What Is a Self-Employed Mortgage?

A self-employed mortgage is a personal mortgage specifically designed for self-employed individuals. While some lenders may have dedicated products for self-employed clients, the term “Self-Employed Mortgage” is generally used for marketing purposes. These mortgages consider self-employment income to qualify borrowers for a personal mortgage. It is important to note that the approval criteria and income documentation requirements may vary between lenders. What one lender accepts may not qualify you at another, and the flexibility of the lender may also depend on the amount of your down payment.

How does a Self-Employed Mortgage work in Canada?

Obtaining a self-employed mortgage in Canada can be more challenging than a conventional mortgage due to the nature of self-employment income. Unlike traditional employment income, self-employment income tends to fluctuate and is less consistent. Banks and credit unions are cautious when it comes to fluctuating income, making the approval process more difficult. Additionally, lenders use the net income reported on Line 150 of your income tax return to qualify your application. Self-employed individuals often deduct business expenses, resulting in a lower net income than their actual earnings. While lenders may “gross up” income by adding back some deductions, it may not be enough to meet the approval requirements.

Who is considered self-employed in Canada?

In Canada, you are considered self-employed if you are a business owner or work for yourself and secure contracts directly from clients. This includes sole proprietors, partners, and individuals who draw a salary from their own corporation. Self-employment encompasses various professions, such as commission salespeople, freelance workers, farmers, and more.

What are the types of Self-Employed Mortgages?

When applying for a self-employed mortgage, lenders may require different types of income confirmation depending on your employment status. Here are the three common types of self-employed mortgages and their respective income documentation requirements:

Traditional Income Mortgages

If you earn traditional income as a self-employed individual, which refers to salaried or hourly income from regular employment, you may need to provide the following documentation:

• One or more recent pay stubs
• T4 slip from the most recent tax year
• Bank statements with confirmation of direct deposit
• Letter of employment
• Notice of Assessments

Fluctuating Income Mortgages

Most self-employed individuals fall into this category, where their income fluctuates from month to month. To qualify for a fluctuating income mortgage, you may need to provide the following documentation:

• Two years of accountant-prepared income tax returns, including the Statement of Business Activities and Notice of Assessments
• Accountant-prepared financial statements (if applicable)

Stated Income Mortgages

In some cases, self-employed borrowers may not be able to provide income confirmation that meets the requirements of a traditional mortgage. This often occurs when business owners use various tax deductions and credits to reduce their taxable income. Stated income mortgages allow borrowers to state their income without providing extensive documentation. However, these mortgages typically come with higher down payment requirements and interest rates. They are often offered by private lenders and require a down payment of 50% or more, along with proof of high net worth.

Why Is it Difficult to Get a Mortgage When Self-Employed?

There are two primary reasons why it is more challenging for self-employed individuals to qualify for a mortgage. First, self-employment income tends to fluctuate, making banks and credit unions nervous. They prefer stable and consistent income. Second, lenders use the net income reported on your income tax return to qualify your application. Self-employed individuals often deduct business expenses to reduce their taxable income, resulting in a lower net income. While lenders may add back some deductions to “gross up” income, it may not be sufficient to meet the approval requirements, particularly the debt servicing requirements.

How can I apply for a Self-Employed Mortgage?

When applying for a self-employed mortgage, you will need to provide various documents to support your mortgage application. It is essential to be prepared and have access to the following documents:

• Two most recent years’ Notice of Assessments (NOAs)
• Two most recent years’ income tax returns (accountant-prepared)
• Statement of Business Activities from your income tax return
• Proof of income taxes paid to demonstrate no arrears
• Evidence of business ownership, such as Articles of Incorporation, Business Name Registration, Business License, bank account confirmation, bank statements, and Business number
• Accountant-prepared financial statements for corporations
• Gift letter (if receiving a down payment as a gift from a family member)
• List of assets and liabilities (personal net worth statement)
• Confirmation of investments from all financial institutions

What are the requirements for a Self-employed mortgage?

The requirements for a self-employed mortgage may vary between lenders, but here are some general criteria to consider:

• At least two years of self-employment history, although some lenders may consider recently self-employed individuals under specific circumstances
• Sufficient cash reserves, especially for recently self-employed individuals
• Predictable earnings, such as through government contracts
• Relevant training and education in your field
• Excellent credit history
• Meeting the lender’s debt servicing requirements, typically a Total Debt Service (TDS) ratio of 39% or lower and a Gross Debt Service (GDS) ratio of 44% or lower
• Down payment requirements, which can vary depending on the lender and the borrower’s creditworthiness
• The property must be located in Canada and suitable for full-time occupancy

What are the advantages of Self-Employed Mortgages?

Self-employed mortgages offer several advantages for self-employed individuals, including:

• The opportunity to own a home and build equity
• Flexibility in income documentation requirements, allowing self-employed individuals to qualify for a mortgage based on their unique financial situation
• Potential tax benefits, as mortgage interest is tax-deductible for self-employed individuals
• The ability to invest in real estate, which can yield long-term financial benefits

What are the disadvantages of Self-Employed Mortgages?

While self-employed mortgages have their advantages, there are also some disadvantages to consider:

• Stricter approval requirements due to the fluctuating nature of self-employment income
• Higher down payment requirements compared to traditional mortgages
• Potentially higher interest rates, particularly for stated income mortgages from private lenders
• Limited options from traditional lenders, as they may be more cautious when lending to self-employed individuals

Who can provide self employed mortgages in Canada?

