Ask people this question and you will get a variety of answers.  Many homeowners will say 10% is what you should put down. However, if you speak with your grandparents, they are likely to suggest that 20% is what you need for a down payment.

The truth is 5% is the minimum down payment that you can make on a home in Canada. If you are planning on buying a $200,000 home then you need $10,000.

It can all be explained by the creation of the Canadian Mortgage and HousiCorporationion (CMHC) by the Canadian government on January 1^st, 1946. Before this time, you needed to have 20% down payment to purchase a home. This made home ownership difficult for many Canadians. CMHC was created to ease the homeownership process. This was done by offering mortgage default insurance. This basically guarantees the lender that they will not lose money should you default on your mortgage payments. If you do, CMHC will reimburse your lender up to 100% of the amount borrowed. As a result, lenders will approve your mortgage with a smaller down payment and a lower interest rate.

CMHC charges an insurance premium for this service to cover any losses that may occur from defaulted mortgages. This program was so successful that CMHC lowered the minimum down payment to 5% in the 1980’s.

However, if you have a limited credit history or some previous late payments, they may ask you to provide 10% instead of the traditional 5%. These factors increase the risk that you may default. Increasing your down payment amount helps mitigate that risk.

You should also be aware that the more money you put down, the lower your monthly mortgage payments will be. You can also save thousands in mortgage default insurance premiums by putting 20% down.  At this time, homebuyers who put 5% down have to pay a fee of 4% to CMHC or one of the other mortgage default insurers to obtain home financing. On a $400,000 home this is close to $16,000. This fee is capped onto the mortgage amount so that you don’t have to pay the whole thing up front.

If you can provide a 10% down payment the insurance premium falls to 3.10% and if you can provide 20% it drops to zero but the lender will likely charge a slightly higher interest rate. While 20% can seem like an impossible amount to save, you can use a combination of savings, a gift from family and/or a portion of your RRSP savings to achieve this figure. The best recommendation that I can make is to speak with your Dominion Lending Centres mortgage professional to discuss your options and where to start on your home buying adventure.

I am often asked if it difficult to compete with the banks. While they may offer competitive rates at times, that is currently not the case. However, we have certain advantages which allow us to blow them out of the water most of the time.

1. More Choice – banks are limited to around 5 products that they can offer you. They will try to fit you into one of their products even if the financial institution next door has a better one for you. Brokers have access to banks, credit unions, trust and mortgage companies as well as private lenders.
2. Better Representation – Brokers are your champions while bankers are employees. They put their employer first. They won’t offer you the best rates unless you are a good negotiator. Brokers are licenced by provincial organizations and have to follow a code of ethics which requires that we put the consumer first. We also negotiate the best rate, terms and conditions for you. If you need to break the mortgage before the end of the term, we can assist you with that and perhaps help you to avoid paying a penalty.
3. More Benefits – If you are moving into a home that is more than one year old, you probably do not have a home warranty. Brokers have 3 lenders who offer home warranties, which can cover repairs to the plumbing, heating and electrical systems with a small deductible. Two of the lenders even offer this as a complimentary service for the first year while the third lender offers it for the length of the mortgage. As Dominion Lending Centre brokers, we also have discounted rates for moving services and boxes from a large national moving company.
4. Better Protection – I saved the best for last. We offer portable mortgage life and disability insurance.

It may not sound like much but we have the same coverage as the banks offer with one important difference – portability. While we take care to place you with a good lender, circumstances change and lenders may not offer favourable terms on renewal. If you try to leave a bank after developing a condition like high blood pressure or having a heart attack, you will have to re-apply for insurance coverage and may be denied. There are hundreds if not thousands of unhappy bank clients who are stuck paying high interest rates because they are forced to stay with a lender. Broker insurance gives you the independence to move from lender to lender depending on who is willing to offer you the best rates and terms. This may not sound like much to you now but it’s a real game changer for anyone who knows someone who has had this happen to them.

Is it difficult to compete with the banks? No – we have them beat hands down. It isn’t even a contest.

Think of your credit score as a report card on how well you’ve been able to repay borrowed money. A credit score is a number that lenders use to assess the risk of lending money to you.

There is always someone willing to lend you money, however, higher risk = higher rates!

Step 1 for good credit – you need to know your credit history
• In Canada, there are 2 credit bureaus – Equifax and TransUnion.
• You can receive a FREE copy of your credit report from both Equifax Canada and TransUnion Canada once a year
• You can pay Equifax or TransUnion for a digital copy, which is much faster, BUT you have to pay, which sucks.

I recommend you order a copy of your credit report from both Equifax Canada and TransUnion Canada, since each credit bureau may have different information about how you have used credit in the past.

Ordering your own credit report has no effect on your credit score.
• Equifax Canada refers to your credit report as “credit file disclosure”.
• TransUnion Canada refers to your credit report as “consumer disclosure”.

