What is mortgage insurance in Canada?

The first thing to understand is that there are two types of mortgage insurance in Canada. First, there’s mortgage default insurance meant for first-time home buyers with a high ratio mortgage. Then there’s mortgage protection insurance, which is optional for all homeowners.

If you’re buying a home with a down payment of less than 20% of the purchase price, mortgage default insurance is mandatory. Basically, it protects the lender if you default and can’t make your mortgage payments. 

Mortgage protection insurance is just another insurance policy. Essentially, this policy would pay the remaining balance of your mortgage if you were to pass away. You can also purchase additional options that cover disability, critical illness, or job loss.

How does mortgage default insurance work?

In Canada, the amount of your down payment will determine if you need mortgage default insurance and how much you’ll pay. The minimum down payment requirements are as follows:

• 5% if the home costs $500,000 or less.
• 5% of the first $500,000 and 10% on the remainder if the home costs less than $1,000,000.
• 20% if the home costs $1,000,000 or more.

Since mortgage default insurance only applies to high ratio mortgages, you only need to get it if your down payment is less than 20%.

CMHC used to be the primary mortgage default insurance provider, but Sagen and Canada Guaranty now also offer it. Don’t worry, you don’t need to apply for this separately from your regular mortgage. Instead, your lender will apply for it on your behalf.

How much does mortgage default insurance cost?

As you can imagine, mortgage default insurance is not free. The cost of mortgage default insurance ranges from 2.8% to 4% of your mortgage amount. The lower your down payment, the more you need to pay in insurance. This fee is usually added to your regular mortgage payments. That said, you can also pay it in a lump sum if you have the funds available.

For example, let’s say you’re looking to buy a property that costs $500,000 and you have a down payment of 5%. That means you would need a mortgage of $475,000. In this case, your mortgage default insurance would cost you 4% of the mortgage, which works out to $19,000. That means your total mortgage amount is $494,000. 

Keep in mind that lenders will factor in mortgage default insurance when determining how much mortgage you can afford. Since your monthly costs will increase, the amount of mortgage you’ll qualify for will likely decrease.

What is mortgage protection insurance?

Mortgage protection insurance is an optional type of insurance. If you purchased this insurance and you were to suddenly pass away, your insurance would pay the remaining balance on your mortgage. In addition, you can purchase extra options such as:

• Critical illness insurance
• Disability insurance
• Job loss insurance

In each situation, the payout would be specific. For example, some lenders may state the maximum payout if you were to pass away is $750,000 or job loss payments are up to $3,500 a month for up to 6 months.

Mortgage protection insurance can be important for people who have dependents. For example, let’s say you bought a home with your spouse. Most families would only be able to afford the payments and their day-to-day expenses while there are two incomes. If one income was lost, it might only be a matter of time before the household finances crumble. That’s why people are interested in mortgage protection insurance.  

How much does mortgage protection insurance cost?

The cost of mortgage protection insurance depends on your age and mortgage balance when you apply. The good thing is that once you’ve purchased this insurance, your premiums do not increase over the term. That said, if your mortgage balance increases or you need to refinance, you may want to get in touch with your lender to see how that affects your coverage.

Mortgage insurance vs life insurance

There’s often a debate between mortgage insurance vs life insurance, but honestly, there’s no argument. With life insurance, if you were to pass away, the sum you’re insured for goes to your beneficiary and can be used in any way they want. Most people will use it to pay for their mortgage, but they can also use it for things such as funeral expenses and even the future education costs for their child.

Mortgage protection insurance only covers the balance of your mortgage. So yes, your mortgage will potentially be paid off, but there will be no other funds left for your loved ones. Also, as you pay off your mortgage, the amount paid with mortgage protection insurance decreases. That’s not the case with life insurance.

In other words, getting life insurance is almost always the better solution if you’re looking for protection. Companies such as PolicyMe allow you to get insured quickly as things can be done online. The cost of life insurance depends on your age and health. Generally speaking, the younger you are, the lower your costs.

