Last update: January 10th 2023
Most Canadians consider purchasing a house to be a primary goal to build up wealth. Buying a house means taking on huge financial commitments and tying yourself down to the terms and conditions of a mortgage contract.
As you are making a very important investment, you also need to make sure that you are getting the best mortgage deal in 2022.
Whether you are a first-time homebuyer or looking to renew or refinance an existing mortgage, we can help you find the right mortgage that suits your needs and goals.
Our network has hundreds of top mortgage brokers and lenders in our network who can assist you with a mortgage application, switch, or refinance.
Just fill out the form on this page to receive FREE and NO-OBLIGATION quotes to compare and choose from!
The Mortgage Process Explained
To get the best mortgage in 2022, you need to understand how a mortgage process works step-by-step.
Knowing the process will help you to prepare so that you qualify and know how to choose the best lender and mortgage product to save time and money.
Mortgage application for first-time homebuyers
If you are buying a house for the first time, you will need to qualify for a mortgage. You can apply for a mortgage with various financial institutions – banks, credit unions, mortgage companies, etc.
A mortgage loan will help you pay for your new home with the lowest possible down-payment of 10% from your own funds. Of course, you can choose to pay a higher down-payment to reduce your mortgage payments and save on interest.
The terms and conditions of a mortgage will vary among these financial institutions. For this reason, you must shop around to find the best lender who can give you the most favorable options.
Many of these lenders work with mortgage brokers to offer you multiple opportunities so you can save on interest rates.
You can apply for a mortgage directly with any of these lenders or work with a mortgage broker but either way, you need to qualify for a loan. The pre-approval process that lenders use will assess your capacity to finance a home and the amount you can borrow based on your income.
What factors will determine whether you qualify for a mortgage? Lenders will check your job status, income, financial liabilities, credit score, and assets to see if you can repay your debt.
The government of Canada has recently introduced a new measure to determine whether Canadians can afford a mortgage by way of a mortgage stress test. Lenders will also use this to evaluate if you can continue to make your payments even if interest rates increase in the future.
The mortgage stress test and how it works
The Office of the Superintendent of Financial Institutions (OSFI) wants to reduce mortgage default risks with a benchmark to qualify for a mortgage via the mortgage stress test. It aims to prevent borrowers from getting buried into debt they cannot afford to repay. This measure was introduced in late 2017.
Under the mortgage stress test, the qualifying interest rate was raised to 5.25% or 2 percentage points higher than the prevailing mortgage contract rate.
Several factors can affect the cost of a home purchase and one of the obvious ones is the interest rate.
Mortgage rates are primarily responsible for your monthly mortgage payment and it becomes more crucial if you have a variable rate. They can increase or decrease depending on the direction of prevailing bank rates. The higher rate to qualify could potentially deter a potential homebuyer if he or she is barely meeting the loan requirements.
How does the mortgage stress test affect you?
The test is applied to the insured and uninsured new mortgage applications. If you have an existing mortgage and want to refinance, the mortgage stress test will also be applied if you get a home equity loan or change lenders.
Lenders that are not regulated by the federal government such as provincially-regulated credit unions and alternative lenders are not mandated to use the stress test. However, if you try to avoid the stress test in order to qualify, you may be putting your finances at risk by taking on a huge debt you cannot afford.
A reputable mortgage broker is a mortgage expert who can help you obtain a mortgage from start to finish. He will ensure that you get the best possible terms to protect your interests.
Why get a mortgage pre-approval with a broker?
You may be wondering why you should get pre-approved for a mortgage if you are not even sure of buying a home yet. Maybe you haven’t found the home of your dreams or still feel unsure if buying a house is something you can afford to do.
A mortgage pre-approval will be able to answer those very questions. It will determine whether you can afford to buy a house and even get you focused on your house hunt because you will know how much you can get for a loan.
Many people don’t know that a mortgage pre-approval should be the first step to take when planning to buy a house. It can save you a lot of time and heartache. Most importantly, it will give you more confidence to make an offer once you find your dream house!
You may also be unaware that you can get a mortgage pre-approval with a mortgage broker, at no cost!
You can lock in the lowest rate with your pre-approval with the lender of your choice for a period of time while you look for a house. If your plans don’t materialize and you don’t get to buy your new home, you don’t pay anything.
In case you don’t qualify during the pre-approval, you will know what you need to work on to qualify for a home loan in the near future.
Mortgage renewal and what you should do
Your mortgage has a term that refers to the period that your loan is valid. In Canada, most mortgages carry a 5-year term.
At the end of the term, if you have not fully paid your mortgage, your lender will send you a renewal notice. If you sign it, your mortgage with your lender will continue under the same terms and conditions.
While the easiest thing to do is to sign the renewal notice with your lender, it is not in your best interest to do so. You should first compare your options with other lenders to see if you can get more favorable terms, specifically, a lower interest rate. This is crucial because even a small reduction of the rate can potentially save you thousands of dollars over the term of your loan.
To compare multiple offers from other lenders, you can obtain free and no-commitment quotes using our short online form.
You can choose to switch lenders and save on interest or remain with your current lender. You can try to renegotiate the mortgage terms with your lender if you get a better offer from another lender. If your lender refuses, you can decide to switch to a new lender but ask your broker about the costs and implications.
