I'm new at this mortgage thing. Where do I start?
The first thing to do is relax and take a deep breath. Buying a home - especially your first home - is a big deal. It can be exciting and scary at the same time. Castle Mortgage will help take out the scary, and help you focus on the exciting.
When you're ready, the first step is to become 'pre-approved' to purchase a house - and you can start that process right here, right now - link to https://castlemortgagegroup.ca/application. With a Letter of Pre-Approval in hand, you can go into the housing market with confidence. Get ready to spend as many weekends as you like at open houses!
How does a mortgage work?
Through the pre-approval process, we will work with you to understand your financial capacity. We will look at your employment history, credit history, debt patterns, and other numbers to figure out your price range.
Yes, you want to get the best house you can afford, but you have to make sure that you can furnish the house, feed and clothe yourself, and maybe even go to a movie once in a while. There’s no sense being mortgage-poor if you can't enjoy the house. We can help run the numbers so you make a sound decision.
Most houses increase in value over time as you pay down the mortgage. And that will help you purchase your next house!
What kind of home can I afford right now?
This is the most frequently asked question we hear at Castle Mortgage Group, and it should be! We carefully apply our pre-approval process to each unique financial situation our clients bring to us. After thoroughly considering all pertinent employment information, credit history, and debt obligations, we can calculate your specific mortgage amount window.
Buying and owning your own home is fantastic, however being mortgage-poor is not! We can help you ensure that you can easily afford all the payments involved in home ownership, only one of which is the mortgage payment. Most homeowners must also consider the property tax payment, utilities, as well as condominium fees (if applicable), as well as home insurance, repairs and maintenance, and more. It can seem like a lot at first, but we can help break it down into bite-size pieces and ensure that these new payments will not jeopardize your overall lifestyle.
You can trust that at Castle Mortgage Group, we will take the proper care to ensure that your new home is appropriate to your individual financial position. And soon you’ll be decorating it to your liking!
What is refinancing?
Refinancing means renegotiating the terms of your loan, whether to lower the interest rate, change the repayment period, increase the amount of the loan, or switch to an adjustable-rate loan from a fixed-rate loan, or vice versa. A new mortgage pays off the old one, and you begin making payments based on your new payment schedule and terms.
How do I start?
If you have an adjustable-rate mortgage (ARM) - one that varies with the Bank of Canada rate – and you think that rates will rise; or if you want the security of knowing exactly how much your future payments will be, you may want to consider refinancing to a 'fixed-rate' mortgage. Or you may want to get another ARM with more favourable terms, such as a line-of-credit option; this option allows you to access money in the future for investment purposes, large expenditures, your children's education, and more.
If you've built up a good deal of equity in your home, you may want to do a 'cash-out refinancing' (also known as 'equity take out refinancing') to get money for home improvements or other major purchases. In any case, you'll need to consider the cost of refinancing including closing costs and legal fees, and even prepayment penalties against the savings you will make by lowering your interest rate and monthly payment. Finally, all these calculations need to be seen in the context of how much longer you plan to live in your present home.
The first step you should always take is to complete an application so your Castle Mortgage specialist can assess your own unique and personal mortgage situation. This step will give us all the necessary information to allow us to “shop” the entire mortgage market and secure the best possible mortgage deal available for you.
Our application is available online here.
Once you’ve applied with us online, we will follow up with a meeting where we will help you understand the entire refinancing process and how the expected costs and savings will affect you.
Why would I even think about refinancing?
The most common reason to refinance is to switch to a loan with a lower interest rate. Consider a scenario where your mortgage has a five-year fixed-rate term with an interest rate of five percent, while today's current rate has dropped to four percent. If you refinance, you'll have a lower interest rate over the term of your loan. However, that doesn't necessarily mean that you'll save money on the deal, either over the long term or on your monthly payment. There's more to it than that! Refinancing costs money and you may be charged for a new appraisal, a penalty, and legal costs - all of which can add up to hundreds or even thousands of dollars. You may want to consider this rule of thumb: refinance if you can lower your rate by at least one percentage point. Sit down with us and we'll help you do the math.
Depending on your individual financial goals, there might be other reasons to think about refinancing. For example, if your income has increased and your priority is to get out of debt as soon as possible, you can refinance to a loan with a shorter repayment period - such as replacing a 35-year amortization with a 15-year amortization. This typically saves you thousands of dollars in interest. To finance a major expenditure such as a home renovation, college tuition, or a new car, homeowners with significant equity in their house might opt for 'equity take out' refinancing, in which you increase the amount of principal you owe on your loan. If you're strapped for cash in the short term, you can lower your monthly payments by switching to a different type of mortgage (for example from a fixed to an adjustable mortgage) or by extending your repayment period, although these options may increase your total interest costs over time.