Mortgage default insurance vs mortgage protection insurance

If you’re still trying to figure out what is mortgage insurance in Canada, your best bet is to look at the differences as it’ll be easier to understand.

Mortgage default insurance works like this:

• It’s mandatory if your down payment is less than 20%
• It protects your lender if you default on your mortgage
• Your lender applies for it for you
• The premiums are based on a percentage of the size of your mortgage
• Payments are added to your monthly mortgage payments or can be paid as a lump sum

Mortgage protection insurance works like this:

• It’s optional
• It pays out if you were to suddenly pass away
• You can purchase additional insurance options that will pay out if you become critically ill, suffer a job loss, or become disabled
• Can be added to your mortgage at any time
• Must be purchased from your lender
• The cost typically depends on your age and the balance of your mortgage
• Life insurance may be a better option

As you can see, these two types of mortgage insurance are different products. 

Is mortgage insurance mandatory in Canada?

Yes and no. Mortgage default insurance is mandatory for buyers with a down payment of less than 20%, but mortgage protection insurance is optional. As you’ve already learned, life insurance is a better product since the premiums are similar but the payout is potentially higher.

Technically speaking, life insurance is always optional, but if you have a mortgage and dependents, getting term life insurance is highly recommended. The last thing you want is for your loved ones to face financial hardship if you’re to suddenly pass away.

Final thoughts

Knowing what is mortgage insurance in Canada isn’t the only thing you need to be aware of as a first-time home buyer. You’ll also want to get familiar with the differences between fixed and variable mortgages, as well as the mortgage stress test. 

By understanding how mortgages work in Canada, you’ll be more prepared during your home search. But, more importantly, once you put in a winning bid, you’ll know what comes next.

Many people don’t realize that bank mortgage brokers may not get them the best rates since they can only offer what their employer has available. Working with a mortgage broker that’s not tied to one single bank usually benefits you since they can shop around for you. However, just because they have access to the wholesale mortgage market doesn’t mean they’ll get the best rate.

Do mortgage brokers actually get the best rate?

Generally speaking, mortgage brokers do get the best rates. To be clear, I’m referring to mortgage brokers who don’t work for a single bank. As mentioned, mortgage brokers have access to more lenders, including the big banks and monoline lenders. Since they typically work with 30+ lenders, they should be able to get you the best rate.

In most cases, mortgage brokers will give you a quote based on recent deals they’ve closed or the marketing materials they’ve been provided with. They’re not going to call every lender they work with to determine the current rates. There really is no need to since they have the information. I wouldn’t call this lazy; this is just the way it works.

If you’re about to get a mortgage, it doesn’t hurt you to make a few calls yourself. Start with your own bank and find out what their rates are. Then call a few more. If you’re offered something lower by chance, get it in writing and take it to your broker to see if they can beat it.

Not all mortgages are the same

Banks, mortgage comparison websites, and mortgage brokers typically display rates saying “as low as.” It’s important to understand that while it’s possible to get a really low rate, it may not be available to everyone.

Most of the lowest rates apply to mortgages that require insurance. That may seem odd, but that’s because the mortgage insurance cost makes up the spread vs. uninsured mortgages. If you’re refinancing, e.g. you want to get a home equity line of credit (HELOC), you usually won’t get the lowest rates). There’s also your credit score to consider. Someone with a less than ideal credit history will likely end up paying more.

Then there’s the mortgage itself. If the terms favour the bank, e.g. no prepayments, high fees for breaking the terms, then you’ll get the lowest rates. In most cases, homeowners will want some terms that benefit them. Having the ability to make extra payments is more important than you may realize.

When comparing mortgages, you need to make sure the terms are identical for a fair assessment.

How do mortgage brokers get paid?

Mortgage brokers get paid by the lender or their employer. There’s no cost to you, which is why using a mortgage broker benefits you. Even if you find a better rate on your own, you don’t have to pay the broker anything, so it never hurts to use one.

Unfortunately, there are a few bad apples out there. A small minority of brokers may ask you for a cash fee to help you process your application. For example, they may say that they can increase the income on your application, which would allow you to get a bigger mortgage. You should decline right away as this is usually a sign of fraud. 

