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Buying a home is one of the biggest purchases you will ever make. For many Canadians, it’s also their first major investment. When you apply for a mortgage, the lender will review your finances and the value of your home to determine whether you can afford it. Some types of mortgages are insurable by Canada Mortgage and Housing Corporation (CMHC), while others are not – this means that CMHC will insure some mortgages but not others. The main difference between these two types of mortgages lies in whether they’re backed by government-backed securities or not. If your mortgage meets certain criteria, then it qualifies as an insured mortgage and can be purchased through any financial institution that offers them. If not, then there may be restrictions on where you can buy your new home or how much money is available to invest in its purchase price. To avoid any confusion on the matter, let’s take a closer look at insured vs. uninsured mortgages.

Insured Mortgages

Let’s first start with understanding what an insured mortgage is. An insured mortgage is a loan that is guaranteed by the Canadian Mortgage and Housing Corporation (CMHC) or a private insurer such as Sagen or Canada Guaranty.  There is a premium that is payable and tiered based on your down payment amount.  For example, if you have a 5% down payment towards the purchase of a $450,000 home the mortgage default insurance premium that will be added on to your mortgage is 4% of the mortgage amount totalling $17,100.00.  There is also PST (8%) that is payable on this premium and forms part of your closing costs which equals $1,368.00.    ThThis means that if you default on your mortgage the lender would not suffer any losses for your loan as the insurer covers any shortfalls.  

The mortgage needs to be Insured if you have less than 20% down payment towards your purchase price.  

You can use an insured mortgage to buy a home

Uninsurable Mortgages

It’s possible for a mortgage to be “uninsurable” if it doesn’t meet the property type or occupancy guidelines, or if it has a high risk of default. Uninsurable mortgages include self-employed mortgages and mortgages with low down payments (less than 20%). Also known as non-qualified mortgages, these are private deals that are not insured by the Canada Mortgage and Housing Corporation (CMHC).

• Eligible Mortgages

An eligible mortgage is one that meets all of the requirements set out by CMHC so that you can get insured through them. These requirements are based on:

• Property Type: The type of building where you’ll live—single family detached home, condo apartment/condominium townhouse complex etc.
  
• Property Location: Whether you’re buying a house in an urban center like Toronto or Vancouver; suburban area outside these cities; or rural area anywhere else across Canada.
  
• Occupancy Status: How many people will live in this property at any given time? A single family detached home could accommodate two people comfortably; however if there were three children under age 18 living there full time then it would no longer be considered “single.”

You can use an uninsured mortgage to refinance or consolidate debt on your home.

What is the Cost of Mortgage Insurance?

The cost of mortgage insurance varies depending on a number of factors, including:

• The size of the mortgage. Mortgages with larger balances are more expensive to insure because of their greater risk profile.
  
• The amortization period (loan term). A longer-term loan may be more heavily weighted for coverage purposes than a shorter-term one because it’s considered less risky by lenders.
  
• Down payment amount and credit score. Lenders will typically charge higher premiums for borrowers who put down less than 20 percent or have poor credit scores, even if these borrowers don’t qualify for PMI in the first place.

Do I Need Mortgage Insurance?

If you’re buying a home with less than a 20% down payment, it’s likely that your mortgage lender will require you to have an insurable mortgage. Mortgage insurance is a form of coverage that protects the lender against losses in case you default on your loan.

If you take out a mortgage loan with less than 20% down, the bank will require you to buy private mortgage insurance (PMI). This type of insurance can be costly and lasts for as long as 30 years after closing on your home purchase. PMI payments are added to the monthly cost of owning your property, so they add up quickly. If possible, look into different types of loans—like conforming FHA loans—to avoid paying these additional costs in perpetuity.

What Can I Do if I Cannot Get an Insured Mortgage?

If you are unable to get an insurable mortgage, there are still ways to buy a home.

• Consider a higher interest rate mortgage: The rates on non-insured mortgages tend to be higher than those on insured products. But this may not matter if you plan to hold your home for less than five years or so and can afford the higher monthly payment.
• Consider a slightly smaller down payment: If you have good credit, it’s possible that some lenders will allow you to make an uninsured down payment as small as 5% of the purchase price (or even less).
• Consider shorter terms: Many lenders offer fixed-term mortgages with terms of up to 10 years instead of the traditional 25-year term with monthly payments that increase every year (known as amortization periods). You’ll pay more interest over time with these loans, but they make sense if being locked into payments at a certain level for another decade is appealing or necessary for personal reasons (such as having other debts).

What Is A Default Insured Mortgage?

If you have a mortgage loan with no down payment, or less than 20% of the purchase price, you will need to purchase mortgage default insurance. Mortgage default insurance protects the lender in case of foreclosure.

