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Buying a home is one of the biggest life purchases you'll probably ever make. You want a beautiful home at a competitive price, and you can get it, but only if you plan ahead. Whether you're buying a new house or refinancing an existing one, it's the planning that will get you there.

Making informed financing decisions will help make home ownership affordable and viable in the long run. Figuring out how you'll save for a down payment is a crucial step in the mortgage process, even more than looking out for a great price or making a monthly budget.

Here are 6 tips on how to plan for a mortgage:

1. Down payments are generally 5% to 20% of the purchase price

However, the more you're able to put down upfront, the better it is in the long run. If you can place a larger down payment, your payments and the interest on them can be reduced. Although down payments can range depending on factors such as your history, background, and credit score, the average down payment is between 5% to 20% of the purchase price. Don't forget to add the cost of mortgage insurance on top of that as well.

2. Saving can go a long way

As most financial experts will tell you, saving is key, and the earlier you start, the better. Here are some easy strategies for long-term saving:

1. Have a separate savings account just for your mortgage. This will prevent accidental spending and allow for the accruing of interest, especially if you start early.

2. Allow for automatic savings transfers. Turning on auto-deposit to ensure a portion of your paycheck goes out to your savings account every month is helpful. If you're able to put away expense cheques, tax refunds, and bonuses into this account, it'll help you build it up to a sizable amount.

3. Research growing money safely. Our team suggests that you look for a moderate solution, with reliable interest that's low risk (term deposits or high interest savings accounts are a great option).

3. Purchase within your means

This involves figuring out your housing costs, which include the mortgage principal and interest, taxes, hydro, and half your home fees. Mortgage professionals will then decide on the amount to lend you, but the general rule of thumb is that your housing costs shouldn't exceed 32% of your total income. If you have outstanding debts such as for other homes, cars, or credit cards, then the total amount shouldn't exceed 40% of your total income. This is termed the "total debt load" that you carry each month.

Considering these fixed costs you may have, our team of financial experts advise that it is always better to borrow within that maximum amount and never exceed what you're allowed or need. In fact, the less you're able to borrow, the better. This is because of the daily fluctuations in life that we all go through: your income may stop, expenses may go up, or interest rates may increase. It is more financially sound to take on a smaller mortgage and stay within your means.

4. Interest rates add up

Although it may not seem like it, those interest rates sure do add up! Do your due diligence before settling on a mortgage lender; an interest rate of 3% versus 4.5% may be the deciding factor on how quickly and easily you're able to pay off your mortgage. For example, if interest rates rise from 5% to 7%, then renewing a $250,000 mortgage will cost you an extra $300 a month. Therefore, examining interest rates and their clauses carefully is extremely important.

5. Understand the difference between rate hold and pre-approval

Many large banks will tell people that they are pre-approved to qualify for a house. In reality, there isn't enough due diligence done on the bank's end to make sure that the individual is qualified. Banks can only qualify you after verifying your credit and credit scores.

To make sure you're actually pre-approved, be sure to ask your banker or broker what your credit score is and go over any debts and payments. Sending supporting documents like a letter of employment, pay stub, and proof of down payment is helpful in getting approved as well. Working with your broker to make sure that you have a rate hold in case mortgage prices rise is another key step to go house shopping in confidence.

6. Avoid becoming "mortgage poor"

Owning a home is expensive. Fixing problems in a house can cost thousands of dollars, which you'll have to bear, rather than calling your landlord or condo maintenance. Therefore, the cost of running a house should be considered properly, especially for first-time owners. This is why it's important to stay within your maximum purchase price and start with an amount that is affordable and viable in the long run. If your house payments leave you strapped for cash every month, then it will result in being "mortgage poor" or "house poor".

At Canadalend, our team understands the stress of a first-time purchase, but our best advice is to set aside enough money for your payments with a little left over for emergencies, holidays, and fun! This will ensure you're not taking out loans on top of loans, and that you're slowly but surely building up towards your dream home without paying more than the original price.

There you have it: 6 mortgage planning tips that you probably didn't know. Here's a bonus tip: make sure you have a great team of experts to consult with so that you make sound financial decisions. Our agents have specialized industry knowledge to help guide you through your unique house-owning journey.

To book an appointment or for more mortgage advice, call us at 1-866-422-6536 or contact us here.

If you’re self-employed, you’re definitely not alone. Over the last couple of decades, self-employment levels in Canada have risen greatly, with over 2.9 million Canadians leaving the traditional workforce in 2018 alone. Through the advent of unconventional jobs with different ways of working, Canadians have the freedom to explore more than just the usual job structures.