Should you use a mortgage broker?

In my opinion, you should always enlist the services of a mortgage broker. You’re basically getting help from a professional at no cost to you. If you happen to find a better rate on your own, see if your broker can beat it or have it matched. If they can’t match it, a good broker will tell you to take the better offer you’ve found.

Another benefit of using a mortgage broker is if you have a complicated situation. You could be self-employed, you might have multiple properties, or you might have different assets that are tied up right now. This could make securing financing difficult, but a mortgage broker may be able to assist you. They can also explain all the different things that affect your mortgage including the mortgage stress test.

Major banks typically look for clients that have simple financing needs. Since mortgage brokers work with multiple lenders, they likely know which ones would be willing to provide you with the funds you need based on your situation.

Where to find a mortgage broker?

Using an online mortgage broker is one of the easiest ways to find the lowest mortgage rates. Everything is done online, so there’s no need to meet anyone in person. That’s right, from pre-approval to closing, you can complete everything virtually.

Since they work with 30+ lenders (big and small), they can search for the best rates on your behalf. When it comes to all the actual paperwork, they have secure servers, so you don’t need to worry about any of your personal information being compromised.

You can get started with Breezeful right away after answering a few questions. A real mortgage broker will then review your answers and email you the best rates currently available. 

While low rates are important, it’s not the only thing you should consider when getting a mortgage. The term, amortization, and features are just as relevant. What you get in the end can greatly affect your payments which is why you need to know the difference between mortgage amortization and term.

What is mortgage amortization?

The mortgage amortization is the length it will take you to pay back your loan. Think of it as the life of your mortgage. Many people these days choose a 25-year amortization period to start since it offers lower monthly payments. Loans with a longer amortization period cost you more in interest. If you choose to amortize your mortgage for fewer years, you end up paying more every month, but your debt will be cleared much faster and you will end up paying less interest.

To qualify for a mortgage you need to have at least 5% saved of the purchase price as your down payment. Some lenders have been willing to loan that 5% to potential homeowners, but you need to ask yourself seriously: if you can’t even save that small amount, do you honestly think you’re ready for homeownership?

If you have a 20% down payment, then you qualify a 30-year mortgage, but again that longer amortization means more interest payments so it doesn’t exactly benefit you. What’s the point of saving 20% and then paying a ton of interest charges over 30 years? If your down payment is less than 20%, the maximum amortization you can get is 25 years.

If you can afford it, a shorter amortization period will help you save more money in the long run. I suggest playing around with any of the free amortization calculators you can find online to see the total amount of how much interest you can save by having a shorter amortization period.

What is mortgage term?

Mortgage term refers to the length of time you agree to pay back your amortized loan. It’s sort of like a short-term contract you set with your lender, so your amortization might be 25 years, but the period of the term could be anywhere between 1-7 years. Then, at the end of the loan term, you need to renegotiate to get a loan for the remaining balance on your home. 

When interest rates are low, many people choose to go with 5-year fixed terms. Shorter terms are available at an even lower rate but you’re only guaranteed that rate for that set period of time. Taking a longer-term will guarantee your rates don’t go up assuming you took a fixed rate mortgage. Variable rate mortgages are appealing to people who think interest rates won’t go up much over the current term of their mortgage. 

What many people fail to understand is that once the end of the term is up, you need to negotiate a new loan from your lender. Those low interest rates you’ve been enjoying might be higher in 5 years, so I hope you’ve budgeted accordingly. Some people are so desperate to become homeowners that they forget about the long-term costs and don’t realize that depending on interest rates, in a few years they may actually have higher monthly payments. That said, if you get in early, there’s always the possibility that your home’s equity would have gone up. That alone can be worth it for some people.

