How Much Can I Afford – Affordability and Financing
Let Your Ontario Mortgage Centre Help!
Talk with your Ontario Mortgage Centre specialist to review your current income and expenses. We’ll help you take into account how your new mortgage may change your monthly expenses. Securing a pre-approved mortgage with a lender that checks your credit rating will allow you to get an idea about how much mortgage you may qualify for, so you can have a price range in mind when you look at different properties.
Lenders determine affordability by looking at your Gross Debt Service ratio (GDS) and your Total Debt Service ratio (TDS). The GDS ratio is based on what you can afford to pay each month; it includes mortgage payments, taxes and utilities. The TDS ratio includes everything covered under GDS plus all your other financial obligations. We can help you do a complete analysis based on net income and projected budgets to determine what you can comfortably afford.
The pre-qualifying stage is also the time to find out about the difference between conventional mortgages and high-ratio insured mortgages. Ask about assistance programs for first time homebuyers. Your Toronto Mortgage Centre specialist will also discuss closing costs with you, such as land transfer taxes, legal fees, and other disbursements.
When it comes to your credit score, most lenders want to see credit scores above 620. You can check your own score to understand where you stand before attempting to be pre-approved by requesting your report online from Equifax. For under $25, you can understand where you stand and how you can improve your credit score to be approved for a mortgage in the near future! You can always contact your Ontario Mortgage Centre specialists to receive some suggestions on how to improve your score for the future!
Once you’re pre-qualified, the interest rate may be guaranteed for 60 to 90 days from the time of your application. If rates drop, you’ll get the lower rate; if they rise, you’re covered. And just because you pre-qualified by a certain financial institution, you’re by no means committed to that lender. We’ll continue to shop the market to get you the deal that we believe will suit your needs!
Selecting the Right Mortgage
Choices in selecting a mortgage include:
Conventional vs. high-ratio or insured mortgages
A conventional mortgage is a mortgage that has a principal amount that is no more than 80% of the appraised value or purchase price of the property, whichever is less. The principal amount of a high-ratio or insured mortgage is usually more than 80% of the appraised value or purchase price. An insured or high-ratio mortgage may also be referred to as an NHA mortgage because it may be entered under the provisions of the National Housing Act and in many cases must, by law, be insured. In general, the borrower pays the insurance premium as well as application, legal, and property appraisal fees.
Closed vs. open mortgages
Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without paying a prepayment charge.
Short term vs. long term
The term you select is important, too. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This may be especially important for first time homebuyers.
Fixed rate vs. variable rate
You can choose a fixed or variable interest rate. A fixed rate mortgage makes it easier for you to budget for whatever term you select. A variable rate mortgage fluctuates with the market.
Specialty mortgages creatively combine the best of all worlds. Your Mortgage Centre specialist can help you select the options that are best for you.