Compare Mortgage Rates

Open and Closed 1st Mortgages

There are 2 types of first mortgage loans in Canada – open and closed.

With an open mortgage you can pay off the balance at any time, without any penalties. For example, if you have a $200,000 house loan and receive $5000 in unexpected income, you can apply those extra funds to your mortgage and significantly reduce the interest owing over the life of the loan. You may also pay off your entire 1st mortgage loan if you have the money to do so. There are no penalties or extra charges.

Open mortgage financing is perfect for business owners who have fluctuating income, or who own a business that is generating extra cash. A fully open mortgage loan has a higher interest rate than a closed mortgage home loan, since you can pay it off or reduce the balance by any amount at any time.

A closed mortgage loan has a lower interest rate and may allow additional monthly payments as well, depending on the product. If you decide to pay more one month, some lenders may impose a penalty. A closed 1st residential mortgage is perfect if you earn a salary or get paid on hourly basis.

Fixed Rate and Variable Rate Mortgage Loans

Should you select a fixed first mortgage rate, or an adjustable first mortgage rate? Both options have their pro's and cons:

Fixed rate mortgage - rates stay fixed for the entire term of the mortgage. For instance, if you have a first mortgage rate of 4.2%, then your payments will stay fixed for the duration of your home loan no matter how much higher or lower interest rates go. Your monthly mortgage payments will never change. This is a perfect option if you are on a budget and prefer flat, predictable payments, and knowing that your payments will never rise. As a first time home buyer this may be the product of choice for you.

Variable rate mortgage – rates could change many times over the course of the term, in fact, they could change several times a year depending on the movement of the prime rate. Rates may go up or down, making monthly payments fluctuate. Statistically, variable interest rate mortgages have been shown to save money long term, but there is no guarantee of the same being true in the future. Variable rates may save you money if you are rate savvy and you are comfortable with the risk.

Down payment for your First Mortgage

Due to the current global financial slowdown in the economy, Canada Mortgage and Housing Corporation (CMHC) has discontinued zero down payment mortgages, making it the law to put down at least 5% on all first mortgages.

Some lenders still offer cash back mortgages but be prepared to pay more through a higher interest rate. Keep in mind also, making the down payment for your home loan as large as possible can save you a considerable amount of interest over the term of your mortgage.

If you don't have sufficient down payment for your new home financing, you may use the Home Buyers Plan, where you are eligible to withdraw up to $25,000 interest free (per person) from your Registered Retirement Savings Plan (RRSP). However, the money must be paid back into your RRSP within 15 years. For more information please refer to the Home Buyers Plan (HBP) website.

Through Kanetix, you can also obtain a "cash back" first mortgage, whereby your down payment can come from the lender and is reflected in the form of a slightly higher interest rate.

Income Requirements for Financing a Home

Your income directly affects the size of the mortgage you can obtain. The government has regulations in place allowing you to use only 40% of your Gross Total Income towards your home mortgage. This helps stabilize the housing market and keeps defaults to a minimum, further securing your investment for the future.

Kanetix can help you obtain a 1st mortgage at the lowest possible interest rate and best terms. Please take a moment to review some of the income factors that affect your first time home buyer loan application:

• Salary based income requires any (or a combination) of the following verifications: official income verification from your employer, bank statements, T1 general tax form, pay stubs, T4's etc. etc.
• Sales based and business incomes require track records in the form of Tax Returns, Notice Of Assessments (NOA’s) and bank financial statements. If you are a business owner who strives to minimize taxable income, Kanetix shows rates for products like specialized first home mortgages for business owners, which have reduced documentation requirements.

Other types of approved income for the Canadian mortgage lenders with which Kanetix partners include: pension income, rental income, maternity leave payments (with official confirmation from the employer), alimony payments, disability income, overtime earnings, commissions, profit sharing and cash income.

In order to qualify for a first home buyers mortgage, your income must have a certain “Total Debt Service Ratio” or TDS, which is a calculation of the ratio between your income, debt payments and living expenses. The expenses, such as credit card payments, heating, water, electricity, mortgage, etc should absorb a maximum of 40% of your monthly income. (Although some lenders will allow the number to go up to 44% provided you have good credit and a good payment history.)

First Mortgage Closing Costs - Home Loan Closing Costs

Every home buyers loan (mortgage) incurs closing costs which include home inspection fees, lawyers fees, taxes etc. etc. Closing costs for various kinds of mortgages can add up to anywhere from 1.5% to 4% of the total home loan value.

These costs include but are not limited to (use only as a guide):

• Land Transfer Tax This mandatory provincial tax ranges from 0.5% to 2% of the home value, depending on your province or territory.
• Appraisal Fee –appraisal is an assessment of your property. Mortgage lenders hire independent appraisers that estimate price of the property based on factors such as location, condition, and size. Appraisers also compare your home to other homes in the area. This fee can be several hundred dollars (prices vary in different cities / provinces). If you are obtaining mortgage insurance, your insurer will cover the cost of this fee in most cases.
• Legal Costs – Closing a mortgage will require the assistance of a real estate lawyer who will review and verify the legality of various documents as well as confirm your identity.
• Title Search ensures that you will be the rightful owner/s of the property and that there is no discrepancy or dispute regarding ownership of the property.

First Mortgage Rates and Your Credit Score

Your credit score has a crucial role to play in the mortgage interest rates you qualify for. The higher your credit score, the lower the interest rate you will be offered.

Your Credit score (also known as your Beacon Score) has 5 measurement factors:

1. Payment history – do you pay loans and credit cards on time? If so, your credit rating will likely be good and will assist in qualifying you for a lower rate. The lower your credit card balance and the faster you pay borrowed debts, the better it is for your credit score. Paying bills on time is one of the surest ways to raise your credit score.
2. Total Debt Owed – Keep credit card balances low (between 4%- 12% of available balance), and try paying loans / mortgages as fast as you can to improve your credit score.
3. Credit History – older credit cards and loans have bigger impact on your overall credit score than newer credit cards because they retain a longer payment history. Try keeping old credit cards open, and renegotiate terms with banks when necessary in order to keep the oldest cards on your credit report.
4. New Credit – credit bureau agencies keep track of the loans you've applied for and have been approved for as an indicator of your creditworthiness.
5. Types of Debt – mortgages, student loans and car loans have a greater impact on your credit score than credit cards because they reflect fixed and regular payments and are indicative of financial responsibility. However, having a good mix of both in your credit history is ideal for your credit score.

Kanetix has been successful in offering Canadians an insurance comparison tool through which hundreds of thousands of people have saved millions of dollars on their insurance policies. Begin the process right now, by entering your postal code at the top of this page. Start saving money today!

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