Here you will find frequently asked Mortgage Questions and Answers specific to mortgages, the mortgage process and about First Foundation.
What is the purpose of a mortgage broker?
Mortgage brokers work as a liaison and transaction facilitator between the mortgage borrower and the lender. They are not employed by lenders. A mortgage broker does the hard part of obtaining a mortgage for you: they search for the mortgage product that will best suit your needs, and obtain the best mortgage rate for you based upon your specific situation. Brokers have access to most bank-based lending institutions, as well as specific mortgage lenders.
Who does First Foundation work for?
First Foundation works for you, the borrower! None of our associates are employed by any lender or third party. What’s even better is that the lender who funds your mortgage will pay us, so our service means no fees to you!
What does First Foundation charge?
Nothing. First Foundation is paid a finders’ fee by the lenders that we place your mortgages with – not by you the borrower. Our compensation is affected mostly by the size of the loan and the length of the term. 99% of the time we do not charge our clients a fee.
Occasionally, however, and with full disclosure in advance, we may need to charge a fee in the event that we are securing specialty financing, such as a second mortgage, commercial mortgage, or some other unusual circumstance.
Who are our mortgage clients?
First Foundation’s clients are generally people who have a strong income (whether they are self-employed or conventionally employed) and strong credit. That being said, we are also sometimes able to arrange mortgages for people with slightly tarnished credit.
Can I get a mortgage from my bank and still use First Foundation?
Yes! First Foundation offers great mortgages from a huge variety of home loan lenders – including banks that you’re familiar with, credit unions, trust companies, Mortgage Backed Securities lenders, and more! We choose the mortgage lender that offers the best product at the best rate to suit your specific needs. Sometimes that means choosing a bank, sometimes not!
Often times clients who do their banking with a specific bank would like to maintain a strong relationship with that home mortgage lender. We can understand and appreciate that. On the other hand, First Foundation is able to secure lower rates from that particular institution because of our brokerage relationship. That way, if you use First Foundation to help you secure a home mortgage, we can source the funds from your very own bank – but at a lower rate than they offer at the branch!
Everyone wins this way. You get the mortgage you want at a better-than-branch rate, First Foundation gets the satisfaction of a job well done, and the bank you deal with still gets to make money by lending you a mortgage.
No matter what your needs or who you would prefer to get your mortgage from, First Foundation can help.
Why should I deal with First Foundation instead of my bank?
Choice = Competition = Better Rates! Every banker will tell you that their products and rates are the best. This simply cannot be true! Whether they are actively trying to deceive you, or whether they are simply naive, the fact remains that the mortgage industry has so much variety to offer and so many choices available, that one financial institution can’t offer them all.
That’s where First Foundation comes in.We’re independent. We don’t work for the bank – we work for our customers. Different home loan lenders all have different strengths and weaknesses. Our job is to sort through them, rate them, understand their products, and make professional recommendations to you.
First Foundation has access to over 40 different lenders and hundreds of different products. These lenders compete for our business and yours, so you can be sure that you’re getting the best deal.
What is the benefit of getting pre-approved?
There are usually four main reasons to obtain a Pre-Approval before house hunting:
- You’ll have a more accurate idea of how much you will qualify for.
- You’ll be able to get a 120 day rate hold to protect you against rising interest rates.
- It speeds up the process once you find a home to buy because you’ve already done most of the work.
- Your realtor might not want to work with you unless you get a pre-approval in advance to make sure they’re not wasting their time.
Don’t be fooled! Pre-qualification is not the same as Pre-approval! Many banks will give you an idea of what you’re pre-qualified for, without actually giving you a rate hold or actually evaluating your circumstances in advance to be sure that you qualify. At First Foundation we do very thorough Pre-approvals to make sure that you’re ready to go!
What do all these mortgage-y words mean?
If you’d like to gain a better understanding of any of the mortgage terms used on our website or by the associates in our office, please visit our mortgage glossary
How long does it take to complete a mortgage transaction?
It depends on how quickly you provide us with the documentation we request. The faster we receive documents, the faster we can get everything taken care of to the point that your lawyer can be instructed and you can sign all the final documents at the lawyer’s office.Two weeks is generally the absolute minimum amount of time we would like to have to process everything and get all mortgage conditions satisfied for you, but we have done a private mortgage in as little as one day!
Is applying online secure?