Default insured mortgages are typically loans where there’s less than 20% equity in your property. If this describes your situation, it’s likely that you will require mortgage default insurance from CMHC or Genworth Canada to protect your lender in case of foreclosure.
Now you know the distinction between uninsured vs. insured mortgages. Mortgage insurance is a valuable financial tool that can protect you from unexpected mortgage payments. While it’s not right for every Canadian homeowner, it’s important to understand the ins and outs of this type of insurance before making a decision on whether or not it’s right for you. If you have any more questions or concerns regarding your mortgage journey in Canada, don’t hesitate to get in touch with me today.

A lot of my clients approach me with questions about closing costs. Although they are an important part of the mortgage application process, first-time homebuyers in particular aren’t aware of exactly what the mortgage closing process entails. Many underestimate the final cost that can accumulate from the various fees and taxes that come together to form your closing costs. Being prepared and informed will make the process of securing a property with a mortgage easier than you think. I’m Jodi Habel, a licensed mortgage broker with over a decade of experience in the Ontario area, and in this article, I’ll answer some vital questions regarding mortgage closing costs, such as what are closing costs and how much are mortgage closing costs on average in Canada. 

What are the closing costs?

Applying for a mortgage can be a daunting process, as you may already be aware. Various aspects of that process are associated with different fees, along with additional costs that come into play when you secure the home or property you want with a mortgage. All of those costs accumulate to form the mortgage closing costs you need to pay at the very end of the closing process. Many people think mortgage closing costs refer to when you finish paying your mortgage in full, but that is not the case. The closing costs need to be paid once the property ownership is transferred to you. 

How Much Are House Closing Costs?

How much you will pay in closing costs varies on the cost of your house, the individual fees you will be charged, and your location. All of those factors can impact the closing cost percentage that you will be required to pay. In Ontario, you can expect to allocate anywhere from 2-5% of your home’s sale price in closing costs. For example, when you purchase a house valued at $500,000, you may be expected to pay anywhere from $10,000-20,000 in closing costs. If you want to determine the costs of your specific case, it’s best to not generalize and utilize a mortgage and closing cost calculator instead. 

What Do Mortgage Closing Costs Include?

What is included in the home mortgage closing costs that require several thousands of dollars of expenses from the home buyer’s end? First, there’s the mortgage application fee — the application that kickstarts the mortgage eligibility process (around $200-500 depending on the lender). Additionally, the closing costs include all of the inspections and home appraisals that you requested in order to determine the condition of the property before purchase. If your down payment is less than 20%, you will most likely be required to purchase insurance as well, along with hiring a real estate lawyer. Finally, taxes make up the majority of the closing costs, including a property tax adjustment and land transfer tax. 

Here is a comprehensive list of closing costs you can expect to be included in your final closing costs total:

• Legal fees;
• Property tax adjustment; 
• Land transfer tax; 
• Appraisal costs – typically paid COD prior to closing, if applicable;
• Home inspection costs – typically paid COD prior to closing, if applicable;
• Lender fees, if applicable;
• PST on the mortgage default insurance premium, if applicable

Can Closing Costs Be Rolled Into A Mortgage (Canada)?

Unfortunately, closing costs are considered one-time payments and typically cannot be rolled into your mortgage, becoming a portion of what you pay in monthly mortgage payments. That is why it’s vital that you be aware of the closing costs on a house at the beginning of your mortgage acquisition process in order to avoid surprise expenses. Rolling your closing costs into your mortgage is only applicable to those who are refinancing their mortgage or if you have a mortgage that is providing cash back.  The cash back option can be applied towards your closing costs. However, keep in mind that rolling your closing costs into the mortgage is not always a better tradeoff since, in that case, you will need to pay interest on that amount for the duration of your amortization period. 

How Are Closing Costs Calculated?

As we covered, closing costs are a combination of accumulated expenses like fees and taxes that depend on the specific property you purchase along with the conditions of your lender. You can calculate the closing costs yourself if you know how much each individual fee will cost you. In any case, your lender is required to give you an estimate of the closing costs towards the beginning of the mortgage application process once your request is approved. A few days before when you’re required to sign and pay for the costs, your lawyer will present you with the final costs that shouldn’t stray too much from the initial estimate. 

How Can I Decrease My Closing Costs?

There aren’t too many ways in which your closing costs can be reduced.  However, if you are considered a first time homebuyer you might be eligible for a land transfer tax rebate which is determined by your real estate lawyer.  The cashback option provided by lenders could be another option to utilize to help cover your closing costs.  

Still have questions or concerns? Get in touch with me today and I’ll help connect you with the mortgage that suits your needs and financial standing. And don’t forget to calculate mortgage down payment and closing costs with my mortgage calculator — free of charge. 

