Debt ratios will determine if you are approved for a mortgage.
Lending guideline standard will apply to all insured 1-4 unit residential mortgages. If you put 5/10 or 15% downpayment your mortgage is considered insured. As the lender will have to get one of the insurers to approve your deal.
If you put 20% downpayment, this is considered a conventional or uninsured mortgage. Different loan policies and procedures are followed.
(note: some lenders allow 15% downpayment uninsured mortgages which we refer to as high ratio financing. Keep in mind that high ratio financing-lenders will often add a surplus onto the mortgage rate) Clients are happy that they don’t have to pay the insurer fees but when you Accredited Mortgage Professional (AMP) does the math with the surplus on the interest rate….are you really saving money?
Here’ a few rules to keep in mind when borrowing:
- For variable income (ie: commission paid, bonuses, part time):
Lenders will want to see the last two years Notice of Assessments to verify the income average over the past two years.
- Unsecured credit lines & credit cards:
No less than 3% of the outstanding balance should be used for their payments.
- Secured lines of credit:
Lenders will calculate a payment that’s based on the balance amortized over 25 years @ a the Canadian benchmark rate which is currently 5.14%.
The government fixed the maximum Gross Debt Service and Total Debt Service ratios for insured mortgages at 39% and 44% if your beacon is higher than 680. If your beacon is <680 then the Gross Debt Service and Total Debt Service ratios are 35% and 42%.