Currently, 15% of the nation are self-employed, which is a pretty big chunk of the population. Although there are a lot of benefits to being self-employed, it does come with its own hurdles. Getting approved for self-employed mortgage loans isn’t impossible, but it is relatively difficult compared to other kinds of mortgage loans. Canada’s big banks and companies have implemented several strict lending rules, while the Canadian Mortgage and Housing Corporation (CMHC) discontinued mortgages for the self-employed unless verified by a third party.

This is simply because there is a higher risk associated with lending to those with unpredictable, varying, or unreliable streams of income. That being said, awareness of some strategies to implement can definitely guide you on your way. Here is how to get a mortgage if you’re self employed.

Why is it difficult for self-employed workers to get mortgages?

Despite the increasing number of self-employed workers, getting approved for self-employed mortgage loans is getting more complicated. The Office of the Superintendent of Financial Institutions (OSFI) released guidelines in 2014 that called for federally chartered lenders to inspect self-employed buyers even more closely. Simply put, the 2014 B-12 bill puts a usually simple process under more scrutiny, making it harder for self-employed workers to prove their income.

While salaried employees are easily able to get a mortgage by showing documents such as a T4, letter of employment, and recent pay stubs, these documents are often not available for most people who work for themselves.

What documents do I need to get approved?

Self-employed individuals usually utilize stated income applications to aid them in their mortgage application process. Stated income applications are used by borrowers who cannot portray their income in the usual manner or using traditional avenues. This application requires a signed income declaration and proof of self-employment, and is formulated based on how much individuals claim to earn.

For your stated income application to be accepted, lenders will need you to provide the following supported documentation as well:

1. Income tax returns. These need to date back the last two to three years. Additionally, your tax returns need to be showing profits (even minor profits help) because if they point out a loss in revenue, then most lenders will not look favourably upon your application.

2. Notice of assessment. The Canada Revenue Agency (CRA) will provide you with a notice stating that you do not have any outstanding tax payments. This helps prove to lenders that you’re a reliable borrower.

3. HST and/or GST payment proof.

4. Copy of your business license, or articles of incorporation work as well.

5. Expected revenue predictions. These are documents that demonstrate your expected revenue for the next few years, and will come in handy to prove your income is stable and consistent.

6. Down payment of 10-15%.

7. Business ownership. This is evidence to support how much of the business you own.

8. Bank statements. You will also need to provide bank statements (both business and personal) for the past 6-12 months to prove revenue and earnings.

That’s a lot of documents! Our team at Canadalend.com has helped countless self-employed workers get approved for mortgage loans, and we have a few additional recommended documents. It is beneficial for self-employed workers to have a good credit score in addition to the required documents; you can check your credit score online easily with a credit bureau like Equifax or TransUnion. A debt service ratio measures borrowers’ ability to make monthly debt payments on time, and is also usually reviewed before an approval. So, be sure to check your ratio to make sure you’re on the right track to get easily approved for a self-employed mortgage loan.

How are self-employed individuals classified?

There are many definitions as to what constitutes as self-employed, but such individuals range from being business owners and IT contractors to doctors and freelancers. Owning a farm or rental properties can also classify as being self-employed. The different business structures that self-employed individuals are classified under are what is important in getting mortgage approval and loans.

A lot of lenders will classify self-employed individuals in various groups based on business type. You could get classified under the commission sales, corporations, sole proprietors, or partnerships group, and this directly affects your mortgage approval or rejection. For example, owners of incorporated businesses pay themselves a salary, and are easily approved for self-employed mortgage rules, as their salary structure is more traditional. Thus, unincorporated businesses and sole proprietorships can benefit by incorporating, although it is best to speak to a certified professional in the business.

What Non-Traditional Lenders Can Offer

Stricter lending rules are squashing the home-ownership dream for so many Canadians. The tightening of the CMHC guidelines don’t take into account the struggles of entrepreneurs, and this trickles down into the lending rules of Canada’s big banks. Instead of struggling to get approved with strict lending rules, consider turning to those who work with private mortgage brokers. This makes the process easier for many self-employed workers because it allows potential borrowers the chance to secure a mortgage without the stress of rejections and with more specialized support. Working with non-traditional lenders will grant you access to hundreds of different lenders, many of whom specialize in lending to those who are self-employed and may not qualify for the banks’ stricter terms.

