Mortgage Questions, Answered Plainly
These are the questions Ontario homeowners ask me most, answered the way I would answer them across a kitchen table. Qualifying, rates, penalties, renewals, equity, private lending, closing costs and what working with a broker actually costs. If yours is not here, send it to me and I will answer it.
Working with a mortgage broker
What does a mortgage broker actually do?
A broker takes one application from you and shops it across many lenders, then negotiates the rate and terms on your behalf. I hold an Ontario mortgage broker licence, M15002102, through Rock Capital Investments Inc., FSRA brokerage #10556.
What does it cost to use a mortgage broker in Ontario?
On prime and bank deals, nothing. The lender pays the broker a finder's fee when the mortgage funds. A broker fee of 1% to 3% applies on private mortgages and some alternative files, and it is always disclosed in writing before you sign.
Is a broker's rate better than my bank's?
Frequently, yes. Broker channel lenders compete on rate because they have no branch network, and I can also negotiate with your own bank using competing offers. The bigger gain is usually in the terms, not the rate.
How many lenders do you work with?
More than 50, including major banks, credit unions, monoline lenders, near-prime lenders and private lenders.
Will applying with a broker hurt my credit score?
I pull your credit once and use that single report with multiple lenders. Applying separately at four banks means four inquiries, which does more damage.
How quickly can I get a pre-approval?
Usually 24 to 48 hours once I have your documents, and the same day when there is an offer deadline.
Qualifying
What credit score do I need for a mortgage?
About 680 for the best prime pricing, and some prime lenders will consider 660. Between roughly 600 and 660 you are looking at near-prime lenders, and below that at alternative or private lenders.
What is the mortgage stress test?
Federally regulated lenders must qualify you at the greater of your contract rate plus 2%, or 5.25%. It means you are approved for less than your actual payment would suggest. Credit unions and private lenders are not bound by it.
How much can I borrow?
Most lenders cap your housing costs at about 39% of gross income and total debt payments at about 44%. As a rough guide, that lands near four to four and a half times household income, though it varies with debts and rate.
What down payment do I need?
5% on the first $500,000, 10% on the portion between $500,000 and $1.5 million, and 20% above $1.5 million. Under 20% down requires default insurance.
Can I use a gifted down payment?
Yes. Lenders need a signed gift letter from an immediate family member confirming the funds are a gift and not a loan, plus proof the money landed in your account.
Do I need to be employed full time?
No. Part-time, contract, commission and self-employment income are all usable, though lenders average variable income over two years.
Can I get a mortgage if I am new to Canada?
Yes. Newcomer programs exist for permanent residents and work permit holders, often with as little as 5% to 10% down and limited Canadian credit history.
What if I have been declined already?
Bring the reason you were given. A decline usually reflects one lender's policy, not your overall borrowing ability, and a different lender often sees the same file differently.
Rates and terms
Fixed or variable, which should I choose?
Fixed buys certainty and costs a premium. Variable historically costs less over time but exposes you to rate movement. The right answer depends on your risk tolerance, your budget's slack and how likely you are to break the mortgage.
How long can I hold a rate?
Most pre-approvals hold a rate for 90 to 120 days. If rates drop before closing, you generally get the lower rate.
What term length makes sense?
Five years is the default, but three-year terms have suited many clients in a falling-rate environment. A shorter term also means a smaller penalty if life changes.
What is the difference between the term and the amortization?
The term is how long your current contract lasts, usually one to five years. The amortization is how long it takes to pay the mortgage off entirely, usually 25 or 30 years.
Is a 30-year amortization a bad idea?
Not automatically. It lowers the required payment and improves qualification. If you then use prepayment privileges to pay it like a 25-year mortgage, you get flexibility without the extra interest.
What is a collateral charge?
A registration type used by some lenders that lets them lend you more later without new registration, but makes switching lenders at renewal more expensive. It is worth knowing before you sign, not after.
Renewals, refinancing and penalties
Should I sign my bank's renewal letter?
Not without comparing. Renewal offers are rarely the lender's best rate, and switching to another lender at renewal usually costs little or nothing.
