FAQ
Mortgage questions, answered plainly
22 of the questions we are asked most. If yours is not here, call and ask it.
Working with a broker
- What does a mortgage broker cost me?
- On standard residential files with institutional lenders, nothing. The lender pays the broker a finder's fee on funding. On alternative, private and commercial files a broker fee is common, and it is disclosed to you in writing before you commit to anything.
- Does using a broker hurt my credit score?
- Less than shopping yourself. We pull credit once and use that single report across every lender we approach. Applying at four banks separately creates four inquiries.
- Can a broker actually get a better rate than my bank?
- Often, though rate is not the only thing that moves. Brokers access monoline lenders that do not have branches and compete almost entirely on price and terms. The larger gain is usually finding a lender whose rules fit your file when your bank's do not.
- Do I have to leave my current bank?
- No. If your bank's offer is the best one available for your file, we will tell you so. That happens and there is no reason to pretend otherwise.
Qualifying
- What is the mortgage stress test?
- Lenders qualify you at the higher of a benchmark rate or your contract rate plus two percent. You are approved on a payment you are not actually making. It reduces what you can borrow by roughly 20% compared with qualifying at the contract rate.
- What credit score do I need?
- Prime lenders generally want 680 or better, with some flexibility. Alternative lenders work well below that. Below 600 the conversation shifts to equity rather than score.
- How much can I borrow?
- Lenders use two ratios. Gross debt service, the housing costs against your income, and total debt service, all your debt payments against your income. Common limits are around 39% and 44%, with room to go higher on strong files.
- Does a car lease affect my mortgage?
- Yes, substantially. A $700 monthly lease payment can reduce your mortgage approval by well over $100,000. If a purchase is coming, do not take on a vehicle payment first.
- Can I use a co-signer?
- Yes. A co-signer's income and credit are added to the application, and so is their liability. They are fully responsible for the mortgage and it appears on their credit report, which affects what they can borrow themselves.
Down payment and closing costs
- What is the minimum down payment in Canada?
- 5% on the first $500,000, 10% on the portion from $500,000 to $1,500,000, and 20% on any property priced above $1,500,000. Rental properties need at least 20% regardless of price.
- What is default insurance and who pays it?
- Required when you put down less than 20%. It protects the lender, not you, and you pay the premium. It is normally added to the mortgage rather than paid up front.
- What should I budget for closing costs?
- Between 1.5% and 4% of the purchase price. Land transfer tax is the largest item. Toronto purchases pay it twice, provincial and municipal. Legal fees, title insurance, the status certificate and adjustments make up the rest.
- Can my down payment be a gift?
- Yes, from an immediate family member, with a signed gift letter confirming it is a gift and not a loan. The lender will also want to see the funds arrive in your account.
Rates, terms and penalties
- Fixed or variable?
- Fixed buys certainty and carries a penalty formula that can be expensive if you break it early. Variable moves with prime and normally carries a three months interest penalty, which is far cheaper to exit. The right answer depends on how long you will hold the mortgage and how much payment movement you can absorb.
- What does it cost to break a mortgage?
- On a variable, usually three months of interest. On a fixed, the greater of three months interest or the interest rate differential. The IRD on a low-rate mortgage with years remaining can run well into five figures. Always ask your lender for the figure in writing before making any decision that depends on it.
- What is a collateral charge?
- A mortgage registered for more than the loan amount. It makes borrowing more later easier without new legal fees, but usually means paying legal costs to switch lenders at renewal. Worth knowing before you sign, not at renewal.
- What are prepayment privileges?
- The amount you can pay down each year without penalty, typically a 15% to 20% lump sum and a 15% to 20% payment increase. Products with the lowest rates often have the tightest privileges.
- Do you publish your rates?
- No. A rate posted on a website is out of date within days and tells you nothing about which lender will actually approve your file. Call and we will give you a live rate for your situation, dated, along with the terms attached to it.
Credit problems and past insolvency
- Can I get a mortgage with bad credit?
- Frequently, through alternative lenders, at a higher rate and usually with a lender fee. Equity and income matter more at that tier than the score alone. We will tell you honestly whether a file has a real chance before you spend money on it.
- Can I get a mortgage during a consumer proposal?
- Sometimes, particularly where the proposal is being paid out in full through the mortgage using home equity. After discharge, alternative lenders will often look immediately and prime lenders generally want two years of re-established credit.
- Does S2 Mortgage Group file consumer proposals?
- No. We are mortgage agents, not Licensed Insolvency Trustees. Only an LIT can file a consumer proposal or administer a bankruptcy. We arrange mortgage financing and are happy to work alongside your trustee.
- I have tax arrears with CRA. Can I still refinance?
- Often yes, and clearing CRA arrears is one of the most common reasons people refinance. CRA can register a lien ahead of a mortgage, which is why most lenders want the arrears paid out through the transaction.