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Unless you have a few hundred thousand dollars in cash, you’ll likely need to take out a mortgage in order to finance a home purchase in Ontario. Buying a home is a big deal and it’s a huge financial investment that requires a great deal of money. Mortgages can help make your dreams of buying a home in Ontario a reality.
Here is everything you need to know about mortgages in Ontario before applying for one.
Looking for a regular loan in Ontario? Read this first.
Amortization Period For Mortgages in Ontario
When you take out a mortgage in Ontario, you have a certain amount of time to pay off the loan amount in full. No matter how much you borrow, it will all need to be paid back in the allotted time given from the onset of the agreement. In Ontario, the most common amortization period is 25 years, though amortization periods can be shorter (10, 15, or 20 years), or even longer in some circumstances where lenders allow for it.
Wondering how long you should amortize your mortgage for? Get a better idea here.
Your decision to choose between a shorter versus longer amortization period depends on a few things. If you want to pay off your mortgage in a shorter period of time, then a shorter amortization period is ideal. Besides, it will cost you less in the long run because you’ll be paying less toward interest. However, shorter amortization periods require higher monthly payments in order to pay the mortgage off in an accelerated amount of time.
Longer amortization periods are attractive because they require smaller loan payments. This makes homeownership more attainable for those in Ontario who don’t have the financial means to make large monthly contributions. That said, longer amortization periods mean it will take longer to pay off the home loan and they are also more expensive in the long run because more money will be going toward the interest portion.
Take a look at this infographic to learn about the cost of buying a house all across the country.
Different Types of Mortgages in Ontario
In Ontario, you’ll have the option to choose between various types of mortgage products available, including the following:
Fixed-rate mortgages – Interest rates play a key role in mortgages and determine how expensive or affordable they are. Obviously, the higher the interest rate, the more expensive the mortgage will be, and vice versa. Fixed-rate mortgages are those which maintain a constant interest rate throughout the term of the mortgage. As such, the payments never change.
Want to know how lenders set their interest rates and if you can beat them? Try reading this.
Many buyers in Ontario choose this option because it provides for more stable and predictable monthly mortgage payments. They’re also attractive if rates are expected to increase. If that’s the case, locking in at a lower rate may be a good option.
Adjustable-rate mortgages – In contrast to fixed-rate mortgages, adjustable-rate mortgages feature interest rates that change at specific intervals, either up or down. Usually, these types of mortgages offer lower interest rates than fixed-rate mortgages, but only for a specific period of time. Once the initial period expires, the rate will usually go up and the amount that it increases will depend on the posted rate from the Bank of Canada.
That said, many buyers in Ontario like the idea of a lower interest rate, even though it may only be for a temporary amount of time. And if rates are anticipated to decrease, this option is even more attractive.
Want to apply for a fixed or adjustable mortgage? Click here when you’re ready.
Conventional mortgages – These mortgages require a minimum of 20% down.
High-ratio mortgages – These are conventional mortgages that allow less than 20% as a down payment, but a minimum of 5%.
Bridge loans – These types of loans allow bad credit borrowers in Ontario to take advantage of short-term financial solutions. Borrowers can borrow against the equity in their home to give their credit scores a boost.
Read this for more information about bridge loans and short-term mortgage financing.
Second mortgages – Also known as a home equity line of credit (HELOC), second mortgages are taken out against a property that already has a mortgage on it. By borrowing against the home, borrowers in Ontario can free up some capital needed for other expenses.
What is a power of sale mortgage? Find out here.
The mortgage process starts off with filling out an application and submitting a number of financial documents to your lender in Ontario. While this can happen after an offer has been accepted on a home, it can also begin long before the search for a home has begun. In fact, it’s highly recommended for buyers to get pre-approved for a mortgage first before the house hunting process has started, there are a few reasons why.
You’ll know how much you can afford – Most buyers in Ontario think they know how much they can afford, but many of them are unrealistic about the actual amount of money they can get approved for. By getting pre-approved, buyers can find out exactly how much they can afford and therefore focus only on properties that fall within their price range.
What is a mortgage helper and how can it help you afford a house? Find out here.
You’ll stand out to sellers – If the competition among buyers is fierce, you’ll want to do everything you can to stand out to sellers, in a good way. And one thing you can do is go into an offer with a pre-approval letter in hand. This will show sellers that you are serious about buying and have taken the steps needed to move the process along. It will also reassure sellers that you can afford to buy the home and stand a better chance of securing financing.
You’ll speed up the mortgage approval process – A pre-approval is not the same as a final approval, but it can still help to move the process along. Since you’ve already submitted most of the paperwork required (as long as things haven’t changed in your financial world), the lender will be able to speed up the final approval.
Want to know how your credit score is calculated? Check out this infographic.
Credit Score Needed to Get Approved For a Mortgage in Ontario
Lenders look at several factors before determining whether or not to approve a borrower for a mortgage in Ontario and one of them is credit scores. A credit score provides some insight into how financially responsible borrowers may be and reflects a borrower’s past financial habits.
