If you are planning to buy a residential property in Canada but you don’t have enough funds to make the purchase, one way to make your plans a reality is to apply for a mortgage. But before you do, you should equip yourself with proper knowledge to ensure the success of your mortgage application. Here are some of the frequently asked questions about applying for a mortgage in Canada and their answers.
Am I eligible for a mortgage?
To determine if you’re eligible for a mortgage, you should go to a bank and get mortgage pre-approval. You could also enlist the services of an accredited mortgage broker to review mortgage options from several banks instead of visiting each bank individually.
If you have been a resident in Canada for quite some time, banks will review your credit history to determine if they can lend you money. If you have no credit history, you can build one by taking small loans from your bank and making payments on time. You can also get a credit card. Aside from presenting your credit history, you will also need to show proof of your income and make a cash deposit for the property you want to buy.
In case you have just arrived in Canada, it is still possible to get a mortgage based on your credit history in your home country. This can be done through the Canadian Imperial Bank of Commerce or TD Canada Trust. To be eligible for a mortgage, you will need to fund at least 25% to 35% of the house purchase yourself.
What percentage of the properly value can I borrow?
Most Canadian mortgage lenders lend up to 80% of the purchase price of a property to Canadian residents. It is up to you to fund the remaining 20%. But if you want to be sure, a good way to determine how much you can borrow is to use online calculators such as those offered by HSBC or Royal Bank. Take note, however, that different calculators from different banks give somewhat different results.
Open or closed mortgage?
When applying for a mortgage, you can either get an open or a close mortgage. Open mortgages are more flexible and they can be paid off or modified anytime without penalty. Closed mortgages, on the other hand, must run for their full term unless you’re willing to pay additional interest. An advantage, however, is that they offer cheaper interest rates.