Whether you’re a commission-based employee or a business owner, if you’re struggling to get approved or don’t know where to start, then our team at Canadalend.com is here to help. Our mortgage brokers are knowledgeable and with years of experience with self-employed individuals, we are qualified to help you in your unique situation. From creating a plan of action to making sure you get specialized services and great mortgage rates, our brokers will guide you throughout your home-owning journey. 

To book an appointment or for more mortgage advice, call us at 1-866-422-6536 or contact us here.

Refinancing your mortgage is kind of like hitting the reset button: you get to start from scratch by paying off only what’s left of your original mortgage agreement. This can allow you to get a better rate or lower payments on your mortgage. Since home ownership in Canada is on the rise, around three-quarters of Canadians who own a mortgage have a fixed rate mortgage. This leads to equity ownership in homes, which can be helpful when financial stress from other payments and bills starts mounting up.

Refinancing can be an attractive strategy, especially considering today’s low interest environment. Read on to find out if it’s the right move for you.

Why should I refinance my mortgage?

People decide to undertake home mortgage refinancing for a number of different reasons. Some may want to take advantage of lower interest rates for reduced payments, while others look to get access to more money through reduced payments which they can then use for other expenses, such as renovation or education.

The key benefit to refinancing is that you can build up equity faster, while also paying your mortgage off - and you can do these simultaneously. You’ll save money in the long term through better interest rates and lower monthly payments.

What about your existing mortgage plan?

Refinancing can only be the right strategy for you if it makes financial sense against your previous or existing mortgage plan. Deciding on home equity mortgages as a strategy can be stressful, so consider these three steps when evaluating your plan:

1. Reach out to your mortgage lender

Your lender will be equipped to answer a full range of questions from how difficult it would be to get out of your existing mortgage to how much you can borrow. Some lenders will have blended rate options or discounts on the prepayment plan, so make sure you know the options available to you.

2. Find out about your mortgage prepayment charge

The general rule of thumb for the prepayment charge is 3 months of interest payments. For a fixed rate mortgage it’s generally the higher of three months of interest payments and an interest rate differential amount. Of course this varies by financial institution and the existing clauses in your mortgage. Refer to a trusted lender or advisor on the interest rates and prepayment charge to ensure you’re getting the best rate.

3. Do your due diligence

Make sure to go over the clauses in your mortgage plan - and then go over them again. Also remember, although you may find a better deal somewhere else, switching your home equity mortgage and refinancing to another institution may rack up expenses. You often have to pay legal, administrative and registration costs charged by the other lender, so definitely consider if these costs are worth the amount you save with the mortgage.

Current Rate vs. Today’s Rates

If you have a five year fixed rate mortgage with a value of 3% or higher, a refinance is worth considering. The savings on what you’re paying today should generally be higher than the cost of any penalties or refinancing costs such as the legal or administrative fees mentioned above.

Doing an analysis of the rates will help you gauge if it’s the right time for a home equity mortgage refinancing. Due to the Covid-19 pandemic, interest rates are constantly fluctuating. Although fixed and variable rates started going down late 2019, the interest rates are creeping up again.

However, because the economy and housing market is currently down, banks and other financial institutions are implementing policies to incentivize the market to go back up. Although the market is constantly changing, it is forecasted that there will be adjustments to rates. If you’re convinced you want to refinance but have just been looking out for the perfect moment to act, now may be the right time.

Take Account of Your Other Debts

If you’re trying to figure out if refinancing is for you, consider your other debts - both past dues and ones you may incur in the future. Remember to include any interest rate savings realized by including your other debts. Sometimes, these can be rolled in with your new mortgage as well and factoring in these new savings may help you decide if this strategy is for you.

For those with high interest debt this may be a great solution, saving you money over the long term. It can also dramatically improve your cash flow. Again, factor in the payout penalty fees. If you find that your potential saving outweighs the earlier cost, that can help you with your decision.

Refinancing has to save you money and increase your cash flow. If you’re able to put some of this newly saved cash back into your mortgage, that’s another strategy to speed up your payment plan.

At Canadalend.com we understand that considering the possibility of home equity refinancing may be stressful and oftentimes confusing. Always remember that refinancing is a strategy that replaces your current loan with a special one that is tailored to your needs, so the refinancing should make financial sense to your situation. Our team of licensed mortgage refinancing experts can help guide you on the best strategy for your lifestyle and financial needs.