Self-employed individuals in Canada can obtain mortgages from various lenders, including:

• A lenders:
  These include major Canadian banks and most credit unions. A lenders generally offer the lowest interest rates but have stricter approval requirements.
• B lenders:
  B lenders are smaller, less regulated lenders who may be more accommodating to self-employed borrowers. They have slightly higher interest rates but are more flexible in their lending criteria.
• Private lenders:
  Private lenders are equity lenders who consider borrowers with poor credit histories or those who do not meet the income requirements of A or B lenders. Private lenders offer fast approvals and funding but have the highest interest rates.

Who do I reach out to for a Self-Employed Mortgage?

If you are considering a self-employed mortgage, it is advisable to work with a mortgage broker who specializes in self-employed mortgages. A mortgage broker has experience dealing with various lenders and can help you navigate the approval process. They can shop your application to different lenders, including A lenders, B lenders, and private lenders, to find the best mortgage options for your unique financial situation.

At Citadel Mortgages, we specialize in helping self-employed individuals secure mortgages. Our team of experienced mortgage brokers understands the challenges faced by self-employed borrowers and works tirelessly to find the best mortgage solutions. Contact us today to discuss your mortgage needs and get started on the path to homeownership.

What is the difference between Conventional mortgage and self-employed mortgage?

The main difference between a conventional mortgage and a self-employed mortgage lies in the income documentation requirements. Conventional mortgages are designed for traditionally employed individuals with stable and consistent income. The income documentation typically includes pay stubs, T4 slips, and employment letters.

On the other hand, self-employed mortgages have more flexible income guidelines and require additional documentation to verify income for self-employed individuals. This can include income tax returns, Notice of Assessments, bank deposit slips, customer invoices, and other financial statements. Self-employed mortgages consider both personal taxable income and business income to assess the borrower’s financial stability and ability to make mortgage payments.

Final Thoughts on Self-Employed Mortgages

In recent years, mortgage lenders in Canada have become more accommodating to self-employed borrowers, recognizing the unique nature of self-employment income. While it may be more challenging to qualify for a mortgage as a self-employed individual, it is not impossible. Working with a knowledgeable mortgage broker and understanding the requirements and options available can help you navigate the process successfully.

If you are considering self-employment or are already self-employed, it is essential to plan ahead and take care of any borrowing needs before making the transition. Establishing a solid track record of self-employment income for at least two years can increase your chances of qualifying for a self-employed mortgage with more favorable terms.

Frequently Asked Questions about Self-Employed Mortgages

How much can I borrow for a mortgage if I’m self-employed?

The total amount you can borrow for a self-employed mortgage varies depending on several factors, including your income, creditworthiness, debt levels, and the lender’s policies. Lenders typically use a debt-to-income ratio to determine how much you can borrow. This ratio compares your total debt payments to your gross income. Generally, lenders prefer a debt-to-income ratio of 39% or lower.

Can you have a mortgage with no income?

It is highly unlikely to qualify for a mortgage with no income. Lenders need assurance that you have the financial means to repay the loan. While self-employed individuals may have more flexibility in income documentation, they still need to provide evidence of income to qualify for a mortgage.

How many years do you have to be self-employed to get a mortgage?

Most lenders require at least two years of self-employment history to qualify for a self-employed mortgage. This allows lenders to assess your income stability and financial track record. However, there may be exceptions for recently self-employed individuals who can demonstrate stability through other means, such as sufficient cash reserves, predictable earnings, relevant training, and an excellent credit history.

What is proof of income for self-employed in Canada?

Proof of income for self-employed individuals in Canada typically includes income tax returns, Notice of Assessments, bank statements, customer invoices, and other financial documents that demonstrate your income and financial stability. These documents help lenders determine your ability to make mortgage payments.

Can I get a self-employed mortgage without proof of income?

While it may be possible to obtain a self-employed mortgage without traditional proof of income, such as pay stubs and T4 slips, it is challenging. Stated income mortgages, where borrowers state their income without extensive documentation, are generally offered by private lenders. These mortgages often require a higher down payment and have higher interest rates.

What is the criteria for self-employed in Canada?

The criteria for self-employed individuals in Canada vary depending on the lender and the type of mortgage you are seeking. Generally, lenders consider factors such as self-employment history, income stability, credit history, debt levels, down payment amount, and the property’s suitability for full-time occupancy.

Are mortgage rates higher for self-employed borrowers?

Mortgage rates for self-employed borrowers can vary depending on several factors, including income stability, creditworthiness, down payment amount, and the lender’s policies. While self-employed borrowers may face higher interest rates compared to traditionally employed individuals, it is not always the case. With a strong financial profile and a solid track record of self-employment income, self-employed borrowers may still qualify for competitive interest rates from A lenders.

What is the minimum amount for self-employed?

There is no specific minimum amount for self-employed individuals. The amount you can borrow depends on various factors, including your income, creditworthiness, debt levels, and the lender’s policies. Lenders typically assess your ability to make mortgage payments based on your income and debt-to-income ratio.

Source: citadelmortgages.ca

The post HOW CAN YOU QUALIFY FOR A SELF-EMPLOYED MORTGAGE IN CANADA? appeared first on Sai Charan Reddy Kallu Mortgage Professional.

Who is a Mortgage Broker

Mortgage brokers in Canada play a pivotal role in the home financing process. These licensed professionals serve as knowledgeable intermediaries, bridging the gap between borrowers and an extensive array of lenders. Their expertise lies in evaluating borrowers’ unique financial situations and goals to effectively match them with mortgage products that best suit their needs. With access to an extensive network of lending institutions, including banks, credit unions, and private lenders, mortgage brokers bring a wealth of options to the table. Whether you’re a first-time homebuyer or looking to refinance, partnering with mortgage brokers can simplify your journey towards securing the ideal mortgage solution for your specific circumstances.