An important consideration is how long you intend to stay in your home. If you think you might move in a year or two, the transaction costs may outweigh any potential savings you'll realize in such a short time frame. Another factor is whether there is a prepayment penalty on your current mortgage. When weighing the refinancing costs, adjustable-rate you need to calculate how long it will take to reach the break-even point when your cost savings balance out the up-front fees associated with refinancing. For example, if your new monthly payment is $200 less per month, but you have to pay $3,000 in transaction costs, it will take you a little over two years to start saving money. To get a more precise estimate on your particular situation, enter the terms of the new mortgage into an online refinancing calculator that allows you to see whether it saves you money compared with your current deal.
What will my refinancing costs be?
Refinancing a mortgage always carries some standard costs and usually requires a visit to a lawyer. To make it easier for you, we have a law office in our building and have arranged for special pricing for our clients.
Each refinanced mortgage transaction is somewhat unique, but here are examples of some factors that can affect your final costs:
- changes in title if someone who is currently on title of the home has to be removed for some reason
- multiple mortgages on title that have to be discharged or registered
- many different debts paid out by the lawyer
Your Castle Mortgage specialist will provide you with a close estimate as to the costs associated with your specific refinance transaction, but ultimately the lawyer will determine the actual cost. We always try to ensure there is enough money from your mortgage refinance to cover all of these costs.
Take a look at our easy-to-complete Mortgage Pre-Approval application. Fill out all the fields as accurately as possible in order to speed up the process and allow your Pre-Approval to be processed quickly.
I'm ready to buy a home. How do I get approved?
Having the right mortgage is vital to your financial well-being. Just as you would consult a professional to manage your investments, you should have a professional manage your mortgage financing.
Before making an Offer to Purchase, it is very important to know what type of mortgage financing you are qualified or pre-approved for. Our mortgage pre-approval process considers your total financial picture in order to assess the borrowing limit for your new home. This will include a credit check. Rest assured that the process is highly confidential and we treat your personal information with absolute discretion.
At the end of the process (which does not take very much time at all), you will get a Letter of Pre-Approval that can be shared with the realtor and the seller of the home you want to buy. The letter gives everyone the confidence to proceed and could also give you the edge in a bidding war!
As part of the process, we will be able to provide you with an interest rate that will hold firm for three or four months so you can take your time knowing that your rate is secure.
How much should my down payment be?
It used to be that you needed to put down 25% of the purchase price in order to qualify for a mortgage. That has changed over the years and the Canadian government and the three mortgage insurance companies continue to work together to find ways to make home ownership easier and more affordable for all Canadians.
If you can provide just a 5% down payment you can usually qualify for the best interest rates and mortgage options available.
Our clients have sourced their down payments from personal savings, RRSP savings, investment proceeds, gifts from family, and proceeds from the sale of another home.
Mortgage companies and mortgage insurance companies will require proof as to where your down payment originated. For example, savings in the bank must be proven with 90 days' worth of bank statements to show an accumulation of the savings over time.
Under the Home Buyer's Program, the Canadian government allows you to withdraw up to $35,000 of your RRSP savings (per person on title) with no tax consequences if you have not owned any property in the last five years. It is a great way to use your RRSP savings for your down payment, as you will have approximately 17 years to repay your RRSP withdrawal.
A financial gift from a family member is also a common way to make a down payment. In this case, the family member must complete a gift letter and ensure that the gifted money is deposited to your account at least 15 days prior to your possession date.
How much will my mortgage payments be?
The most important question to answer as you start to plan a budget for buying your first home is 'How much will my mortgage payments be?' It is crucial to know what to expect your monthly or bi-weekly mortgage payments to be, as well as property tax payments, condo fees (if applicable), and utility payments.
Our handy Castle Mortgage Payment Calculator will help you figure out your payments. You can enter your desired purchase price, the percentage of your down payment, and your desired amortization period (how long you'd like to take to pay off the mortgage). Property taxes are very specific to your home's location. A general rule of thumb for estimating your property taxes is to assume that they will be 1% of the purchase price of your home. Divide that number by 12 to estimate your monthly property tax payments.
What will my legal fees be?
In Manitoba, you can estimate your legal fees will reflect 2.5% of the purchase price. Keeping this in mind will help you make sure that you have enough money available to bring to your lawyer's office to close the deal.
The fees break down as follows:
- Your lawyer's professional fee, typically $500 - $600
- A fee for registering a mortgage on your new home at the Winnipeg Land Titles Office - $81
- A fee to perform a tax search on the new property - $35
- A fee to have your lawyer ensure that the property purchased complies with all municipal zoning regulations and obtain a Zoning Memorandum when necessary - $51
- A series of fees for title searches, ordering caveats from microfilm, fax charges, attending at the Land Titles Office to register documents, photocopying, couriers, and other miscellaneous charges – approximately $110 - $175
- The largest component of your legal and closing fees is the Land Transfer Tax. Registration at the Land Titles Office comprises this fee which rises in proportion to the purchase price of your home. Click here to see the current Land Transfer Tax table (see the JMF Law Corp brochure)
- You might require a new Survey Certificate for your home - approximately $375
- A possible Interest Adjustment owing to the seller of the home, depending on how long it takes for the title of your home to change into your name from the seller's name
What kind of documents do I need to show you?