People are aiming to become their own bosses these days — and at a rapid pace. But wait, you need to verify your income via your employer when applying for a mortgage. Anyone would want to know how to buy a house when self-employed or whether it’s possible. That’s where self-employed mortgages come in. Self-employed mortgages differ from traditional mortgages by giving people without a fixed stream of income a chance to qualify for a mortgage. You can be eligible for this type of mortgage if you are an owner of a corporation, sole proprietorship, or partnership. Let’s take a closer look at everything you need to know when considering a self-employed mortgage. 

Pros of a Self-employed Mortgage

Getting a mortgage when self-employed is becoming normalized at a rapid pace as more people opt for self-employment. Contrary to what many people believe, it’s not all drawbacks. There are actually several advantages to a self-employed mortgage, such as:

• You can be approved for a larger amount: if you opt for a stated income mortgage, you may be able to secure a higher sum towards your mortgage than you would be granted when going down the traditional route.
  
• Quicker processing times: these types of mortgages tend to have quicker processing times, which means you may be able to find out if you are eligible for your mortgage quickly.
  
• Get access to better rates: self-employed mortgages consider the unique circumstances of your employment, which makes it easier to secure a mortgage with beneficial conditions like a low-interest rate compared to traditional mortgage options. 

Possible Cons of a Self-employed Mortgage

Some drawbacks of self-employed mortgages include:

• Requiring a larger down payment: especially in the case of stated income mortgages, you may be required to put down a larger down payment to secure a mortgage since you are considered a higher risk for lenders than individuals with traditional employment. That figure can range from 10-35% depending on the circumstances.
  
• You may need to shop around: Type A lenders often have stricter criteria for approving self-employed mortgages. Your bank of choice may reject your mortgage, requiring you to shop around for better conditions with B lenders, creditors, or alternative lenders who have more flexibility. 

Answering Your Questions About Self-employed Mortgages in Canada

My clients have a lot of questions to ask when getting a mortgage in Canada, especially while self-employed. I’ve answered some of the most frequently asked questions for your reference when you need it. 

1. How Much Income is Needed To Qualify For a Mortgage?

You will be required to show your income history for mortgage consideration. There isn’t a fixed amount of income that passes or fails. It all depends on your debt-to-income ratio, the price of the property you want to purchase, the amount of your down payment, and so on. When calculating self-employed income for mortgage eligibility, pay attention to your loan-to-debt ratio and utilize a mortgage calculator to give you some insight into how much income you need and what range you’ll be eligible for. 

2. Does Being Self-Employed Affect Getting a Mortgage?

Getting a mortgage while self-employed will be just as similar of an experience as applying for a traditional mortgage if you are well informed about the processes. As long as you have two or more years of records and financial proof to show, a good credit score, and timely tax payments, you won’t have a difficult time.  In some cases if you have been self employed for less than 2 years you may still qualify on a case by case basis.  

3. Do Mortgage Lenders Look At Gross Or Net Income

Depending on your lender and the type of mortgage you want to apply for, they may pay special attention to either your gross or net income. Typically, the net income is more important since when all business taxes are deducted from the total, the lender will have a clear understanding of your income amount. In any case, it’s the past two years of financial documents that matter the most when it comes to your lender reviewing your eligibility for a loan. 

4. What are Mortgage Application Requirements?

Aside from the regular mortgage requirements, like credit score documentation and an indication of your debt-to-income ratio, there are a few specific documents you need to present when applying for a self-employed mortgage. That includes documentation like proof of income (unless it’s a stated income mortgage), personal tax forms, and business tax forms. Passing a mortgage stress test is almost always necessary to determine if your business will withstand the test of time. 

5. How Can I Get Approved For A Higher Mortgage?

As with any other mortgage, if you want to get approved for a higher mortgage amount to finance a higher priced property, you need to work on improving your financial standing. That can be done multiple ways (bonus points if you do more than one) and includes processes like offering a larger down payment, improving your credit score, providing proof of additional streams of steady income, and so on. 

6. What are Stated Income Mortgages?

A stated income mortgage in Canada is a type of mortgage offered to self-employed individuals. The unique point of this mortgage is that you don’t provide traditional income documentation, you simply “state” your income to the lender, who will review the reasonability of the business to be able to afford to pay the stated amount if required.  You will be required to put down a larger than standard down payment to qualify for a stated income mortgage since it proposes a greater risk for the lender and there is typically an insurance premium that applies to these types of mortgages unless you have more than 35% down payment.  The default premium is slightly higher than your traditional insured mortgage also.   

7. Who Grants Mortgages For Self-employed Residents?

There are primarily three types of lenders that can offer you a self-employed mortgage in Canada.
These are:  type A lenders, B lenders, and private lenders. Their eligibility criteria, flexibility, and expectations will differ from lender to lender. So it’s best to seek out various options to determine which lender will grant you a mortgage with the best conditions. 