How Mortgage Brokers Can Help You

1. Mortgage Shopping

When it comes to mortgage shopping, enlisting the services of experienced Mortgage Brokers in Canada can make a significant difference in your home financing journey. One of the main advantages of working with a mortgage broker is their ability to shop around on your behalf. Instead of approaching multiple lenders individually, a mortgage broker can gather quotes from different lenders and present you with the best options tailored to your specific needs and financial situation. This not only saves you valuable time and effort but also ensures that you have a comprehensive understanding of the mortgage market, empowering you to make informed decisions that align with your homeownership goals. Mortgage brokers serve as valuable allies, navigating the intricacies of mortgage options to secure the best possible deal for you.

2. Expert Advice

When it comes to securing a mortgage for your home in Canada, expert advice can make all the difference. Mortgage brokers in Canada are your go-to resource for navigating the complex mortgage industry. These professionals possess a wealth of knowledge about various mortgage products, current interest rates, and repayment options. By taking a close look at your unique financial situation and homeownership goals, a mortgage broker can provide you with highly personalized recommendations. They will guide you toward the most suitable mortgage product tailored to your needs and circumstances, ensuring that you make an informed decision that aligns with your financial objectives. Trust the expertise of mortgage brokers to simplify the mortgage process and help you achieve your homeownership dreams.

3. Access to Exclusive Deals

When looking for a mortgage in Canada, it’s worth considering the services of mortgage brokers. These professionals have access to exclusive deals and discounted rates that are not readily available to the general public. Thanks to their extensive network and strong relationships with lenders, mortgage brokers can negotiate better terms and conditions on your behalf. This can potentially result in significant savings over the life of your mortgage. So, if you’re in the market for a mortgage, it’s worth exploring the options provided by mortgage brokers.

4. Streamlined Application Process

Applying for a mortgage can be a complex and time-consuming process. A mortgage broker can simplify this process for you. They will gather all the necessary documentation, submit your application to lenders, and handle the paperwork on your behalf. This streamlines the application process and ensures that everything is done accurately and efficiently.

5. Support and Guidance

Throughout the mortgage process, a mortgage broker will provide ongoing support and guidance. They will explain the terms and conditions of different mortgage products, help you understand your mortgage contract, and answer any questions you may have. Having a knowledgeable professional by your side can give you peace of mind and confidence in your decisions.

How Mortgage Brokers Get Paid

Mortgage brokers are typically paid through commissions from the lenders they work with. When a borrower successfully obtains a mortgage through a broker, the lender pays the broker a commission based on the loan amount. This means that the services of a mortgage broker are often free for borrowers.

However, it’s important to note that some mortgage brokers may charge additional fees for their services. These fees can vary, so it’s essential to clarify the fee structure with your broker upfront.

Questions to Ask a Mortgage Broker

When choosing a mortgage broker, it’s crucial to ask the right questions to ensure they are the right fit for your needs. Here are some essential questions to consider:

1. How long have you been a mortgage broker?

Asking about the mortgage broker’s experience will give you an idea of their expertise and track record. The longer they have been in the industry, the more knowledge and connections they are likely to have. It also indicates their ability to navigate through different market conditions and adapt to changes in the mortgage industry.

2. Do you have experience with borrowers in a similar financial situation as mine?

This question is important because it ensures that the mortgage broker understands your unique financial situation and can provide tailored advice and solutions. If they have experience working with clients in similar circumstances, they will be better equipped to find the right mortgage options that suit your needs.

3. Which lenders do you work with?

Knowing the lenders a mortgage broker works with is crucial because it determines the range of mortgage options they can offer you. A broker with a wide network of lenders can provide more choices and potentially secure better terms and rates. It’s also essential to ensure that the broker works with reputable lenders who have a good track record and offer competitive mortgage products.

4. What mortgage products do you specialize in?

Mortgage brokers may specialize in specific types of mortgages, such as first-time buyer programs, self-employed mortgages, or investment property financing. Asking about their specialization will help you assess if they have the expertise to handle your specific requirements. A specialist broker will be familiar with the intricacies of the mortgage products they specialize in and can guide you accordingly.

5. How do you stay updated on the latest mortgage trends and rates?

The mortgage market is constantly evolving, with interest rates and mortgage products changing regularly. It’s crucial to work with a broker who stays up-to-date with these trends and can offer you the most current and competitive options. Brokers who actively follow market updates, attend industry conferences, and have strong relationships with lenders can provide valuable insights and help you navigate the ever-changing mortgage landscape.

6. Are there any additional fees or charges I should be aware of?

Understanding the fees and charges associated with working with a mortgage broker is essential to avoid any surprises later on. Some brokers charge a fee for their services, while others earn a commission from the lenders. It’s important to clarify the fee structure upfront and ensure that you are comfortable with the cost involved. Asking about additional fees or charges will help you make an informed decision and budget accordingly.

7. Can you provide references from past clients?

Requesting references allows you to gauge the broker’s reputation and the level of satisfaction of their previous clients. Speaking with past clients can provide insights into the broker’s communication style, professionalism, and ability to deliver results. Positive references and testimonials are indicators of a reliable and trustworthy mortgage broker who can effectively guide you through the mortgage process.

How to Choose a Mortgage Broker

Finding the right mortgage broker is essential for a smooth and successful mortgage process. Here are some factors to consider when choosing a mortgage broker:

1. Experience and Reputation:
When choosing a mortgage broker, it is essential to consider their experience and reputation in the industry. Look for brokers who have a solid track record and extensive experience in handling mortgage transactions. Online reviews and testimonials from past clients can provide valuable insights into their reputation and level of customer satisfaction. This information will help you gauge their expertise and reliability, allowing you to make an informed decision.

2. Range of Lenders and Products:
A crucial factor to consider when selecting a mortgage broker is their access to a wide range of lenders and mortgage products. Brokers with established relationships with various lenders can offer you more options and increase your chances of finding the best mortgage deal for your specific needs. Ensure that the broker you choose has connections with reputable lenders who offer competitive interest rates and favorable terms.