Understanding your mortgage amortization schedule

As said above, the longer the amortization period, the higher amount of interest you will pay over time. It’s also worth noting that in the beginning, the largest portion of your loan payments will go towards paying the interest on your home loan. Over time, that flips to the majority of your loan payments will be going towards the principal. Your lender can provide you with a mortgage amortization schedule, also known as an amortization table, to break this down so you can see exactly how your monthly mortgage payments are broken down. This is handy for people that want to see their principal balance and loan balance at any given time. 

The case for a longer amortization

When interest payments are low, many people are in no rush to pay down their mortgages choosing to invest instead. For example, if you’re mortgage rate is 2%, but you estimate you can get an average rate of return of 5% while investing (not factoring in taxes), you’d come out ahead.

This is certainly a good strategy if you’re a disciplined investor, but many people have maxed themselves out so they don’t exactly have any extra income to invest. There’s also the peace of mind you would get from paying down your mortgage.

Taking a longer amortization even if you can afford a shorter one can also be beneficial for cash flow purposes. Let’s say you have a $500,000 mortgage at 2%, with an amortization period of 25 years. Your monthly mortgage payment would be $2,117.26. But if you had it set for 20 years, it would be $2,527.46. A difference of $410.20 a month.

What you could do is take the 25-year mortgage, but set your payments for the 20-year term (assuming your mortgage allows you to make extra payments or lump sum payments). If you ever run into financial difficulty, you could just change your payment schedule. In this case, you can change your monthly payments back to 25 years without a penalty. A longer amortization period would also help you with the mortgage stress test since your regular payments would be lower.

Where to get the lowest mortgage rates

If you’re new to mortgage loans, it’s worth mentioning that the rates posted with the big banks are rarely the lowest rates you can get. In most cases, as a borrower, you want to work with a mortgage broker who is not associated with one single bank. Don’t worry about additional costs either. If you are a qualified borrower, there will be no fee charged by the mortgage broker as they get a commission from the lender.

Generally speaking, mortgage brokers get the lowest rates since they typically work with 30+ lenders. They can go your needs, get your information, and provide you with a quote in less than 5 minutes. 

This would just be a pre-approval, so you don’t need to commit right away. You can still shop around as you please.

Final thoughts

Now that you know the difference between mortgage amortization and term, you can think about the big picture. Homeownership is not something you should get into just because rates are low. It may seem affordable on a monthly basis, but have you considered all the extra costs? These include things like property taxes, home upgrades, and repairs. Not to mention other costs of life, such as having kids and saving for retirement. 

Lenders don’t care about how you’ll be afford anything else, they just care about you making monthly payments, and they’re more than happy to lend you a higher loan amount than you can realistically afford. As a potential home buyer, you need to take the time to learn about all the costs associated with owning a home, so you’re well informed when you’re ready to make the purchase.

Fixed Vs Variable Rate Mortgages 

When it comes to mortgage options, one of the things you need to decide is whether or not you want a fixed or variable rate mortgage. Both have their pros and cons and what is ‘better’ will vary depending on your personal financial situation.  

What is a Fixed Rate Mortgage? 

A fixed rate mortgage is when your mortgage stays the same for the total length of your term. Even if interest rates rise or fall, your agreed upon rate and monthly payments will stay the same. Because of this, fixed rates are seen as the safer option. They are a good choice for individuals who want to know exactly what they are paying every month so they can ensure it works for their budget. Fixed rate mortgages are also a good option if you think that rates will rise in the near future. However, because of that added security and consistency, fixed rates are often higher than variable rates.  

What is a Variable Rate Mortgage? 

Variable rates, on the other hand, can be much more volatile than fixed rates because they can change depending on the market. If interest rates fall during your term, then the interest you are charged on your mortgage will too which means you pay less in interest and more on the principal balance. However, the opposite can also happen. If rates increase then you’ll end up having to pay more in interest and less on the principal. Since variable rates are considered to be a riskier option than fixed rates, they tend to be lower, at least to start.  

Open Vs Closed Mortgages 

You also need to consider an open vs closed mortgage. Again, both options have their pros and cons and what is best for you will depend on your specific circumstances at the time of shopping for a mortgage. 

What is a Closed Mortgage? 

