Moving to Canada? Plan Ahead for Homeownership

If you have a job awaiting you on Canadian soil, it’s possible to also secure the
purchase of a home if you plan ahead and connect with professionals before you
even begin packing.

The main reason you’ll want to get in touch with the right professionals before you
start to pack is to find out what important paperwork you’ll need to set aside
to ensure smooth sailing through the home financing and purchasing processes.

Your first step should be to get in touch with an experienced mortgage professional.
In doing so, you can set the home financing process in motion by securing a
mortgage rate guarantee and pre-approval, and figuring out what supporting
paperwork you need to provide to purchase a home in Canada.

The services of mortgage professionals are typically free – they are paid by
lenders for bringing in new business. Mortgage professionals have access to
multiple lenders – including banks, credit unions and trust companies – where
they can compare products and rates, and find the ideal mortgage to meet your
unique needs.

In most cases, Canadian mortgage lenders and insurers want to see employment
letters that prove your offer of employment and salary in Canada. You must also
have at least a 5% down payment for the home from your own resources – which
means it has to be your own money, not borrowed or gifted. So, for instance, if
you’re selling your home in another country and using some of the proceeds as a
down payment on a home in Canada, you must be able to prove this.

Lenders and insurers also want to see that you have a solid credit history. Although
requirements for this proof varies based on which insurer and lender your
mortgage is funded through, your mortgage professional will be able to tell you
exactly what documents you’ll need to provide. Often, an international credit
bureau is sufficient to prove your credit history. If this is not available,
you can also provide 12 months’ worth of bank statements, mortgage or rental payment
receipts, utility or telephone bills, and so on. Again, there are several
options from which to choose and your mortgage professional will be able to
specifically tell you what a particular lender and insurer want to see.

You must also apply for landed immigrant status to get the ball rolling on securing
your social insurance number (SIN), which is required before you begin working
in Canada.

By securing mortgage financing prior to moving to Canada, all you have to do when
you arrive is find a home. This will be an easier task when you already know
exactly how much you can spend thanks to your pre-approval.

And since your mortgage professional can put you in touch with a trusted real
estate agent prior to your move, you will also be able to research homes before
you arrive in Canada. Again, real estate agents do not typically charge a fee
to find you a home to purchase.

By planning ahead before making your move, you truly can save yourself a lot of
hassle and stress when it comes to securing mortgage financing and purchasing a
home.

And if you’re already living in Canada, many of the available New to Canada
mortgage products apply to new immigrants who have been in the country for up
to 36 months.

Paperwork to gather/set aside before packing:

• Proof of employment and salary in Canada
• Proof of at least 5% down payment from
  your own sources
• Government proof of residency application
• Copy of your immigration papers
• Copy of your passport
• Credit report
• Mortgage or rental payment receipts for the past 12 months
• Bank statements for the past 12 months
• Utility and phone bill payments for the past 12 months
  

As always, if you have any questions about this topic, or mortgages in general, please do not hesitate to contact me.

Remaining Proactive in Trying Times

With the uncertainty of job loss racing through many people’s minds these days, taking a proactive approach to this issue by putting mortgage payments aside while you’re still actively employed can help set your mind at ease.

Planning for the future and potential job loss is one of the most important undertakings you can make to ensure you can pay your mortgage in an uncertain economy.

Dominion Lending Centres Mortgage Professionals often suggest you put money aside each pay period so you can place six to 12 months’ worth of mortgage payments into a short-term GIC as security for a possible job loss.

And, best of all, if your job remains secure, you can take the money out of your GIC and make a pre-payment back on your mortgage on your anniversary date, which can end up saving you thousands of dollars in interest payments.

Refinancing to Access your Home’s Equity

But if it’s not plausible to save money each pay period, refinancing to access the equity you’ve already built up in your home is another valid option for planning ahead in uncertain times.