3. Communication and Accessibility:
Effective communication is essential throughout the mortgage process. Select a mortgage broker who prioritizes clear and timely communication. They should be responsive to your inquiries, transparent in their explanations, and readily available to address any questions or concerns you may have. A broker who values open and honest communication will provide you with peace of mind and ensure a smoother mortgage experience.

4. Licensing and Credentials:
Before working with a mortgage broker, it is important to verify that they are licensed and regulated by the appropriate authorities. This ensures that they adhere to professional standards and ethical practices. Licensing requirements vary by jurisdiction, so make sure to check the specific requirements in your area. Working with a licensed broker gives you the assurance that they have met the necessary qualifications and are legally authorized to provide mortgage services.

5. Personalized Service:
Every individual’s financial situation and goals are unique. Therefore, it is crucial to choose a mortgage broker who takes the time to understand your specific needs. A good broker will conduct a thorough assessment of your financial circumstances, considering factors such as income, credit history, and future plans. Based on this information, they should provide personalized recommendations and solutions tailored to your requirements. This personalized approach ensures that you receive the most suitable mortgage options and increases your chances of achieving your financial goals.

FAQs

Q: Can a mortgage broker help me if I have bad credit?

Yes, a mortgage broker can still assist you if you have bad credit. They have access to lenders who specialize in providing mortgages to individuals with less-than-perfect credit histories.

Q: Do I have to pay a mortgage broker directly for their services?

In most cases, borrowers do not have to pay mortgage brokers directly. They are typically compensated through commissions from the lenders they work with. However, it’s important to clarify the fee structure with your broker upfront.

Q: Can a mortgage broker help me refinance my existing mortgage?

Absolutely. Mortgage brokers can assist with refinancing existing mortgages to help borrowers find better interest rates or more favorable terms. They can shop around for the best refinance options available to you.

Conclusion

Working with a mortgage broker in Canada can be highly beneficial when navigating the mortgage process. They offer expert advice, access to multiple lenders and products, and personalized recommendations. By understanding the role of a mortgage broker and asking the right questions, you can find a trusted professional who will guide you towards the best mortgage deal for your needs.

Source: citadelmortgages.ca

The post WHAT DOES A MORTGAGE BROKER DO? appeared first on Sai Charan Reddy Kallu Mortgage Professional.

Biweekly Payments: The Power of Consistency

If you’re looking to pay off your mortgage faster, there are various strategies you can employ. One effective method is making biweekly payments instead of the traditional monthly payments. By doing so, you can make the equivalent of 13 monthly payments in a year, and this can reduce the repayment time by four to six years on a typical 30-year loan, depending on your interest rate. Mortgage brokers in Canada can help you find lenders who accept biweekly payments and also provide guidance on how to process these payments. It’s important to note that not all lenders offer this option, so it’s crucial to check with your lender beforehand. Additionally, mortgage brokers can provide valuable insights into other strategies that you can use to pay off your mortgage quickly.

Extra Payments: Accelerating Your Mortgage Payoff

If biweekly payments are not feasible for you, there are other ways to accelerate your mortgage payoff. Making an extra payment once a year can have a significant impact on reducing your repayment term. Consider using a tax refund or bonus to make this extra payment and allocate the entire amount towards the loan principal. By doing so, you can potentially reduce your repayment term by up to five years.

If making an extra payment each year is not possible, you can still make progress by sending an additional amount each month. By rounding up your regular payment to the next $100 amount or adding $100 to the payment, you can gradually reduce your mortgage term and interest. The actual savings will depend on the terms of your loan and the amount of extra payment you make each month.

Mortgage Recasting: Utilizing Lump Sum Payments

If you receive a windfall, such as an inheritance or bonus, you can consider recasting your mortgage. Some loan servicers offer this option when they receive a lump-sum payment towards the principal. With recasting, the loan is reamortized, keeping the term the same but lowering the monthly payment based on the reduced principal. To pay off your mortgage quickly using this strategy, continue making your previous payment amount and apply the extra money towards the principal.

It’s important to note that not all mortgages are eligible for recasting, and lenders have different requirements regarding the frequency and minimum amount of principal payment for recasting. Additionally, there may be a recasting fee associated with this option. Therefore, consulting with Mortgage Brokers in Canada can help you navigate through these requirements and find the best option to pay off your mortgage efficiently.

Refinancing: Lowering Interest Rates and Accelerating Payoff

Another strategy to consider is refinancing your mortgage. Refinancing can help lower your interest rate and result in significant savings over time. Homeowners can also refinance for a shorter term, such as a 15-year mortgage, to get out of debt more quickly. While monthly payments may be higher with a shorter term, the interest costs over the life of the loan can be substantially reduced.

When considering refinancing, it’s essential to look for a lender that offers flexible-term mortgages. Shorter terms mean less money paid on interest over time. If you’re unsure about the ideal term, consulting with an independent mortgage broker can help you determine the most suitable repayment period based on your financial situation.

Adjustable-Rate Mortgages: A Tool for Financial Stability

Adjustable-rate mortgages (ARMs) can be a useful tool for financially stable families or those anticipating a move in the near future, such as military families. ARMs typically start with a low introductory interest rate that adjusts higher after a specified period. By taking advantage of the low interest rate, homeowners can build equity in their homes quickly and potentially free up additional money in their budget to put towards the principal.

Combining Strategies: A Comprehensive Approach

Paying off a 30-year mortgage in a shorter period often requires a combination of various strategies. For instance, you can refinance to lower your interest rate, select a shorter loan term, and make additional principal payments each month. By adopting a comprehensive approach, you can optimize your mortgage payoff and potentially save a significant amount of money in interest payments.