To help us move toward your pre-approval, we'll need the following:
- a current paystub to show your current gross and net pay
- recent T4s or T4As to show your earnings from last year
- an employment letter so that we can learn about your total compensation and the nature of your employment
- a Canada Revenue Agency Notice of Assessment
- your T1 General Tax Return
- 90 days of bank statements.
What is an Employment Letter?
A current employment letter refers to a typed letter on company letterhead, signed by a human resources manager, staff manager or payroll clerk that clearly states your official start date, expiry date of any probationary period, your wage (either your annual salary or your hourly wage) as well as any annual bonus or commission structure, minimum amount of hours worked (if applicable) and your official job title.
This letter must be dated within 30 days of your mortgage application and must provide the contact information for the company or the person providing the letter so that the mortgage company can contact them to confirm the information.
The letter, together with verbal confirmation from your employer, will satisfy the mortgage lender regarding your current employment status as stated on your application.
What is a Paystub?
A current paystub is a computer generated form that indicates your salary or normal hours worked, your hourly wage, your source deductions (income tax, CPP and EI) as well as any other regular deductions for union dues, RRSP or CSB deductions, shift premiums, vacation pay, etc. This paystub must be dated within 30 days of your mortgage application and will serve to further confirm your income as stated on your mortgage application.
What is a T4/T4A?
A T4 form is the summary of your previous year's earned income as reported by the employer. It is a generated by the human resources department or payroll department at your employer and is provided to you usually by the end of February each year. It is normally a pink and white form that is half the size of a letter-sized piece of paper. It will have your name and address information, the name of your employer, your SIN number and your gross income as recorded by your employer. This form will provide proof to the lender of where you worked the previous year and can be used, in some cases, in lieu of an employment letter. In most part time employment situations, a minimum of 2 years of T4 forms must be supplied to confirm an average earned income.
A T4A form looks exactly like the normal T4 form, but it is generated when your income is paid out as commission. Payroll departments must reflect normal salary or hourly income differently than commission or bonus earnings and therefore provide the employee with a T4A form rather than a T4 form. In most cases of commissioned or bonus income, a minimum of 2 years T4A forms must be supplied to confirm an average earned income as stated on your mortgage application.
What is a Notice of Assessment?
Notice of Assessment form is usually a 4 to 5 page form that Revenue Canada sends back to you as a summary of your received Tax Return. It will either contain a refund cheque or a bill for your outstanding taxes for the previous tax year. It is usually a full size sheet(s) of paper and is normally light blue in colour. It will have your full name on it along with your SIN number and the tax year clearly indicated in the top right corner. It is normally requested by a mortgage company for two reasons: to confirm your taxable income (showing as your Line 150 income) and to confirm if there are any outstanding taxes owed to Revenue Canada.
Normally an Notice of Assessment (NOA) would be requested from any self-employed mortgage applicants to prove that no taxes are owing to Revenue Canada as tax arrears could be placed on title of your home and take precedence over any mortgage financing in a sale of the property. The mortgage lender will want to be aware of any potential liability before making mortgage financing available.
What is a T1 General Tax Return?
A T1 General Tax Return is the multi-page document you complete either on your own, with a tax company like H&R Block, or your accountant, for submission of your personal taxes to Revenue Canada. It will contain several pages for your provincial and federal tax calculations as well as several 'schedules' that will contain information about tax write-offs and tax credits. If you are self-employed, your mortgage company may request 2 or 3 years of T1 General Tax Returns to verify that you are indeed filing taxes as a self-employed individual and in some cases, they may want to add back several things into your income in order to better qualify you for financing.
What are 90 Days of Bank Statements?
These statements would be the transactions (deposits, withdrawals, etc.) that have occurred in your bank account. These statements are normally copies of the originals that your bank or credit union has mailed to you or copies printed from your internet bank account. They are normally used to verify to the mortgage company that you have accumulated the amount of money necessary to make up the down payment and closing/legal fees to complete a real estate purchase.
Any large deposits that exceed $2000 showing on your statements (other than normal payroll deposits) will have to be verified by way of copies of cheques deposited or other receipts to satisfy the mortgage company of your ability to save the money necessary for the down payment and closing costs as this is a condition of financing.
Occasionally these statements will be used to verify your receipt of child support, spousal support or pension payments if other traditional forms of documentation are unavailable.
NOTE: These statements must show your name(s) and account number to verify account ownership.
What is an "Offer to Purchase"?
An Offer to Purchase form is the formal document that makes an offer to buy a house. It states the offered price, the down payment, any conditions, and other elements. Your real estate agent of lawyer can help you complete the offer.