Canadian Mortgages: What Every Newcomer Should Know
If you’re new to Canada, you’ll find the mortgage market is a little different form the U.S. and other countries. In order to get you started on the process, here are a few helpful tips that every newcomer should know about Canadian mortgages.
Newcomers should know that you have to meet some basic requirements before you can apply for a Canadian mortgage. You must:
-have had your immigration period within the last 36 months
-have a valid work permit or proof of landed immigrant status
-be able to prove your income
-prove you have funds available for a down payment
-have at least three months of full-time employment in Canada
-have some kind of an agreement of purchase and sale for a home
-obtain a reference letter from a financial institution
-have bank statements dating back six months from a primary account
-have an international credit report showing good credit history or some alternative report – like a rental history or letter from a utility service provider – showing no missed payments
Tips For Getting Your Canadian Mortgage
This applies in all markets, but it’s especially true in Canada. Newcomers should study all available options. Lenders often offer discounts to informed and savvy borrowers and charge normal or higher than normal rates to uninformed newcomers.
The Bank of Canada’s 2011 study on price discrimination showed that lenders do this as a matter of practice. Because the Canadian mortgage market is fully backed by a government insurance system, lending decisions are not driven by a traditional risk-based pricing model.
For this reason, it’s not the risk that you pose to the bank that may affect your interest rate but rather how good a shopper you are.
Don’t pay the posted rate.
The posted rate you see is not always the one you pay. Lenders are often willing to negotiate that rate, but no lender will tell you this upfront.
This doesn’t mean the bank is trying to scam you. It just means that you need to understand the rules of the marketplace. Like in many countries, prices aren’t absolute.
Contract terms can be flexible.
For example, if a lender offers you a low-interest mortgage, you can ask for no prepayment penalty on the contract. You can also ask for portability or assignability.
Prepayment penalties are often a stipulation of very low-interest loans. It gives the lender some assurance that he will profit from the transaction. If you ask for no prepayment penalty, the lender may increase your interest rate. In many cases, this is worth it for the added flexibility.
In Canada, you can take your mortgage with you if you move, or assign it to another buyer. These provisions don’t come with all contracts, however, so newcomers should ask for them if it’s important to you.
Hire a broker/mortgage agent to work for you on your behalf.
As a newcomer, the process of negotiation may seem daunting. If you’re uncomfortable or if you’re just not a good negotiator, consider hiring a mortgage broker.
Brokers will shop the marketplace for you. They don’t work for banks. Instead, they act as a liaison between you and the lender. Brokers can often get very creative with financing since they are motivated by commissions.
While some buyers are wary of this type of compensation, it provides an excellent incentive for the mortgage agent to put together a deal that achieves your financial goals. If the broker isn’t able to perform for you, he doesn’t get paid.
If you plan on buying or selling a home, contact me today! 647-287-8744 or visit http://www.kylebouchard.ca
To learn more about your mortgage or to get a free pre-approval, visit http://www.centum.ca/kyle_bouchard