Using an Amortization Calculator: Planning Your Mortgage Payoff

If you have a specific target date for paying off your mortgage, you can work backward to determine the monthly payment required to achieve that goal. An amortization calculator can help with this calculation. Simply input your remaining mortgage balance, desired payoff date, and mortgage interest rate to determine the necessary monthly payment. While the monthly payment may be substantial, the total interest paid over the life of the loan will decrease significantly.

Should You Pay Off Your Mortgage?

Before prioritizing accelerated mortgage payoff, it’s essential to consider your overall financial picture. Ensure that you are contributing to retirement funds, such as individual retirement accounts (IRAs) and 401(k)s. Building an emergency fund should also be a priority before paying off your mortgage. Additionally, depending on your financial situation, there may be tax benefits associated with holding a mortgage.

Conclusion

Paying off your mortgage faster is a worthwhile goal that can save you thousands of dollars in interest payments and provide financial freedom. By employing strategies such as biweekly payments, making extra payments, refinancing, and utilizing amortization calculators, you can accelerate your mortgage payoff and potentially own your home outright in a shorter period. Consider your individual financial situation and goals to determine the most effective approach for paying off your mortgage faster.

Remember, if you need assistance with your mortgage or have any questions, Sai Charan Kallu SubMortgages Broker at Citadel Mortgages, a leading mortgage brokerage in Canada, is here to help. Contact us today to speak with one of our experienced mortgage brokers who can guide you through the process and help you find the best mortgage solution for your needs.

FAQs

1. Can making biweekly payments really help me pay off my mortgage faster?

Yes, by splitting your monthly mortgage payment in half and making biweekly payments, you can effectively make 13 monthly payments in a year. This strategy can significantly reduce your repayment time, depending on your interest rate and loan term.

2. Are all mortgages eligible for recasting?

No, not all mortgages can be recast. Loans through the FHA and VA, as well as jumbo loans, may not be eligible for recasting. Additionally, lenders have different requirements and may charge a recasting fee.

3. How much can refinancing shorten my mortgage repayment term?

Refinancing can potentially shorten your repayment term, especially if you opt for a shorter loan term. By refinancing to a 15-year mortgage, for example, you can significantly reduce the time it takes to pay off your mortgage.

4. What should I prioritize before paying off my mortgage faster?

Before focusing on accelerated mortgage payoff, it’s essential to contribute to retirement funds, build an emergency fund, and consider potential tax benefits associated with holding a mortgage. Evaluate your overall financial situation and weigh all your options.

5. How can Citadel Mortgages assist me with my mortgage?

Sai Charan Kallu SubMortgages Broker at Citadel Mortgages is a leading mortgage brokerage in Canada, specializing in finding the best mortgage solutions for their clients. Contact us today to speak with one of our experienced mortgage brokers who can guide you through the mortgage process and help you find the most suitable mortgage for your needs.

6. What happens if I pay an extra $100 a month on my mortgage?

Paying an extra $100 a month on your mortgage can help you pay off your loan faster and save on interest. It will reduce your principal balance, which means you’ll pay less interest over time.

7. What is the fastest way to pay off my house?

The fastest way to pay off your house is by making extra principal payments. This can be done by increasing your monthly payments, making biweekly payments, or making lump sum payments whenever possible.

8. How to pay off a 30-year mortgage in 10 years?

To pay off a 30-year mortgage in 10 years, you’ll need to make significantly higher monthly payments. This can be achieved by refinancing to a shorter-term loan, increasing your monthly payments, and making extra principal payments whenever possible.

9. What happens if I pay 2 extra mortgage payments a year?

Paying 2 extra mortgage payments a year can help you pay off your loan faster. By making biweekly payments instead of monthly payments, you’ll end up making 26 half payments, which is equivalent to 13 full monthly payments in a year.

10. Is it a good idea to pay extra on your mortgage every month?

Paying extra on your mortgage every month can be a good idea if you have extra funds and want to reduce your loan term and save on interest. However, it’s important to consider your overall financial situation and other financial goals before making extra payments.

11. How long does it take to pay off a $300000 house?

The time it takes to pay off a $300,000 house depends on factors such as your interest rate, loan term, and payment amount. However, with a standard 30-year fixed-rate mortgage, it would take approximately 30 years to pay off the loan if you make only the minimum monthly payments.

12. Is there a disadvantage to paying off mortgage?

Paying off your mortgage early can have advantages, such as saving on interest and having the security of owning your home outright. However, there can be disadvantages, such as tying up your funds in your home instead of using them for other investments or financial goals. It’s important to consider your overall financial situation and goals before deciding to pay off your mortgage early.

13. Do extra payments automatically go to principal?

Yes, extra payments typically go towards the principal balance of your mortgage. This reduces the outstanding loan amount and can help you pay off your mortgage faster. However, it’s always a good idea to check with your mortgage lender to ensure that the extra payments are being applied correctly.

Sources: citadelmortgages.ca

The post HOW TO PAY OFF YOUR MORTGAGE FASTER: STRATEGIES FOR HOMEOWNERS appeared first on Sai Charan Reddy Kallu Mortgage Professional.

How Many Mortgages Can I Get at the Same Time?

In Canada, you can have multiple mortgages on different properties simultaneously. There is no specific legal limit on the number of mortgages you can have. However, the number of mortgages you can obtain for a single property is generally limited to two.

How Do Mortgages Work?

To understand the limitations on multiple mortgages, it’s essential to grasp how mortgages work. A mortgage is a loan provided by a lender to finance the purchase of a property. The property itself serves as collateral for the loan. In the event of default, the lender has the right to seize and sell the property to recover their investment.