With a closed mortgage, once your contract with the mortgage lender has been established all the terms and conditions set within the contract are closed. This means you cannot break or change any of the agreed upon terms unless you want to pay a penalty. Contracts vary in length but 5 years tend to be the most common term.  

Oftentimes these closed mortgages do have some flexibility built-in. For example, many will allow you to make prepayments either by adding a lump sum once a year or doubling up on regular payments, but there are limits set in place. Plus, if you want to sell your home and move then that will likely be considered breaking the contract which means you will be charged fees and penalties to break the contract. The amount of the fees and penalties will depend on the calculations your lender uses.  

While closed mortgages are more strict, they also tend to have significantly lower interest rates than open mortgages. 

What is an Open Mortgage? 

An open mortgage offers a lot more flexibility than closed mortgages do which means the interest rates tend to be much higher. The big draw with open mortgages is that you can throw as much money as you want towards your mortgage payments without being penalized for an overpayment fee. If you are expecting a large amount of money at some point, for example, an inheritance, then paying the premium for an open mortgage might be in your best interest. After all, the faster you pay off your mortgage, the less interest you have to pay back over time. While open mortgages do offer a lot more flexibility, there are still some rules in place so always make sure to check terms and conditions. 

Mortgage Payment Options

When it comes to mortgage payment options in Canada, you have six different choices for your payment schedule. 

• Monthly payments: you make 12 payments per year on the same day every month. This is the default for most mortgages.
• Semi-Monthly payments: You make payments twice a month (usually either on the 1 and 15 or the 16 and end of the month). To calculate semi-monthly you take the monthly amount, multiply it by 12 and divide the answer by 24. The amount you pay each year is the same as if you had a monthly mortgage, you just make smaller and more frequent payments.
• Biweekly payments: You make payments every two weeks. So take the monthly amount, multiply by 12 and divide that number by 26 pay periods. Again, this is the same amount that you would pay annually if you paid monthly, just smaller and more frequent payments.
• Biweekly Accelerated payments: When you take the accelerated option, the math on your payments changes a little. You divide the monthly payment by 2 and then multiply that amount by 26 pay periods which means you end up making about one extra payment each year.
• Weekly payments: Payments will be made every week. Take your monthly amount, multiply by 12 and then divide by 52. The amount adds up to the same as if you were making monthly payments.
• Weekly Accelerated payments: You pay weekly but at the accelerated rate which means you take your monthly payment, divide by 4 and then multiply by 52. This payment amount adds up to the same as bi-weekly accelerated payments which, again, is about 1 payment extra each year.

 Now, all of these options are fine. You need to choose what best fits your budget and what you can easiest afford. However, note that the accelerated options that allow you to pay off your mortgage faster can help save you thousands of dollars in interest over time. 

How Do I Pay My Mortgage?

Once you have your mortgage payment options Canada figured out you need to decide how you will actually make the payments, as in transfer the money for your mortgage loan. There are a few options on how to do this.

• Online through your online banking or the associated mobile app
• In person at a brach via cheque or a balance transfer from your account
• Over the phone
• Cheque via mail 

You technically can pay your mortgage by credit card but it’s not advised as you will often be charged an additional fee. Since the goal here is to pay less, it’s generally not worth it. Keep your money for your mortgage payments saved aside in a separate savings account and transfer the money from there on the due date. You can even set up automatic payments so your payments are always made on time. This way you can avoid any late fees associated with late payments.

How Do Rising Interest Rates Affect Payments? 

The Bank of Canada uses the overnight night rate to control inflation. This overnight rate is basically the amount at which financial institutions can lend and borrow money. The overnight rate determines what financial institutions set as their prime rate. The prime rate directly affects variable rate mortgages.

So when the Bank of Canada raises its overnight rate by 50-basis-points, that means the target rate is going up by 0.5%. In turn, if you have a variable rate mortgage, your rate would go up by the same amount. Fixed rate mortgages are determined by the bond market. That’s why you’ll see changes in rates even if the Bank of Canada hasn’t made any policy announcements.