If you’re considering refinancing your mortgage, contact CanadaLend today at 1-866-422-6536 or contact us here.

If you’re a Canadian homeowner, then you’re probably all too familiar with mortgages. However, what do you know about second mortgages? Although over two million people in Canada have taken out a second home mortgage, many are still unclear about how this type of mortgage works.

Building up equity is a great advantage of owning property. If you’re able to use that equity sooner rather than later, then all the better! Second mortgages can be greatly advantageous. Here are 6 things you need to know to build up your assets.

1. What exactly is a second mortgage?

Let’s start with the basics. While a primary mortgage refers to the first loan undertaken by homeowners for property, a second loan acquired for the same property is called a second mortgage.

A second home mortgage is granted before the primary one is fully paid off. The total amount, however, depends on the equity of the house bought through the first mortgage. Here, equity refers to the value of a property minus mortgage debt and loans, and is calculated by subtracting the value of the property from the remaining balance left over from the primary mortgage.

Essentially, the higher your property equity, the higher the chances of getting a second mortgage. A second home mortgage is the loan that a lender will present to you based on the equity you’ve built up over the years. The key advantage to this kind of mortgage is that it will allow you to access up to 95% of the equity you’ve already built up just by owning the property.

2. There are different kinds of second mortgages

Second home mortgages can come in the form of different loans. The options allow homeowners to pick the one that is most suited for their existing loan and equity history. The two kinds of second mortgages are:

1. Home equity loans: This type of second mortgage will allow you to use the loan money only once. After the lump sum is used and spent, there will be no more money available to use.

2. Home equity lines of credit: The second kind of second mortgage functions like a revolving loan. The homeowner is extended a line of credit, which allows for flexibility in drawing out the money when needed, paying it down, and using it over and over in different circumstances.

3. The amount you can borrow varies

The total amount you can borrow for your second home mortgage is directly linked to how much existing equity you’ve built up for your property. For example, if the value of your home is $300,000 and you still have $250,000 remaining to pay off, then the equity for your home will be $50,000. The higher your equity, the more likely you are to qualify for that second mortgage. Lenders will usually have restrictions on the loan-to-value (LTV) ratio to take second mortgages into consideration.

Therefore, if you’ve built up some equity, a second mortgage is a great way to access money fast. However, since the rates and conditions attached depend on the lender you go to, make sure you do your research and find a lender who works best with your financial history. A credit score and income do not typically play an important role when qualifying for a second home mortgage, which is great for those that do not meet typical income or credit qualifications required by traditional institutions.

4. You can use your equity in different ways

A great advantage of buying a home is that you’ve accrued equity over time. Second home mortgages allow you to use that money to your advantage.

The options you have in how you wish to use your equity are limitless. You can use the funds for home improvements, education, and emergency funds. At Canadalend, our team has seen that a popular way to use a mortgage among Canadians is to make an investment, such as buying a rental property. Utilizing your second home mortgage is even more beneficial, as the entire interest on the loan becomes a tax deduction.

5. Second mortgages improve your credit

Borrowing money to pay off any existing debt can be challenging if you have bad credit. Those with low credit scores often think they will not be eligible for certain loans, but when it comes to second home mortgages, this is simply not true!

Taking out a second mortgage and gaining access to your equity is helpful in paying off any outstanding debts immediately, and preventing interest from adding up. Reach out to a mortgage lender who will let you take out your second mortgage, as many traditional banks will not let you take out the loan. You can then use that loan to pay off debt and build up your credit score at the same time.

6. It is easier to qualify with a private lender

Traditional banks and financial institutions often have severe rules in place, thus restricting the kinds of people who are able to apply for loans. Referring to a private lender for your second home mortgage can be beneficial because they often have less stringent conditions and guidelines in place. The regulations and internal policies are more flexible, which is great for homeowners with varying financial backgrounds!

Private lenders will also have guidelines for their loans that determine if the homeowner is a low or high risk. The better you can make your case for why you’d be a good risk for the lender to support, the better pricing you’ll get and the more you’ll be able to borrow.

To conclude, acquiring a second mortgage can be greatly advantageous. Not only does your credit score improve, but you can also get a lower rate, choose to pay off only interests and make your monthly rate lower, and use the money from the mortgage however you choose. Do you want to learn more about second home mortgages and how you can apply them to your life? Our team is happy to answer any questions and concerns you may have.

For more information on second home mortgages, call Canadalend at 1-866-422-6536 or contact us here.