Once you have obtained your free credit report, check it for errors:
• Are there any late payments that have been erroneously attributed to your credit history?
• Are the amounts owing in your credit report accurate?
• Is there anything missing on your credit bureau
o Sometimes the credit bureau has more that one file with your name, which can be merged, but it takes time.

If you find any errors on your credit report, you need to dispute them with your credit bureau.

How can I get a copy of my credit report and credit score?

There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. You should check with both bureaus.

Credit scores run from 300 to 900. The higher the number, the greater the likelihood a request for credit will be approved.

The “free-report-by-mail” links are not prominently displayed since credit bureaus would love to sell you instant access to your report and credit score online.

Equifax, the instructions to get a free credit report by mail are available here.

For TransUnion, the instructions to get a free credit report by mail are available here.

The bottom line: when it comes to financing your life, through credit cards, mortgages, car loans or any other kind of debt – your credit score has a BIG impact on what kind of terms you can negotiate.

Keeping an eye on your credit score is important — if there’s a problem or an error, you want to know and have time to fix it before you apply for a loan. If you have any questions, contact a Dominion Lending Centres mortgage professional near you.

Do you have a mortgage? So do I! Looks like we have something in common. Did you know that 6 out of 10 consumers break their mortgage approximately 38 months into a 5-year term? That means 60% of people break a 5-year term mortgage well before it’s due… but do you also know what the implications are of this? Let’s take a look!

There are a variety of reasons why someone might break their mortgage term. Some of the most common include:

· Sale and purchase of a new home *without a portable mortgage
· To take equity out/refinance
· Relationship changes (ex. Marriage/Divorce)
· Health challenges or a change in required living arrangments

And this is just to name a few. So what happens when one of the above reasons or one of your own reasons forces you to break your mortgage? You have to pay a penalty. Here is an example:

Jane and John Smith have lived in their home for 2 years now. When they bought the home, they recognized that it would need some major renovations down the road, but they loved the location and the layout of the home. They were told by their parents and the bank to take a 5-year fixed term on their mortgage. They purchased it for $300,000 and have 3 years left but would like to access some of the equity in their home and refinance the mortgage to afford some of the bigger home renovations. This refinance would occur with 3 years left on their current mortgage. So, what are Jane and John looking at for cost? There are two methods that are used to calculate the penalty:

INTEREST RATE DIFFERENTIAL – POSTED RATE METHOD (used by major banks and some credit unions)
With this method, the Bank of Canada 5 year posted rate is used to calculate the penalty for Jane and John. Under this method, let’s assume that they were given a 2% discount at their bank thus giving us these numbers:

Bank of Canada Posted Rate for 5-year term: 5.14%
Bank Discount given: 2% (estimated*)
Contract Rate: 3.14%

Exiting at the 2-year mark leaves 3 years left. Now we take the bank’s 3-year posted rate of 3.44% less your discount of 2% gives you 1.44%. From there, the interest rate differential is calculated.

Contract Rate: 3.14%
LESS 3-year term rate MINUS discount: 1.44%
Interest rate differential = 1.7%
MULTIPLY that by 3 years (term remaining)
5.07% of your mortgage balance remaining. = 5.1%

For the Smith’s $300,000 mortgage, that gives them a penalty of $15,300. YIKES!

Now, if Jane and John had used their Dominion Lending Centres broker to get their mortgage, they shouldn’t be in this mess because they would have been advised to take a different product from the 5-year fixed.  However, even if they were adamant on taking the 5-year fixed, a different method would be used.

INTEREST RATE DIFFERENTIAL – PUBLISHED RATE METHOD (used by broker lenders and most credit unions)

This method uses the lender published rates, which are generally much more in tune with what you will see on lender websites (and are generally much more reasonable). Here is the breakdown using this method:

Rate when you initially signed: 3.24%
Published Rate: 3.54%
Time left on contract: 3 years

To calculate the interest rate differential on the remaining term left in the mortgage, the broker would do as follows:

Rate when you initially signed: 3.24%
LESS Published Rate: 3.54%
Interest rate differential = 0.3%
MULTIPLE that by 3 years (term remaining)
0.90% of your mortgage balance

That would mean that the Smith’s would have a penalty of $2,700 on their $300,000 mortgage.

A much more favourable and workable outcome! Keep in mind with the above example that it works only if the borrower has:
· Good credit
· Documented income
· Normal residential type property
· Fixed rate mortgage

For Variable rates mortgages, the penalty will generally be a simple 3 months interest (no IRD applies).  If you know that you’re going to break your term at some point, this is one of your best options.

If you find yourself in one of the scenarios that we listed at the start of this blog or if you just need to get out of your mortgage early, review your options with a DLC Broker! In the example above, it would have saved them at least $12,600 to work with a broker! It really does pay to have a Mortgage Broker working with you.