Costs and Financing

​One of the first steps in buying a new home is to take a realistic look at what you can afford and how you are going to pay for it. If you are like most people, you will probably have to finance your home purchase with a mortgage loan. 

Remember that “affordability” isn’t about how much money you can borrow, but how much debt you are comfortable with and can manage long-term. Spending less than your maximum mortgage qualification provides you with more flexibility to deal with other financial needs that you may have.

Two Types of Mortgages

1. A conventional mortgage

where the loan amount does not exceed 80% of the property value, defined as the lesser of the purchase price or the appraised value.

2. High-ratio mortgage

where the amount borrowed is more than 80% of the property value (up to 95%). By law, a high-ratio mortgage must be insured against borrower default. The borrower pays a mortgage insurance premium (a percentage of the total loan amount) which can be added to the mortgage loan or paid in a lump sum in advance.

If you are likely to take out a high-ratio mortgage, your will also need to purchase Mortgage Insurance. The one-time premium for this insurance varies based on the amount of your mortgage and the total mortgage-to-price ratio. You can get current mortgage insurance premium rates online from Genworth Canada and Canada Mortgage of Housing Corporation.

Where to Go to Get a Mortgage

Shopping for a mortgage is no different than shopping for any other product. Banks, trust companies, mortgage brokers and other financial institutions offer a wide range of mortgage options to finance your new home purchase.

You can start with your current lender or financial institution. Make sure you talk with someone who specializes in residential mortgages, as they will be in the best position to offer you advice and assistance. A growing number of lenders offer flexible business hours, including evening and weekend meetings, or will even meet at your home.

You can also arrange mortgage financing through a mortgage broker. Mortgage brokers, who have access to a wide range of lenders (e.g. banks, trust and life insurance companies, credit unions) and will "shop around" on your behalf for the best possible mortgage to fit your needs. Usually, you will not be charged a fee for this service, as brokers are paid a referral fee or commission by the lender.

Many home builders have established business relationships with a mortgage lenders and may be able to get preferred rates for their buyers. Don’t hesitate to ask New Home Salespeople if their company offers such a service, and which lender they recommend you talk with.

Get Pre-Approved

It is a good idea to have your financing in place before you begin looking for your home. That way you can negotiate arrangements with your builder in full confidence and without delay.

A pre-approved mortgage is preliminary approval by the lender for a mortgage up to a maximum amount, usually with a guaranteed rate for a specified time period (90 days and sometimes longer). If interest rates go down during that period, you will get the benefit of the lower rate. If they go up, your lower rate is locked in.

Pre-approved mortgage financing is simple to arrange, costs nothing and does not obligate you to go ahead with the loan, if you choose not to. The final mortgage amount and terms will be determined once you have reached a final agreement with your builder.

Further Information and Online Mortgage Calculators

If you want to do online research to see approximately the size of mortgage you are likely to qualify for, visit CIBC or RBC Royal Bank and visit their “Mortgage” section.