The general rule is that for every 0.50% increase in the interest rate, monthly mortgage payments will increase by about $25 per $100,000 in debt (based on 25-year amortization). Those with variable interest rates will see the result of this immediately. However, that doesn’t necessarily mean that individuals with fixed rates are much safer. Individuals coming out of their term will be in for an unpleasant surprise when it comes time to renew.

For those looking to buy a home or homeowners looking to re-mortgage their home now, there is still no ‘best’ option when it comes to choosing either fixed or variable rate. In the past, it was a safe bet to go with a variable rate mortgage, but rising interest rates, many people are opting for a fixed rate.

While we still expect rates to rise we are unsure how long they will rise for and when they will fall again. Rates could continue to rise steadily or drop drastically at some point mid-term if you choose a fixed rate.  

How To Pay Off Your Mortgage Faster 

As mentioned above, paying off your mortgage faster can save you thousands of dollars in interest. So, if you are financially able to put down more money on your mortgage, you should. Here are a few ways for how you can do this.

• Increase your payments
• Make a lump sum payment
• Choose accelerated mortgage payment options in Canada
• Consider an open mortgage for more flexibility

Again, remember that each mortgage contract has plenty of terms and conditions that likely include over-payment fees. Take the time to read and understand your contract so that you can follow the correct steps to help pay off your mortgage faster without incurring any additional fees or penalties.  

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Mortgage pre-approval and mortgage pre-qualification are options that are offered by most lenders. They can help you better prepare and estimate just how much it will cost to be a home buyer. Here’s what you need to know about mortgage pre-approval in the homebuying process. 

What is a mortgage pre-approval?

A mortgage pre-approval is when a lender approves you for a mortgage for a short time before purchasing a home. A pre-approval is temporary but has the advantage of allowing you to know exactly how much you can afford while shopping for a home, what your interest rate will be, and an estimate of how much your mortgage payments will be. 

These rates are locked in for a predetermined amount of time which allows you to shop around and keep an eye on the market. If interest rates increase during your locked-in period, you are safe. But, if they decrease, you can negotiate a better rate when it comes time to close.

Keep in mind that some lenders will only offer fixed rates for mortgage pre-approvals. Variable rate mortgages cannot always be guaranteed because they are determined by the Bank of Canada’s policy rate.

Finally, a mortgage pre-approval is not a final guarantee. When it comes time to close, the lender will do a final check on your finances to ensure that nothing has changed in the time since the pre-approval was made. If there have been significant changes, such as changes to your income or down payment, they do have the right to turn you down.  

What is a mortgage pre-qualification? 

Sometimes the term pre-qualification gets tied in with pre-approval, but these are not the same things. Pre-qualification is a quick calculation that allows you to know how much you can qualify for. It will give you an idea of how much you can afford, but nothing is locked in. Think of those online mortgage calculators as a mortgage prequalification since they’re just a quick reference.

A pre-approval is a much more in-depth process where the lender will do a credit check with the two credit bureaus: Equifax or TransUnion (this counts as a hard inquiry). Lenders will also look into your financial information before you are approved as part of the underwriting process. Again, the pre-approval is just a promise of a home loan based on your financial situation at the time of seeking pre-approval, and your finances will be double-checked when it comes time to close.  

How long do mortgage pre-approvals last? 

How long mortgage pre-approvals last will depend on the lender. Typically, they are between 90 to 120 days. However, some can be as short as 60 days or as long as 160 days.  

Mortgage pre-approvals are set to allow you some time to shop around and find a home or property that you wish to buy. While they are a fairly generous time frame, they do not last forever. This is why it’s essential to only get pre-approved for your mortgage when you are seriously ready to shop and buy. 

Another thing to note is that if you are getting a home appraisal, it could affect your mortgage pre-approval. Even if you’ve been pre-approved for a mortgage of $800,000, but the home you’ve purchased is appraised at a lower value, your lender will likely reduce the amount they’re willing to extend you. That would require you to make up the difference.