When should I start on my renewal?
Four to six months before the maturity date. That gives time to hold a rate, compare lenders and restructure if debt consolidation would help.
What penalty will I pay to break my mortgage?
On a variable, typically three months of interest. On a fixed, the greater of three months of interest or the interest rate differential, which at a major bank can reach five figures.
Is it worth breaking my mortgage to get a lower rate?
Only if the interest saved over the remaining term exceeds the penalty plus closing costs. I calculate both before recommending anything.
Can I switch lenders without paying a penalty?
Yes, at renewal. Mid-term, a switch means paying out the existing mortgage and its penalty.
What is the difference between a switch and a refinance?
A switch moves the same balance to a new lender. A refinance changes the amount, usually by taking equity out, and involves full legal work and a new appraisal.
Can I port my mortgage to a new home?
Most fixed mortgages are portable if you close the sale and purchase within the lender's window, often 30 to 120 days. Porting keeps your rate and avoids the penalty.
Equity, debt and alternative lending
How much equity can I take out of my home?
Up to 80% of the appraised value through a refinance or HELOC, and up to 85% through a second mortgage with an alternative or private lender.
Is consolidating debt into my mortgage a good idea?
It is, if you use the freed-up cash flow deliberately and do not rebuild the balances. Moving 20% debt to 5% debt saves real money, but only discipline keeps it saved.
What is a second mortgage?
A separate loan registered behind your first mortgage, usually for one year and interest-only. It lets you access equity without breaking a low-rate first mortgage.
What is a private mortgage?
A mortgage funded by an individual or investment corporation rather than a bank. Approval is based mainly on the property and the exit plan, with rates typically between 9% and 15% plus fees.
Are private mortgages dangerous?
They are expensive, and dangerous only without an exit plan. Used for 12 to 24 months with a written plan to return to a prime lender, they solve problems a bank cannot.
Can I get a mortgage with tax arrears?
Yes. Lenders generally require the CRA balance to be paid out through the mortgage proceeds, which removes the lien risk at the same time.
What happens if I am in a consumer proposal?
Alternative lenders can often help while a proposal is active. Prime lenders typically want the proposal discharged plus one to two years of rebuilt credit.
Buying a home
What are closing costs in Ontario?
Budget 1.5% to 4% of the purchase price. That covers land transfer tax, legal fees of roughly $1,200 to $2,000, title insurance, an inspection and adjustments.
How much is land transfer tax?
Ontario charges a graduated tax on the purchase price, and Toronto adds a second municipal tax of similar size. First-time buyers can claim a provincial rebate of up to $4,000, plus up to $4,475 in Toronto.
Do I need a home inspection?
It is not required, but on a resale home it is $400 to $650 well spent, especially outside city limits where wells, septic systems and older wiring are common.
Can I use my RRSP for a down payment?
First-time buyers can withdraw up to $60,000 each under the Home Buyers' Plan, tax-free, and repay it over 15 years. Funds must be in the RRSP for at least 90 days.
What is the First Home Savings Account?
An FHSA lets first-time buyers contribute up to $8,000 a year to a lifetime limit of $40,000. Contributions are tax-deductible and withdrawals for a home purchase are tax-free.
How long does closing take?
Typically 30 to 90 days from an accepted offer, and the financing condition is usually five business days.
Documents and process
What documents do you need from me?
Photo ID, recent pay stubs, two years of T4s and notices of assessment, 90 days of down payment history, a mortgage statement if refinancing, and property tax and insurance details. Self-employed clients add business returns or bank statements.
Is my information secure?
Yes. Documents are handled through secure channels, retained only as long as required, and never shared beyond the lenders you approve. I never ask for a SIN, date of birth or account numbers through the website form.
How long does the whole process take?
Two to four weeks for a typical purchase or refinance, five to ten business days for a second mortgage, and as little as 48 hours in an emergency.
Do we have to meet in person?
Only if you want to. Most files run on phone, email and e-signature. The Orangeville office at 75 First Street is there for anyone who prefers a face-to-face conversation.