Mortgages are analyzed in terms of lien position, which determines the priority of each mortgage in the event of foreclosure. The first mortgage, also known as the first-position mortgage, holds the primary lien position. If multiple mortgages exist on a property, the second mortgage, or second-position mortgage, holds a subordinate lien position.

Why You Can’t Get More Than Two Mortgages

The reason you can’t generally obtain more than two mortgages on a single property is due to the difficulty of finding a lender willing to assume the third lien position. Banks and lenders are reluctant to take on this level of risk, as third-position mortgages are typically paid last in foreclosures, and there is a higher chance of not being paid at all.

During the financial crisis of 2008 and 2009, many second-position lenders did not receive payment in foreclosures, let alone third-position lenders. As a result, banks are hesitant to extend loans for third mortgages, and if they do, the interest rates may be prohibitively high.

In summary, while you can have multiple mortgages on different properties, the general limit for mortgages on a single property in Canada is two.

How does a First Mortgage Work?

As a first-time homeowner, obtaining a first mortgage is typically the initial step in purchasing a property. When you secure a first mortgage, your lender provides you with the funds necessary to buy the property. The specific criteria for obtaining a first mortgage vary among lenders but generally include factors such as credit score, loan-to-value ratio, down payment, and repayment plan.

The loan-to-value (LTV) ratio is an essential consideration for lenders. It represents the percentage of the property’s value that you are borrowing. For example, if you are purchasing a property worth $100,000 and have an LTV ratio of 80%, you would receive a loan of $80,000, while providing a down payment of $20,000.

Repayment of the first mortgage occurs through monthly installments over a specified period. As you make payments, your equity in the property increases. Once the loan is fully repaid, you become the sole owner of the property.

What Is a Second Mortgage and How Does It Work?

A second mortgage is a loan obtained while you still have an existing first mortgage. It allows you to tap into the equity you have built up in your property. This equity represents the difference between the current market value of your property and the outstanding balance on your first mortgage.

A second mortgage in Canada can be acquired from the same lender as your first mortgage or a different lender. The funds received from a second mortgage can be used for various purposes, such as home renovations, debt consolidation, or investments. Unlike first mortgages, there are generally no usage restrictions on second mortgages.

Similar to a first mortgage, a second mortgage involves a lien against a portion of your home equity. The lender provides you with a loan equivalent to the value of the equity you mortgaged. The requirements for obtaining a second mortgage vary among lenders, including factors such as credit score, income, debt-to-income ratio, and the amount of equity you have in the property.

Types of Second Mortgages

There are two common types of second mortgages: home equity loans and home equity lines of credit (HELOCs).

Home Equity Loan

A home equity loan in Canada provides you with a lump sum of cash equivalent to the portion of your home equity you wish to mortgage. This loan is repaid over a set period, typically through monthly installments. The interest rates for home equity loans are usually lower than those of credit cards, making them an attractive option for consolidating high-interest debts or funding home improvements.

Home Equity Line of Credit (HELOC)

A HELOC in Canada functions similarly to a credit card. Instead of receiving a lump sum, you are granted a line of credit based on a percentage of your home equity. You can draw from this line of credit as needed, and interest is only charged on the amount you borrow. HELOCs typically have a draw period, during which you can access the funds, followed by a repayment period.

How a Home Refinancing Works

Home refinancing is another option to consider if you require additional funds or want to take advantage of better interest rates. Refinancing involves replacing your existing mortgage with a new one, often with more favorable terms.

When you refinance your mortgage in Canada, you can choose to increase the loan amount to access additional funds. This is known as a cash-out refinance. The new mortgage pays off your original mortgage, and you receive the difference in cash.

Refinancing can be beneficial if you want to consolidate debts, make home improvements, or invest in other properties. However, it’s important to carefully consider the costs and potential savings associated with refinancing, such as closing costs, prepayment penalties, and the impact on your monthly payments.

The Difference Between a Second Mortgage and a Home Refinance

While both second mortgages and home refinancing involve accessing additional funds, there are key differences between the two.

A second mortgage allows you to borrow against the equity you have built in your property while maintaining your existing first mortgage. It involves receiving a separate loan with its own repayment terms and interest rates. You will have two mortgages on your property, each with its own lien position.

On the other hand, home refinancing replaces your current mortgage with a new one. This new mortgage may have a higher loan amount, allowing you to access additional funds. Unlike a second mortgage, refinancing consolidates your existing mortgage and any additional funds into a single loan. This can be beneficial if you want to take advantage of lower interest rates or adjust the terms of your mortgage.

What are the eligibility criteria for taking out a second mortgage?

The eligibility criteria for a second mortgage in Canada are similar to those for a first mortgage. Lenders will evaluate factors such as your income, employment status, credit score, and debt-to-income ratio. They want to ensure that you have the financial means to handle multiple mortgage payments.

It’s important to provide evidence of your income, including pay stubs or tax returns, and documentation of any outstanding debts or financial commitments. Your credit score will also be taken into consideration, as it reflects your creditworthiness and ability to repay loans.

Lenders will calculate your debt-to-income ratio, which compares your monthly debt payments to your gross monthly income. Generally, a lower debt-to-income ratio is preferred, as it indicates a lower risk for the lender. Aim to keep your debts, including both mortgages, below 25% of your monthly income to increase your chances of approval.

What are the Additional costs for a second mortgage?

Obtaining a second mortgage comes with additional costs that you should consider. These costs include:

• Higher Deposit:
  When purchasing a second property, lenders typically require a higher deposit compared to a first home. While first-time buyers may be able to secure a mortgage with a 5% deposit, second properties often require a deposit of at least 15%. For buy-to-let properties, the deposit can be even higher, often around 25% of the property’s value.
• Stamp Duty:
  When buying a property in Canada, you are required to pay Stamp Duty Land Tax (SDLT). The rate for second properties is higher than that for first homes. Additionally, a 3% surcharge is applied to the standard SDLT rate for second properties. It’s important to factor in these additional costs when budgeting for a second mortgage.