Yes! At least at First Foundation it is. To know for sure, you want to check to see if the application form is encrypted. To view for yourself, this is a link to the application which is displayed outside of our site’s frames. You can see that the address starts with https: and that your browser indicates that it is a secure page. When our website displays the page, it is within a frame, but you can be sure that we take your privacy seriously.
What are closing costs?
Closing costs are any costs that are associated with obtaining and closing a mortgage. They can include (but are not limited to) legal fees, appraisal fees, survey fees, and Realtor fees. Don’t forget the cost of moving!
How much can I afford to pay for a home?
Mortgage lenders generally allow you to use 32% of your monthly income to go towards mortgage payments, and 40% of your monthly income to go towards mortgage payments plus other debt payments. Some newer guidelines allow us to use up to 44% of your income. To obtain an actual figure of what you can afford to pay for a home, please use our mortgage calculators .
Can I get a mortgage to renovate my property or pay off my credit cards?
Yes! Mortgages can be obtained for a number of purposes, including financing home renovations or to consolidate credit card debt. You can also borrow against the equity in your home to invest in the stock market or your own business. There are hundreds of possibilities!
Can I qualify for a mortgage if I am unable to confirm my income?
Generally, if you don’t have a pay stub and job letter, you can’t qualify for a mortgage. There are exceptions, such as if you are self-employed or on commission and have been for two or more years. In that case, you would have to be able to prove you’ve been self-employed for at least two years with articles of incorporation, T1 Generals with statements of business activities, a business license, or some other documentation, depending on the structure of your business. You would also need to provide the most recent two years’ Notices of Assessment from Revenue Canada. If you have a big enough down payment you can also qualify on equity alone, as long as your credit is in good shape.
Why do I need a lawyer?
You need a lawyer because final mortgage documents are legally binding. Also, lawyers are the individuals who take care of things such as land title transfers. They are also authorized to hold money in trust, and distribute funds to the appropriate places (such as to your previous mortgage lender when paying out an existing mortgage, or to the sellers of the
home you are purchasing).
Why do I need an appraisal?
The requirement of an appraisal is a standard condition for any conventional mortgage (more than 20% down payment), as the mortgage won’t be insured. Basically, the lender just wants to make sure that you are paying fair market price for the property you are purchasing (ie: that you aren’t paying $290,000 for a home that’s only worth $250,000). From the lender’s perspective, they don’t want to lend $290,000 if all they can recuperate in event of default is $250,000 (not that you would default on your mortgage payments, but it’s a base that the lender wants to cover). Another reason for an appraisal is that lenders want to see that the property you are purchasing is, indeed, a quality property.
Why do I need to pay an insurance premium?
You pay a mortgage loan insurance premium when you put less than 20% of the property value as a down payment. From the lender’s standpoint, if you put less than 20% down, you’re not as invested in the property than you would be if you put 30% or 40% down. Therefore, in the lender’s eyes, a client who puts less money down initially is more likely to default than someone who puts a lot of money down. The insurance premium that you pay on your mortgage is insurance for the lender in the event of your default – it protects them so that when the time comes to pay back their investors, they have the funds to do so.
What are the typical pre-payment privileges?
Generally, pre-payment privileges allow you to do two things:
- Increase your monthly payment by a certain percentage (normally 15%-20%). You can’t, however, decrease your payments once you’ve increased them.
- Pay a certain percentage of your principal per year (normally 15%-20%).
- Depending upon the mortgage product, some lenders also allow you to “double-up” mortgage payments, or double your mortgage payment for just that month. Increasing your monthly payments or doubling-up cannot exceed the annual percentage of your principal you’re allowed to pay down.
Should I take a short-term mortgage or a long-term mortgage?
It depends on your unique situation. Short-term mortgages tend to have slightly lower interest rates, but the rate is locked in for a shorter amount of time, so you will be subjected to higher interest rate risk because you might have to renew at a higher rate when your term is up. Long-term mortgages are usually higher rates (but still competitive) compared to short-term mortgages, but the rate is locked in for longer, so if interest rates increase you won’t necessarily have to renew at that higher rate (at least until your term is up). A general rule of thumb is that if interest rates are low, you should choose as long of a term as possible, and if rates are high, you should choose shorter terms (so you can get the lower rate if rates decrease). Most of our clients are currently choosing to go with 5-year mortgage terms because rates are relatively low.
