgage you can afford – before starting your home search ›› Pre-approval costs you nothing
SUMMARY OF RECENT CHANGES TO MORTGAGE REGULATIONS Effective March 18, 2011
› The maximum mortgage amortization
period was reduced to 30 years from 35 years for new government-backed insured mortgages with loan-to-value ratios of more than 80 per cent. The maximum amount Canadians can borrow in refinancing their mortgages was reduced to 85 per cent from 90 per cent of the value of their home.
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Effective April 18, 2011
› The federal government no longers provide insurance on lines of credit secured by homes, such as home equity lines of credit.
Changes that took effect April 19, 2010 For government-backed insured mortgages: Borrowers must meet the standards for a five-year, fixed rate mortgage, even if they choose a mortgage with a lower interest rate and shorter term. The maximum amount Canadians can withdraw in refinancing their mortgages was reduced to 90 per cent from 95 per cent of the value of their home. The minimum down payment for investment properties was increased to 20 per cent from five per cent, for government- backed mortgage insurance.
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Calum Ross is senior vice-president and practicing mortgage agent with The Mortgage Centre. He has appeared on Canada AM, Investment Television, BNN and Citytv. He holds an MBA in finance and is an Accredited Mortgage Professional. He can be reached at 416.410.9905.
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