most people, buying a home means taking out a mortgage. That
means you borrow money to buy a home, using that home as collateral
for the loan. Financial institutions—banks,
, credit unions, caisses populaires, finance
companies and pension funds— lend money for mortgages.
Private individuals also lend money for mortgages.
Private lenders often advertise in the classified
advertising section of newspapers.
brokers usually do not lend money. They find a lender
for you. They may charge a fee, but usually the fee is paid
by the lender.
Mortgage payments are blended payments. This
means that the payment includes the principal—
the amount borrowed—plus the interest—the
charge for borrowing the money.
You repay the mortgage in regular payments.
You can make payments once a month, once
every two weeks, or once a week. Most people
make monthly payments. The payments are
usually level—the same every month.
The payments may also include the property
taxes, which the company collecting the payments
forwards to the municipality on your behalf.
A conventional mortgage is for an amount that does not exceed 75 per cent
of the appraised value of the property or the purchase price,
whichever is lower. Your down payment is a minimum of 25
per cent of the purchase price.
With a high-ratio mortgage you pay less than
25 per cent of the cost of the home as a down
payment. You can pay as little as five per cent
of the cost of the home as a down payment.
The lender needs mortgage loan insurance
with a high-ratio mortgage. It protects the lender and,
by law, most Canadian lending institutions are required
to have it. They will usually pass their costs on to you
by adding them to your mortgage principal amount.
Having mortgage loan
insurance means that if you, the borrower, default on
your mortgage the lender is paid back by the insurer. With
the risk of losing their money removed, lenders have the
confidence to make mortgage loans of up to 95 per cent of
the purchase price of your home.
Mortgage loan insurance is not the same as mortgage life
insurance. Mortgage loan insurance assures the lender of
repayment if you default. Without mortgage loan insurance
the lender would not make a high-ratio loan. Mortgage life
insurance pays off your mortgage in full if you or your
You might take over the seller’s mortgage—called
assuming an existing mortgage —as part of the
price you pay for the house.
Assuming an existing mortgage saves you money
on the usual mortgage arrangement costs, such as
appraisal and lawyer fees. You don’t have to
arrange financing from another lender and the
interest rate on an existing mortgage may be
lower than the prevailing market rate.
A vendor take back (VTB) mortgage means that the person
who sells you the house lends you the money to buy the house.
The seller may offer the VTB at less than bank rates. Some
sellers will sell the mortgage to a third party rather than
A second mortgage is a mortgage loan for money in
addition to the money owed under a first mortgage.
A second mortgage has a higher interest rate than
a first mortgage. It also has shorter amortization—
the period over which a loan is repaid. Homeowners
often use a second mortgage to pay for renovations.
Once you have looked at all the options and
chosen a lender, the paperwork starts.
Although it usually only takes a few days to
get approval for a mortgage, give yourself plenty
of time. When you put in your offer to purchase,
this is almost always on the condition of getting
Some first-time buyers get pre-approval. They
submit their financial paperwork to a potential
lender and receive approval for a pre-determined
mortgage amount. The pre-approval agreement
may also guarantee an interest rate for a mortgage
taken out during the 60- to 90-day pre-approval
Mortgage approval paperwork satisfies the lender
that you are able to pay back the mortgage
The lender wants to know such things as your
marital status, number of dependents, age, current
employment, salary, how long you have worked
there, and whether you have any other sources of
income. Lenders also do a credit check to find
out if you pay your bills on time.
The lender will ask for a list of your assets (such as vehicles) and liabilities
(such as credit card balances and car loans).
If you have additional questions or would like to see
if you can prequalify for a mortgage
in Ottawa, please call Chad Robinson at (613) 288-5836
or use our Ottawa
Mortgages Directory to find a mortgage
broker or mortgage
bank specialist to help you.