Switching a mortgage to a new lender
When the time comes to renew your mortgage and you get a better offer from a different lender, it may be time to switch. This entails breaking your mortgage if your mortgage term is not finished.
Understand that switching a mortgage can have related costs and implications. Let’s take a closer look at what it could cost you to switch to a different lender.
The cost to break a mortgage depends on the type of mortgage you have – closed or open.
An open mortgage lets you switch lenders without having to pay a penalty. With a closed mortgage, you normally pay a penalty for breaking your mortgage that could amount to thousands of dollars.
Before you decide to break your mortgage, you need to check:
· If you have a prepayment penalty and how much
· The cost of administrative fees
· Appraisal fees (with the new lender)
· Mortgage discharge fees (for removing the current mortgage on your title and registering a new one)
· Legal fees
A mortgage broker can explain to you these different costs and assess if it is worth it to break your mortgage. He may also be able to advise you on how to save on prepayment penalties.
The pros and cons of breaking your mortgage contract
When interest rates are down, it is really tempting to break a mortgage contract to try to get a lower interest rate.
Here are the advantages of breaking your mortgage:
· You can get a lower interest rate and save money
· Pay off your mortgage faster with the same amount of payments
· Lock in a lower interest rate for a new mortgage term
· Tap into your home equity to get additional funds
There are also disadvantages to breaking a mortgage:
· You might be paying more over time because of prepayment fees and other fees
· You have to prequalify with a new lender again
If breaking a mortgage is not that appealing to you, it is possible to extend the length of a mortgage and renew early.
Many lenders offer this option called the blend and extend. Basically, you will be renewing under the old rate and a new term and interest rate are blended into your loan. There may also be administrative fees.
It is always advisable to compare and study your options well before renewing a mortgage or breaking a mortgage. Speak to a reputable and experienced broker to explore your options!
All about refinancing a mortgage
Refinancing a mortgage is when you break your mortgage contract to start a new one with the same lender or a different one.
It is a popular way to get a lower interest rate or access home equity to pay for expenses or consolidate debts.
Refinancing a mortgage has a few risks so it is best to research your options or speak to a mortgage expert before you make a decision.
Popular reasons to refinance a mortgage
There are reasons why homeowners choose to refinance a mortgage.
1. Benefit from a lower interest rate.
You can save a lot of money if you refinance to get a lower interest rate, depending on the size of the outstanding mortgage and the prepayment penalties. If your mortgage has a variable rate, you may be paying about 3 months interest. For a fixed-interest rate mortgage, you may pay 3 months interest or the interest rate differential, whichever is higher.
Despite the penalties, you can save a lot of money when you refinance but it is important to calculate if refinancing will really work favorably in your situation.
2. Access equity in your home.
You can access the equity in your home by refinancing your mortgage. You can tap into as much as 80% of your home’s value minus your outstanding balance. That means you can get additional funds for investment, renovations, or to finance your children’s education.
You can also access home equity without breaking your mortgage by applying for a home equity line of credit (HELOC) or through a blend-and-extend arrangement with your lender.
3. Consolidate debts and save on interest.
If you carry debts or loans with a higher interest rate than your mortgage, a mortgage refinance can help you save money. It will also provide convenience as you only have to pay for one loan.
Examples of debts with higher interest are credit cards, car loans, personal loans, and other consumer loans.
Mortgage refinancing options can pay off these loans and help you consolidate your debt.
To help you see the pros and cons of refinancing a mortgage, we have prepared a summary just for you.
The prepayment penalties may be higher than potential savings.
The cost of refinancing a mortgage will depend on the method you choose to reduce your interest rate. Whichever strategy you opt to use, there will be legal fees involved.
Fortunately, many lenders are willing to pay for legal fees if your mortgage balance is substantial or around $200,000.
If you need new funds to finance a home renovation, a business opportunity, or for personal emergencies, you can speak to a mortgage broker about refinancing your mortgage.
Fill out the form on this page to connect with experienced and reliable brokers near you!
How can a mortgage broker help first-time buyers?
If you approach a bank or a lender directly, you will be applying for a mortgage without being able to compare rates and other conditions. This approach does not assure you of getting the lowest possible rate unless you apply with different lenders at the same time. Don’t you think that takes too much time and effort to do?
If you plan to buy a house or refinance your mortgage, it is advisable to speak to a mortgage broker to obtain valuable information regarding the process and check affordability.
A mortgage broker can help with a mortgage pre-approval with different lenders. He will help you get approved and shop around for the best mortgage deal on your behalf. Doing a pre-approval, even before you find a house you want to buy, will help you to lock-in the best rate and give you the confidence you need to find the right property you can afford.
Your broker will help you gather the documents needed for your loan application. At the same time, he will explain what you need to understand so you can make an informed decision. For example, you can check with him about variable and fixed-rates to know which is better for you. He can also advise you about grants or programs you can avail for first-time homebuyers.
Licensed Canadian mortgage brokers can assess your mortgage situation and offer you valuable advice at no cost to you!
Before you even start to look at properties for sale, find a good broker to help you determine what you can afford and help you to act quickly to get the financing you need.
It all starts when you request for your free and no-commitment quotes
using the form on this page!
It will only take 2 minutes and you have nothing to lose.