In addition to freeing up money to store future mortgage payments in a GIC, some of the money can also be used to pay off high-interest debt – such as credit cards – and get you and your family off to a fresh financial start.

You will find that taking equity out of your home to pay off high-interest debt can put more money in your bank account each month.

And since interest rates are at historic lows, switching to a lower rate may save you a lot of money – possibly thousands of dollars per year.

There are penalties for paying your mortgage loan out prior to renewal, but these could be offset by the extra money you acquire through a refinance.

With access to more money, you will be better able to manage your debt. Refinancing your first mortgage and taking some existing equity out could also enable you to make other investments, go on vacation, do some renovations or even invest in your children’s education.

Keep in mind, however, that by refinancing you may extend the time it will take to pay off your mortgage.

Options for Paying your Mortgage Down Quicker

There are many ways to pay down your mortgage sooner that could save you thousands of dollars in interest payments throughout the term of your mortgage.

Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money.

Another way to lower the time it takes to pay off your mortgage involves changing the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage.

If, for instance, you have a $100,000 mortgage, an interest rate of 5% and an amortization period of 25 years, your monthly mortgage payment would be $581.60 and your total payments for a year would be $6,979.20 ($581.60 x 12).

To understand the savings accelerated bi-weekly mortgage payments can make, take the monthly mortgage payment of $581.60 and divide it by two ($581.60 ÷ 2 = $290.80).  Next, take that payment and multiple it by 26 to arrive at your total payments for the year ($290.80 x 26 = $7,560.80).

As you can see, by using the monthly mortgage payment plan, you’ve made payments totalling $6,979.20 for the year, while using the accelerated bi-weekly mortgage plan you’ve made payments totalling $7,560.80 – a difference of $581.60. 

Basically, with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year.

Using this example, you would reduce the amortization on your $100,000 mortgage from 25 years to just over 21 years and your total savings on interest over the life of the mortgage would be just over $12,000.

By refinancing now and paying off your debt or putting money aside for future mortgage payments, you can put yourself and your family in a better financial position.

Collateral vs. Standard Charge Mortgages

With some lenders moving towards collateral charge mortgages, it’s important to understand the differences between a collateral and a standard charge mortgage.




The primary difference is that a collateral charge mortgage registers the mortgage for more money than you require at closing. For instance, up to 125% of the value of the home at closing with TD Canada Trust or 100% through many credit unions, instead of the amount you need to close your transaction (as is the case with a standard charge mortgage).




The major downside to a collateral mortgage becomes evident at your mortgage renewal date. For borrowers who want to keep their options open at maturity and have negotiating power with their lender, this isn’t the best product feature because collateral charge mortgages are difficult to transfer from one lender to another.




In other words, if you want to change lenders in order to seek a better product or rate in the future, you have to start from the beginning and pay new legal fees, which range from $500 to $1,000. With a standard charge mortgage, in most cases, the new lender will cover the charges under a “straight switch” in order to earn your business.




In addition, with a collateral charge, it could be difficult to obtain a second mortgage or a home equity line of credit (HELOC) unless your home significantly appreciates in value.

Lenders offering collateral charge mortgages promote the benefit that it makes it easier and more cost effective to tap into your equity for such things as debt consolidation, renovations or property investment. There’s no need to visit a lawyer and pay legal fees – the money is available as your mortgage is paid down. Yet, if you read the fine print, you may still have to re-qualify at renewal.

A standard charge mortgage gives you the ability to move to another lender at renewal should you want to without incurring legal fees, and many borrowers find it more beneficial to keep their options open. If you need to borrow more with a standard charge mortgage, you have the option of a second mortgage or a HELOC, which also enables you to take money out as your mortgage is paid down.

Navigating through the mortgage process alone can be tricky. Working with a mortgage professional who has access to multiple lenders will help ensure you receive the product and rate catered to your specific needs.

As always, if you have any questions about the information above or your mortgage in general, I’m here to help!