8. Can you get a mortgage with no job but a large deposit in Canada?

With alternative lenders, it is entirely possible to pay a large down payment (35-50%) and secure a mortgage for a property. That doesn’t qualify as a self-employed mortgage, though. 

I, Jodi Habel, am a licensed mortgage broker in Ontario dedicated to helping my clients reach their milestones by connecting them with mortgages that suit their financial standing. Contact me today for more information. 

Refinancing a mortgage can allow you to consolidate debts to reduce your monthly expenses, secure lower interest rates, switch loan terms, and access home equity for a variety of purposes.  Aside from this, you can take advantage of the tax deductions. You can claim these deductions after refinancing your mortgage to help you pay less in income taxes.  Now let’s dive into a mortgage refinance tax deductions, but keep in mind that whatever decision you make, it’s best to opt for the assistance of a mortgage broker to not make a wrong one. 

What Are Refinance Tax Deductions?

You may be able to claim tax deductions when submitting your taxes to lower your tax bill.  A tax deduction lowers the tax burden of a person or organization by reducing taxable income.

Is a mortgage refinance a tax deduction?  It can be depending upon what the funds are being used for and what type of property the refinance is happening on.  For example, you are taking equity out of your home to purchase an investment property.  These funds would be considered tax-deductible.  The biggest tax deduction with mortgages (whether original or refinanced) is the interest you pay on the mortgage. For instance, the interest that you pay for your mortgage will be deducted from your income through the mortgage interest deduction, reducing your tax liability.   

Refinance tax deductions are specific deductions that you can take after refinancing your mortgage.

What Refinance Costs Are Tax-Deductible?

You may be wondering:

• Are refinancing costs tax-deductible? 
• Which refinance costs are tax-deductible?

Several expenses associated with refinancing your mortgage may be tax-deductible. What are tax deductions for refinancing a mortgage? The following are some of the tax deductions available when purchasing or refinancing a home:

• Interest payments on a mortgage 
• Closing fees for rental properties 
• Premiums for mortgage insurance

If the closing expenses are considered as real estate taxes or mortgage interest, they can be deducted for a mortgage refinance. If you pay for services such as title insurance and appraisals, your closing expenses are not considered tax-deductible.

Mortgage refinance tax deductions can be used for your main house, secondary home, or rental property.

You’ll understand more about which mortgage refinance fees are tax-deductible in a minute. 

How Does A Refinance Affect Your Tax Return?

You may ask how a to refinance affects your tax return. It’s important to remember that refinancing your mortgage might drastically lower your total tax deductions. You’ll pay less interest if you refinance to a lower mortgage rate. This means that when the time comes to pay the tax, you’ll have less mortgage interest to deduct.

Mortgage Refinance Tax Deductions You Need to Know

Are our home refinance fees tax-deductible? While not all mortgage refinancing fees are deductible, here are common mortgage refinance tax deductions. 

1. Mortgage Interest

The mortgage interest deduction is the simplest to qualify for among the refinance tax deductions. Interest payments on the original mortgage, as well as any refinance, are deducted from your income. Interest payments on a primary and secondary house or rental property can be deducted

In most situations, interest payments on a mortgage or a refinance or equity take-out can only be deducted if the funds are used to buy, build or significantly develop your primary or secondary house or use the funds for investment purposes.  There are two ways of mortgage refinancing:

Traditional Refinance/Switch/Transfer – During this, your original mortgage is paid off and replaced with a new one. Usually, the new one offers you the interest rate and/or term that better fits your financial goals. Whenever you want to lower the interest rate or change the terms, you opt for this type of refinancing. The loan must be secured by your home for the interest to be tax-deductible.  The mortgage balance remains the same.  

Equity Take Out Refinance – During this mortgage refinancing option, you replace your existing mortgage with a larger mortgage amount compared to the balance remaining for the previously existing mortgage.  It allows borrowers to get some extra cash by using their home mortgage.  These funds can be used to make an investment in order to have them be tax-deductible.  The interest is not tax-deductible if used for other purposes such as traveling and consolidating higher-interest debts.

A Rental Property’s Closing Costs

Mortgage interest is a tax-deductible expense when you have a rental property.  You may also be able to deduct some other items such as closing costs.  The other closing costs associated with the purchase of the property are part of your depreciation deduction. The tax-deductible closing costs are:

• Mortgage interest
• Real-estate property taxes

Closing fees for your primary or secondary home cannot be deducted.

It is recommended that you consult with your accountant or tax professional in order to determine what mortgage expenses you are able to deduct.  Keep in mind that Jodi Habel who has over more than a decade of experience in the mortgage industry is always here to help you find the right mortgage for your needs.