Many things impact credit scores, but perhaps the most important is payment history. If you have a history of making timely debt payments, your credit score will be affected positively. On the other hand, if you have a history of missed payments, your score will reflect poorly.
Look at this for some tips about missing mortgage payments and foreclosures.
In Ontario, the minimum credit score needed to secure a conventional mortgage from a traditional lender is 680, though this number may fluctuate slightly from one lender to the next and will also depend on other factors such as your income and down payment amount. That said, a higher credit score will increase your chances of getting approved for a mortgage in Ontario, while a low credit score will reduce the odds of mortgage approval.
Mortgages For Borrowers in Ontario With Bad Credit
If you have bad credit and are finding it difficult to secure a traditional mortgage in Ontario, there may be some things you can do to get the home loan you need.
Get a co-signer – Maybe your credit history isn’t good enough to convince a lender to approve your mortgage application, but someone else’s might be. If you know someone trustworthy who has good credit and is responsible with their finances, they may be willing to cosign a mortgage for you. There is a lot of responsibility that comes with being a cosigner, as this person will be obligated to step in and make your mortgage payments for you if you default. But it can be a great way to secure a mortgage if you can’t do it alone
Want to learn about the other types of loans you can get with a cosigner? Read this.
Find a bad credit lender – Although your bank might not approve your mortgage application, there are other alternative lenders in Ontario who can. Many lenders in Ontario deal specifically with bad credit borrowers and place more weight on other things that affect your ability to secure a mortgage, such as your income and down payment amount.
If you are able to show that you make an adequate income, have a lot of money saved up for a down payment, and have recently made positive changes to your credit, alternative lenders may agree to extend a mortgage to you.
It should be noted, however, that these loans typically come with higher interest rates than conventional mortgages. Plus, you’ll need to ensure that you are working with a reputable lender, as some alternative lenders in this sphere in Ontario may be out to scam unsuspecting borrowers.
Interested in applying for a bad credit loan in Ontario? Try this.
Work on your credit score – Just because your credit score might be low right now doesn’t mean it has to be down forever. There are things you can do right now to give your credit score a boost and make things easier for you to get approved for a mortgage in the future:
- Pay all bill payments on time and in full
- Make sure credit accounts are fully paid off before closing them
- Keep old credit lines open
- Don’t apply for too many loans within a short time frame
- Don’t spend any more than 30% of your credit limit on your credit cards
Within a few months of taking these steps and being diligent about improving your credit score, you should see a difference.
Comparing Mortgages in Ontario
Many buyers in Ontario settle for whatever their bank offers them, but it’s usually recommended to shop around for mortgages in Ontario to make sure you’re getting one with the most affordable terms. When comparing mortgages from different lenders, assess the following factors:
- Interest rate
- Amortization periods
- Buy-down points
- Early repayment penalties
- Pre-payment options
- Payment schedules
Comparing each of these factors against the other can help you make a sound decision about which mortgage product is best for you.
Wondering why different mortgage lenders offer different mortgage rates? The answer is here.
Payment Options For Mortgages in Ontario
Mortgages are a type of installment loan, which means you pay back the full loan amount in installments. You have a few options when it comes to how frequently your payments are made, including the following:
- Accelerated bi-weekly
For some more details about these mortgage payment options, choose this link.
How to Save For a Down Payment
In order to get a mortgage in Ontario, you’ll need to come up with a lump sum of money to put toward the purchase price of a home, which is known as the down payment. The amount you put down will depend on the type of mortgage you apply for and the price of the home. That said, it can be tough to come up with such a large sum of money, but there are some savvy ways to save up for it:
- Keep your spending to a minimum
- Dedicate a portion of each paycheck to your down payment savings
- Have your savings account automatically debited from your checking account
- Borrow against your RRSPs
- Borrow from a family member (gifts are allowed for down payments)
- Look into a First-Time Homebuyer Program
- Make saving for a down payment your top priority
- Pay off your high-interest debt, such as credit cards
Click here to learn how you can get a down payment for a house in Canada.
Hidden Costs of Buying a House in Ontario
Your mortgage is definitely a huge cost associated with buying a home in Ontario, but there are other costs associated with this major purchase that you should be aware of, including:
- Legal fees
- Real estate commissions
- Home inspection
- Home appraisal
- Property taxes
- Property insurance
- Title insurance
- Mortgage default insurance
- Warranty fees
- Survey fees
- Maintenance fees
The list of costs associated with buying a house is definitely a lengthy one, but it’s important to know what these costs are so you can budget accordingly.
For more information about some of these costs, look here.
I have bad credit. Can I still qualify for a mortgage?
What are the penalties for paying my mortgage early?
How do I get a pre-approved mortgage in Ontario?
Ready to Apply For a Mortgage in Ontario?
Before you apply for a mortgage in Ontario, it’s important to get familiar with what they are and what they entail. You’ll also want to take a close look at your finances and make sure you’re ready to pay a mortgage and become a homeowner in Ontario. If you’ve determined that you’re ready, let Loans Canada help you find a mortgage specialist who can help.
Note: Loans Canada does not arrange or underwrite mortgages, we are a comparison and simple referral platform.