A mortgage is a loan that you take out to buy a property. The mortgage amount is based on the value of the property purchased minus the down payment made to acquire it.
The most common term for paying off a mortgage is 25 years. However, if you can afford it, you can choose a shorter term to pay it off. At your convenience, you can choose a shorter term to pay off your mortgage.
- Monthly payments (12 per year)
- Bi-monthly payments (24 per year)
- Bi-weekly payments (26 per year)
- Weekly payments (52 per year)
In addition, if your situation permits, you can make accelerated payments. This will help you save money and pay off your debt faster.
A person’s credit rating is a measure of his or her ability to use credit products responsibly. This rating is obtained by Equifax and TransUnion, the two credit bureaus in Canada. The higher your score, the better the credit options, offers and products you have access to, including your mortgage.
How do I get a good score?
- Avoid applying to creditors for more credit.
- Limit the opening of new accounts, especially if they are for the same type of credit (e.g. several credit cards).
- Pay your accounts before the due date. Even a small delay leaves its mark.
- Keep your credit card and line of credit balances low (ideally at 35% or less of the authorized balance).
- Accounts (credit cards/line of credit/personal loans) that have been open for a long time are more “paying” for your score.
- Keep your address and work stable.
- Have an emergency fund for unexpected expenses and in case of job loss or reduced income.
Open an account at a financial institution and make a savings amount each month – for your down payment, for example. This will show some stability in terms of how diligently you put money aside. A paying credit behaviour.
Build up a credit history. The starting point is as simple as always paying your rent and utility bills (electricity, heating, telephone, mobile, internet, cable and others) on time. By doing so, you will build a good payment history, which will benefit your credit rating. Your payment history over the past 12 months will certainly be considered in the credit assessment.
Demonstrate your ability to manage your debts. For example, you can take out small loans at your financial institution to prove that you can repay your debts as agreed. You can also get a credit card to show that you are diligent in paying off the balance owing on time. The idea is to build up a history of transactions that shows you are rigorous in managing your debts.
The sooner you start, the faster your history grows and becomes a good indicator of your credit.
Traditional source options
- Traditional source options
- Savings in a banking institution (including inheritance)
- Withdrawal from an RRSP
- Non-RRSP investments (stocks, bonds, TFSAs)
- Home Buyers’ Plan (HBP) that allows each borrower to withdraw up to $25,000 from an RRSP tax-free (subject to certain repayment terms).
- Non-refundable donation from a relative (parent, brother or sister)
- Proceeds from the sale of a property (net value acquired)
- Loan secured by a confirmed asset (unencumbered land, net value of a first property pledged as security for the purchase of a second)
- Capital outlay grant (non-repayable amount provided by a federal, provincial or municipal agency)
- Refinancing a property
Non-traditional source options
- Donation or repayable loan from a relative (other than father, mother, brother or sister) or a friend
- Personal loan
Debt ratios are percentages based on formulas that are linked to your income and expenses. They are used to assess your ability to repay your mortgage.
There are two types of debt ratios: the gross debt service ratio and the total debt service ratio.
Gross Debt Service Ratio (GDS)
This ratio is used to determine the percentage that your occupancy costs (your annual expenses to live in your principal residence) represent compared to your annual income.
It includes occupancy costs:
- Your monthly payments;
- property taxes;
- school taxes;
- annual heating costs;
- 50% of the annual condo fees (if applicable).
For an insured mortgage loan, i.e. a loan with a down payment of less than 20% of the purchase value of the property, this ratio must not exceed a maximum limit of between 32 and 39%, depending on the financial institutions.