How to Improve your chances of getting a second mortgage

While obtaining a second mortgage may come with additional requirements, there are steps you can take to improve your chances of approval:

• Pay off High-Interest Debts:
  Prioritize paying off any high-interest debts, such as credit cards or personal loans. Lenders consider these debts riskier and may view them unfavorably when evaluating your mortgage application.
• Boost Your Credit Score:
  Take steps to improve your credit score by making timely payments, reducing credit card balances, and avoiding new credit applications. A higher credit score demonstrates your financial responsibility and increases your chances of obtaining favorable mortgage terms.
• Save for a Larger Deposit:
  Saving for a larger deposit can help reduce the loan-to-value ratio, making you a more attractive borrower. Lenders often offer better terms and interest rates to borrowers with a lower loan-to-value ratio.
• Seek Professional Advice:
  Working with a professional mortgage broker in Canada can help you navigate the complexities of obtaining a second mortgage. A broker can provide guidance, access multiple lenders, and help you find the best mortgage options based on your financial situation and goals.

Can you have two mortgages on one property?

It is possible to have two mortgages on one property. This is often referred to as a second charge mortgage. In this scenario, you are borrowing against the equity you have already paid off on your primary mortgage. A second mortgage allows you to access these funds for various purposes, such as home repairs, financing other projects, or consolidating debts.

A second mortgage differs from refinancing, where you replace your current mortgage with a new one. With a second charge mortgage, you retain your existing mortgage and take on a separate loan against the equity in your property.

It’s important to carefully consider whether a second mortgage is the best option for your financial situation. Increasing your mortgage debt comes with the risk of losing your home if you are unable to meet the repayment obligations. If you require a smaller loan amount, alternatives such as personal loans or lines of credit may be more suitable.

In Canada, it is possible to have multiple mortgages on different properties simultaneously. However, the number of mortgages you can obtain for a single property is generally limited to two. Understanding the regulations and eligibility criteria for second mortgages is crucial when considering real estate investments or accessing funds for various purposes.

By carefully evaluating your financial situation, improving your credit score, and working with experienced professionals mortgage brokers in Canada, you can increase your chances of obtaining a second mortgage. Whether you choose a second mortgage, home refinancing, or other financing options, it’s essential to weigh the costs, benefits, and risks associated with each decision.

If you have further questions or need assistance with your mortgages in Canada, reach out to SaiCharanKallu SubMortgages Broker at Citadel Mortgages, your trusted mortgage broker. We have the expertise and resources to guide you through the mortgage process and help you make informed decisions. Contact us today to explore your options and achieve your real estate goals.

Sources: citadelmortgages.ca

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What is the home buyers’ plan?

The home buyers’ plan is a useful method for raising the money for a down payment on a home. It allows individuals the opportunity to take up to $35,000 out of their RRSP and put it towards the purchase of a qualifying home. For the most part, common home types, such as houses, condos, and duplexes, all qualify for this plan. The ability to deduct the $35,000 is per individual, so if you are looking to purchase the property with your spouse, you can each deduct $35,000 for a combined total of $70,000. Even in a hot housing market like Toronto, $70,000 is still close to 10 per cent down for the average home.

The withdrawal made from the RRSP is “tax-free” in the sense that it does not count as a distribution. Instead, you must make after-tax contributions back to your RRSP in the amount of the loan over 15 years. As an example, if you withdraw $35,000 from your retirement plan, you must pay $3,000 back each year. You will not get a tax credit for the amount that you pay back each year under the program. Therefore, the home buyers’ plan is effectively an interest-free loan for your down payment from your retirement fund.

Taking advantage of this program is incredibly beneficial when you have some of the down payment saved, but need a little bit more to get you to the 20 per cent. With under 20 per cent down, banks will often require some mortgage insurance. This insurance can carry a fairly steep price. Putting less than 20 per cent down can often subject you to higher interest rates as well.

Let’s suppose you find a Toronto condo for $500,000 that you love. Furthermore, let’s assume you have $70,000 (14 per cent) saved. Based on this down payment, your mortgage insurance rate would be 3.1 per cent or $13,330 amortized over the life of the loan. That’s a hefty price to pay for being $30,000 short of 20 per cent down. With the home buyers’ plan, you could withdraw that $30,000 from your RRSP. This cash infusion would mean you would have the full 20 per cent down and have to pay no mortgage insurance. By taking an interest-free loan of money in your retirement account, you save over $13,000 in this example.

Do I qualify for this plan?

For most people, participating in the home buyers’ plan makes logical sense. It provides would-be homeowners with the ability to save money on mortgage insurance and lower their interest rates. While this program is reasonably widely available, there are a few restrictions on who can participate.

You can participate in this plan only if you are a first-time homebuyer. The term “first-time” is unfortunately quite misleading. Many people qualify for this plan even though they may not consider themselves first-time buyers. You are a first-time buyer if “in the [previous] four year period, you did not occupy a home that you or your current spouse or common-law partner owned.” Also, the Government of Canada changed the rules so that, starting in 2020, first-time buyers include anyone who recently experienced a divorce or dissolution of a common-law relationship. Sadly, many people read the term “first-time” and assume they don’t qualify since they owned a house in the past. The reality is that many would-be homeowners are eligible for this plan.

Additionally, you must also intend on occupying the house as your principal residence. If you are looking to use the funds from your RRSP to finance the down payment for an investment property, this plan will not allow you to do that. You must be looking at making the home your principal residence within one year of making the purchase. With that said, the rules do not state how long you must occupy the house before you could move and rent it out. Moving within a year or two after purchasing the home would likely raise red flags. The withdrawals from your RRSP are meant only to buy a house in which you intend to dwell.

