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Key Mortgage Terms

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Lewis | 20 Sep 2014, 08:35 AM Agree 0
What is a Mortgage?
A mortgage is actually a document which is registered in Land Titles Office and provides evidence that you have given your home as collateral to a lender to secure a mortgage. In practice, the mortgage itself is usually referred to as a mortgage.

What is a Down Payment?
Down payment is the amount of money you pay up front to obtain a mortgage.

Loan to Value Ratio
The amount of the [url=http://mortgageintoronto.ca/][u]mortgage[/u][/url] expressed as a percentage of the value of the home. For example, if you wish to borrow $190,000 on a home you are buying for $200,000, the Loan to Value Ratio is 95%.


What is the minimum down payment needed for a home?
Subject to certain maximum price restrictions, in Canada, According to the guidelines of the Canadian Mortgage and Housing Corporation (CMHC), a minimum down payment of 5% of the total cost of the prospective property is required to purchase a home and must be from your own funds or a gift from a family member and cannot be borrowed.

What is “High-Ratio” Mortgage?
A mortgage when the down payment is less than 20% of the appraised value or purchase price of the property. A high-ratio mortgage is subject to mortgage insurance (CMHC fees)..

What is “Conventional Mortgage”?
A mortgage when the down payment is more than 20% of the appraised value or purchase price of the property. A conventional mortgage is not subject to mortgage insurance (CMHC fees).

When do i need mortgage mortgage insurance?
When the down payment is less than 20%, the borrower is required by law to have mortgage insurance, to insure the lender against a mortgage default.
Mortgage mortgage insurance provided by CMHC (Canada Mortgage and Housing Corporation) or Genworth.

What can i use as a down payment?
Most lenders will accept gifts from family as an acceptable down payment (when the fund is not a mortgage).
First-time homebuyers can use your RRSP savings to help finance a down payment. With the federal government’s Home Buyers’ Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple) to help pay for your down payment on your first home. You then have 15 years to repay your RRSP.

How much mortgage can I afford?
In order to determine the amount of a mortgage you can qualify, lenders’ have guidelines for the qualification ratios: Gross Debt Service ratio and Total Debt Service ratio, or “GDS” and “TDS”.
Gross Debt Service Ratio (GDS) – The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes. Generally, lenders will have an acceptable Gross Debt Service ratio ranging from 28-32%. In other words, 28-32% of the monthly household income can be set aside for the mortgage payment. The mortgage payment, property taxes, half of the monthly condominium maintenance fees and heating costs should be up to 32% of your taxable income.
Total Debt Service Ratio (TDS) – The percentage of your gross income which you will be using to pay for the mortgage payment including property taxes and all other debt payment such as credit cards and bank mortgages. Generally, most lenders will have an acceptable Total Debt Service ratio of 36-40%. In other words, 36-40% of the monthly household income can be set aside for the total debt obligations, including their future mortgage payment. All of your monthly debt payments, including car mortgages, credit cards, lines of credit payments should be up to 40% of your taxable income.

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