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About Mortgages


Purchasing a home will likely be one of the largest financial transactions of your life. We have included some information below to assist you with the basics of mortgages and financing.

 
Types of Mortgages

Conventional vs High-Ratio
Mortgage Glossary

  Conventional Mortgage (25% down)

A conventional mortgage is one that is offered on new and existing homes, for up to 75% of the purchase price. The home buyer must have at least 25% of the purchase price available for a down payment. Conventional mortgages do not have to be insured through the Canadian Mortgage and Housing Corporation (CMHC).

High Ratio Mortgage

One of the more popular programs available from CMHC is the "5%" program, or high-ratio mortgage. Insured through CMHC, the mortgage is guaranteed for home buyers who need a high ratio mortgage (up to 24.9%). The insurance premium that is paid to CMHC is to protect the lender in the event that the mortgage is not paid. This program is not the same as life, disability or job loss insurance. The principal benefit to the borrower, is that it allows you to purchase a home with a minimum down payment. This program is often used by first-time buyers who could not afford a conventional 25% downpayment.

The 5% downpayment on a $125,000 house or condo, for example, is just $6,250.

An application must be submitted on your behalf to CMHC with a $235 application fee (plus applicable taxes). Upon receipt of the application, CMHC undertakes to determine the lending value of the property, which may or may not include an actual inspection or appraisal of the property.

CMHC also requires that the home-related expenses (Gross Debt Service or GDS ) must not exceed 32% of your gross household income, and that your total monthly debt load  (Total Debt Service or TDS) must not exceed 40% of your gross monthly household income. You must also be able to pay closing costs equivalent to 1.5% of the purchase price.

To calculate the total debt service (TDS), use the formula below:


 
 
Total Monthly Debts

x 100 =
TDS percentage
Gross Monthly Income

For example

1,454.53

x 100 =
26.44%
5,500

 

In some instances, it may be necessary to insure a mortgage, even though it is not considered high ratio. This is also reflected in the chart below.
 
 

Loan to Value Ratio Premium
1.00 to 65% 0.50% of mortgage
65.1 to 75% 0.65% of mortgage
75.1 to 80% 1.00% of mortgage
80.1 to 85% 1.75% of mortgage
85.1 to 90% 2.00% of mortgage
90.1 to 95% 3.25% of mortgage

The CMHC insurance premium may be paid in full on closing or added to the mortgage amount. If added to the mortgage amount, interest is then paid on the insurance premium over the amortization of the mortgage. Most people opt for paying over the period of the mortgage rather than being saddled with a lump sum on closing.

Using the CMHC program, the maximum purchase price with a downpayment of under 10%  is $250,000. If you decide to put down more than 10%, there is no maximum purchase price set by CMHC,  but some of the financial institutions may impose sliding scales of their own.

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