What is mortgage life insurance?
Mortgage life insurance is insurance coverage that will pay off your mortgage in the event of death or disability. First Foundation offers mortgage life insurance to all borrowers, or even better, term life.
Does paying my mortgage bi-weekly really save money or reduce my amortization?
Yes! Essentially, by paying your mortgage bi-weekly, you’re making extra mortgage payments. Normally, when you pay monthly, you make 12 mortgage payments. When you pay bi-weekly, you make 26 mortgage payments, or the equivalent of 13 regular, monthly payments. As far as saving money and reducing amortization, let’s look at the following scenario…
Your mortgage principal is $100,000, and you wish to have a 5-year term. The current interest rate is 5.99%. If you were to choose monthly mortgage payments, the payment would be $639.21 per month. Your mortgage would be paid off in 25 years. However, if you were to choose bi-weekly mortgage payments, the payment would be $319.61 twice a month (so $639.22 per month). Your mortgage would be paid off in 23.08 years. With bi-weekly payments, for the same amount of money each month, you could pay your mortgage off in almost 2 years quicker than if you were to pay your mortgage monthly. You’d also save a significant amount of money because you’ll be paying less interest to the mortgage lender.
Can I use gifted funds as a down payment?
Yes, in most situations you can (it needs to be from a family member), but in certain situations you can’t, such as when you’re self-employed or when the mortgage product that you’re qualifying under only allows a certain percentage of the down payment to be gifted (such as the New to Canada program). First Foundation has a gift letter template that you can use when you are getting a gifted down payment from family.
What documentation is required to confirm my down payment?
It depends on what the source of your down payment is. If your down payment is from savings in your bank account, provide three months’ (90 days) of bank statements. The statements must state your account number and name. If your down payment is from investments (RSP, GIC, stocks, bonds, etc.), provide three months’ (90 days) of investment statements. These statements must state your account number and name. If your down payment is a gift from family, provide a copy of a gift letter and proof that the gift has been deposited into your account (bank statement with the balance stating your account number and name). And last but not least, if your down payment is coming from the sale of your current home, provide a complete and final Contract of Sale as well as a current mortgage statement.
What is the minimum down payment needed to buy a home?
If you have strong enough credit, the minimum down payment required to buy a home is 5% of the purchase price of the property you wish to purchase. First Foundation is happy to discuss this further with you, so please contact us if you are interested.
If I sell my home and buy another, can I take my mortgage with me?
It depends on the mortgage lender. Most lenders now offer portability options, which allow you to take your mortgage with you. Generally, as long as you take possession of your new home within 60 days of giving up possession of your old home, no extra fees or penalties apply.
What is mortgage assumption?
Mortgage assumption is the act of taking on responsibility for the payment of a mortgage. Usually this happens when the buyer of a property “assumes” the mortgage from the seller of a property. It is not usually recommended to let someone assume your mortgage, as you may be taking on additional risk. Lenders are making it increasingly difficult for people to assume mortgages if they don’t qualify for financing, as this increases the lender’s risk.
Fixed vs. Variable vs. Adjustable Rate
Fixed Rate Mortgage
A fixed rate mortgage is a mortgage where the rate of interest is fixed for a specific period of time. Generally known as the mortgage term, it usually ranges from between 6 months and 25 years. As time goes on, more of the mortgage payment goes towards the principal and less of the payment goes to the interest.
Variable Rate Mortgage
A variable rate mortgage is a mortgage that has fixed payments, but the interest rate fluctuates with any changes in interest rates. If interest rates go down, more of the payment goes to principal and if interest rates go up, more of the payment goes towards the interest.
Adjustable Rate Mortgage (ARM)
Like a variable, the interest rate for an Adjustable Rate Mortgage fluctuates with Bank Prime. However, unlike a variable rate mortgage, your payments also adjust upwards and downwards with fluctuations in interest rates, ensuring that your amortization period remains constant. ARMs are becoming more and more popular and have gradually replaced VRMs as the preferred "floating" mortgage type.
What is the difference between a Co-signer and a Guarantor?
A co-signer is registered on title with you, effectively making them a co-owner of the property. A guarantor guarantees the mortgage, and that the payments will be made. After a period of time, a guarantor can apply to CMHC /GE to be removed off title should the owners of the property be able to qualify on their own.