Obtaining a Mortgage in Canada

These days, obtaining a mortgage in Canada is very easy. Mortgage implies getting a loan as big as that taken by the real estate builders. However, before taking on a loan, the burrower must be well aware of all the key or basic elements of the contract:

• Term: Term implies the period of time in which the lender attributes a mortgage on a fixed rate of interest. Ex: 8-year term.
• Amortization: It is the period of time, which can be taken by a borrower to pay off the mortgage completely. Ex: 20-year amortization.
• Open Mortgage: This will allow the borrower to pay off full mortgage at any given time.
• Closed Mortgage: With the closed mortgage, the ability of the borrower to pay off mortgage early is very limited.
• Variable Rate Mortgage: This is the mortgage in which, during the term, the interest rate might fluctuate.

The right person is qualified for the mortgage which is equivalent to three times the family’s gross annual income with the condition that the persons must have a steady employment, decent credit history and very little debt on their record. The banks usually qualify a person for the mortgage by calculating two ratios. The first ratio is (GDSR) Gross Debt Service Ratio which is calculated be adding monthly mortgage payment + 1/12th of annual property tax + $75 for monthly heating costs and then this number is divided by the Gross Monthly Income, and, if it works out to be less then 32%, then the person is qualified for the mortgage.

The second ratio is the Total debt Service Ratio (TDSR), which is calculated through adding property taxes + mortgage payments + heat + lines of credit + cost of car lease + loans + minimum payment on credit card, then this figure is divided by some gross monthly income, and if this ratio turns out to be less then 40% then the person does indeed qualify for the mortgage.

For calculating gross monthly income, banks generally tend to consider the basic salary as an hourly salary of 40 hours per week. And if the person in addition to this earns commission, overtime, bonus, tips etc then he will have to genuinely proove that he is getting them consistently for 2-3 years. Then only it will be included in gross monthly income.

For a self-employed person to qualify for loan, banks will look at the average of net taxable income for the following 2-3 years. For this Notice of Assessments from the Canada Customs & Revenue Agency will have to be submitted with the bank information.

Further, the person must have a good credit history of minimum 5-6 years. If a person is consistently late in making credit card or loan payments or even forgetting payments of departmental store credit card, then the person will have a very hard time in obtaining a proper mortgage.

If the person is giving 5% as down payment then the lending criteria of the bank will be strict, however, if it is 50% then they will adopt some more flexible policies. The most important is the real estate used as security. Banks will usually approve of only highly marketable securities such as in subdivision or large urban areas. One should have a pre-approved mortgage before they ever decide to buy a property.

Article Source: http://www.realestatepropertyarticles.com.

About the Author:
Donald Keating is a contributing real estate editor at http://www.realestatepropertyarticles.com/. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.