Commonly Asked Mortgage Questions

What is a “High Ratio” Mortgage?

·         A mortgage with a down payment of less than 20%

What is a “Conventional” Mortgage?

·         A mortgage with a down payment of at least 20%

What is a “Fixed Term” Mortgage?

·         The Mortgage interest rate and payment are set for a specific term anywhere from 1 year to 10 years.  This mortgage can only be paid prior to the end of the term by paying a penalty.

What is an “Open Mortgage”?

·         The Mortgage interest rate and payment are sent for a specific term normally from 6 months to 2 years.  These mortgages can be paid out at any time without penalty.

What is a “Variable Rate” Mortgage?

·         The Mortgage rate fluctuates with the prime rate either at the prime rate or at a specified rate above or below prime.

What is a “Secured Line of Credit”?

·         Commonly referred to as a Home Equity Line of Credit or HELOC. It is a revolving line of credit with an interest rate that floats with the prime rate. The maximum LTV on a HELOC is 65%. 

What is “Amortization”?

·         It is the time taken in order to pay off the mortgage while making your regular payments. Any payments made over and above your regular payment will reduce the Amortization period. The maximum amortization in Canada is 25 years for insured mortgages.

What is a "Term"?

·         This is a shorter period of time within the total amortization period. When you set up your mortgage, you will commit to a set period of time, typically 1-10 years. There is usually a payout penalty if you break the mortgage within the established time frame. As a general rule, the shorter the term is, the lower the rate.  

What is a “GDS” Ratio?

·         “GDS” refers to Gross Debt Service.  Generally you cannot commit more that 35% of your gross annual income towards that payment of principal plus interest plus property taxes and heat (plus 50% of condominium fees). If your credit score is higher than 680, you may be able to increase the maximum to 39%.

What is a “TDS” Ratio?

·         “TDS” refers to Total Debt Service.  Generally you cannot commit more than 42% of gross annual income towards the payments under “GDS” plus payments on all other debts. This includes credit cards, loans, support payments, ext. If your credit score is higher than 680, you may be able to increase that limit to 44%.

What is “LTV”?

·         Loan to Value refers to the size of the loan in comparison to the value of the property being purchased. The maximum Loan to Value for a primary residence purchase in Canada is 95%. The maximum refinance LTV is 80%. The maximum for a rental purchase is 80%. 

Who is CMHC?

·         Canadian Mortgage and Housing Corporation (CMHC) provide mortgage default insurance for purchasers with less than 20% of the purchase price to put down.

Who are Genworth and Canada Guaranty?

·         Provides the same services as CMHC. The programs are very similar however there are several small differences such as with the self employed and second home programs.

What fees are involved with CMHC, Genworth or Canada Guaranty?

·         A premium based on a percentage of the loan.  It is generally added into your mortgage total.

What fees are involved with using a Mortgage Broker?

·         Mortgage Brokers are paid by the lender not the borrower on most high ratio and conventional mortgages.  Fees are charged only with prior written consent of the client on non-conventional mortgages.

Any other questions? 

Call Christine Buemann – DLC Canadian Mortgage Experts 250.612.9140

www.christinebuemann.ca