Finally, you can use the home buyers’ plan to buy a home for a related person with a disability. If you have loved ones who have had injuries or suffered medical difficulties, you can borrow the funds from your RRSP to help them purchase a home.

Are there any drawbacks?

Intuitively, this plan sounds great to most people. It provides first-time homebuyers with the opportunity to raise funds for a down payment. Couples can combine the $35,000 limits and use their RRSPs for a substantial amount of their down payment. Single homebuyers can still use the $35,000 to top up their savings and get closer to the coveted 20 per cent down. No plan is perfect, however. There are a couple of things to keep in mind before electing to participate in the program.

The most significant drawback is that you are borrowing against your RRSP with an obligation to pay the money back over 15 years. As long as you can make those payments, there are no problems. However, if you cannot make the payments, they are treated as a taxable distribution from your RRSP. Missing payments could result in tax bills at the end of the year that would exceed what you would have paid in interest if it were a conventional loan. If you think you may have difficulty making both the mortgage payments and RRSP contributions, the home buyers’ plan may not be right for you.

Another more subtle drawback is that while the money is technically interest-free, you will not be earning any investment income from that money either. When the RRSP money leaves your account, it isn’t generating dividends or capital appreciation for your retirement. If the market goes down, the withdrawal might have wound up saving you money! However, if the market skyrockets, that $35,000 or less of your retirement portfolio won’t be going up. If you expect the market to do incredibly well, you may wish to think twice about making the withdrawal.

It is worth noting that there are no pre-payment penalties under the plan. If you use the $35,000 to close on the house and put the money back a year later, you are free to do so. In theory, you could even use the cash to close on the house with a lower interest rate and no mortgage insurance, pay the mortgage down a bit, and then use a home equity line of credit to restore your retirement funds. There are a lot of possibilities to make your RRSP whole again!

This plan sounds great! How do I get started?

If you want to participate in this plan, the good news is that the process is quick and easy. All you need to do is fill out form T-1036. This PDF is a standard CRA form that asks a few qualifying questions to ensure you are eligible for the plan. It then asks for some personal information and how much you are requesting. You would then take T-1036 and give it to the institution with which you have your RRSP. They will process the withdrawal for you per your written instructions. It’s that simple!

While getting the distribution is quite simple, it is worth discussing all your options with a mortgage broker, like Citadel Mortgages. While the home buyers’ plan often makes sense, you can usually have more peace of mind if a qualified professional reviews your financial situation. The home buyers’ plan is simply one tool that is available to get you into the home you want. We can see if other programs, such as the first-time homebuyer incentive or the newcomers to Canada mortgage, would also be of assistance. The Government of Canada has quite a few different avenues to help Canadians purchase the homes of their dreams!

The home buyers’ plan: A summary

As a recap, the home buyers’ plan is a program that allows would-be homeowners to withdraw up to $35,000 from their RRSP. This limit is on an individual basis so couples can take a total of $70,000 from their combined RRSPs. The average home price within the Toronto area is approximately $800,000. Couples who may have a few years of savings in their RRSPs can use that money to provide just under 10 per cent of the total down payment. When combined with savings, the home buyers’ plan can sometimes enable couples to avoid paying mortgage insurance.

To participate in the plan, you must be a first-time homebuyer. The term is misleading. First-time does not mean that you have never owned a home before. Instead, it means that you have not lived in a home you own for the past four years. If you owned a house 10 years ago, sold it, and have rented for the past 10 years, you would be considered a “first-time” homebuyer under the plan. Starting in 2020, anyone who gets divorced or has a common-law relationship fall apart will be a first-time homebuyer under the program. This rule change makes the home buyers’ plan a powerful tool for recent divorcees to get back on their feet following a tough time.

While the money taken from the plan is both interest and tax-free, you must repay this loan over 15 years. The required payments are split up into 15 equal amounts over those years. For example, if you withdraw $35,000, you must pay back $3,000 each year. You will not get a tax credit for the amount that you put back. Failing to pay the full amount in a calendar year will result in the amount being considered a taxable withdrawal.

The home buyers’ plan is a powerful financial program. When used correctly, it can open up so many doors for people to own property. Couples who would otherwise be looking at hefty mortgage insurance premiums can use the program to avoid those altogether. Single buyers who may not have quite enough saved up for 20 per cent down can use the program to put them over the 20 per cent mark and qualify for the loan. There are many exceptional use cases for this program. Anyone who is looking at purchasing a property should at least explore if the program is right for them.

As always, consult with your mortgage broker to see all the options that are available to you. They may be able to suggest how to combine this plan with other available incentives. Recent immigrants to Canada who have high-paying jobs may be able to use this plan to provide the necessary 5 per cent down for the newcomers to Canada mortgage program. You may be able to use this plan in combination with the first-time homebuyer incentive to obtain enough down that a lender will fund your mortgage.

If you are in the market and would like to learn more about the home buyers’ plan, please feel free to contact us! We can also explain the details of the other government incentives mentioned in this post. We can help analyze your particular situation and ensure you get the approval you deserve. With multiple lenders and government programs available, homeownership is something that we can help all Torontonians achieve!

By using a mortgage agent Sai Charan Kallu SubMortgage Broker or mortgage broker from Citadel Mortgages, you will be able to ask all the questions you have and be ensured you get the best advice and mortgage product for your mortgage needs. Contact us here at Citadel Mortgages to become mortgage-free sooner!

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This story was provided by Citadel Mortgages for commercial purposes.

Sources: ottawacitizen.com, citadelmortgages.ca

The post The home buyers’ plan: Access the money you need to buy your dream home appeared first on Sai Charan Reddy Kallu Mortgage Professional.