Where to get a mortgage pre-approval 

Mortgage pre-approvals are offered by mortgage lenders or mortgage brokers. 

A mortgage lender is a business that lends money directly to you. Examples of mortgage lenders include:

• Banks
• Credit unions
• Caisses populaires
• Trust companies
• Insurance companies
• Mortgage companies
• Loan companies

Remember that different lenders will have other conditions and likely different interest rates, even for similar products. It’s best to shop around and compare to ensure you get the best deal. 

Since shopping around can be time-consuming, you may be interested in hiring a mortgage broker. Mortgage brokers don’t lend the money directly to you but instead work on your behalf to find the best mortgage product for your needs. Brokers have access to several lenders which means they can compare various products. However, not all brokers have access to the same lenders.  

How to get pre-approved for a mortgage? 

If you want to get pre-approved for a mortgage, you will need to provide your personal and financial information to either the lender or the mortgage broker who is working with you.  

You will need to provide the following:

• Identification (official documents such as driver’s license, passport, etc.)
• Proof of employment (pay stubs including salary/hourly rate, position and length of time you’re your employer, or 2 years of notices of assessment for tax returns from the CRA if you are self-employed)
• Proof of any additional gross monthly income (side hustles, part-time jobs)
• Information about any assets (car, cottage, boat, etc.)
• Information about any debts or financial obligations (credit card debt, car loans, spousal support, any other monthly debts)
• Proof that you can afford the down payment and closing costs (you may be asked to provide bank statements) 

Before starting up this process, you want to ensure that you are in as good of financial standing as possible. They will check your credit report, so the better the credit history and credit score, the more likely you are to be easily approved. 

What to consider during the pre-approval process 

Being pre-approved for a mortgage loan can be incredibly helpful in knowing how much you can afford to spend. But remember that pre-approval is not a guarantee, and it is the maximum amount you will be approved for. This means you may want to look for a home with a lower purchase price so you don’t stretch your budget. After all, there are still several other costs related to buying a home, such as closing costs, moving costs, any home upgrades you want or need to do, other savings goals, and just the general ongoing maintenance costs that come with being a homeowner. 

What to do if a lender denies your mortgage application 

The unfortunate truth is that not everyone gets pre-approved for a mortgage. If this does happen to you, there are a few steps that you can take before you try again. 

• Consider lowering your expectations – You might have reached too high for your financial situation, and if you shop for something in a lower price range, you will have a higher chance of being approved. 
• Take some time to save up for a more significant down payment – Having more money for that means you don’t need to borrow as much from a lender. 
• Work on improving your credit score – Having a poor credit score could be part of the reason you were denied a mortgage.
• Pay off as much existing debt as possible – By lowering your debt, your income ratio to debt decreases. This is good for the preapproval process.
• Check other lenders – Remember, every lender is different, and just because one doesn’t approve you doesn’t necessarily mean that they all will.  
• Get a co-signer – If your income and credit score on your own isn’t enough, you can ask someone like a parent to co-sign. Keep in mind that the co-signer is responsible for your mortgage payments should you be unable to make them, so this is a huge ask and should be taken very seriously.
• Stick with your job –  Job and income stability is something that lenders look at when considering your application.  

Questions to ask your lender or broker when getting pre-approved 

If you are ready to seek pre-approval for a mortgage, here are a few questions you should ask your lender or broker.  

• How long is the pre-approval rate guaranteed for?
• If interest rates decrease during your pre-approval period, will you automatically then be given the lower rate?
• Can the pre-approval period be extended? (You might have more luck with this in a competitive housing market)

Additionally, this is the time to ask about anything you are unsure about or don’t understand. Buying a home and taking out a mortgage is a huge deal. As the borrower, you want to ensure that you fully understand the process before you commit. The lender, mortgage broker, and real estate agent are all there to help you through the process and answer your questions and concerns. 

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What is a fixed rate mortgage?

As the name suggests, a fixed rate mortgage rate is one that does not change over the length of your mortgage term. Under a fixed rate, you would be paying the same amount in monthly mortgage payments regardless of changes to interest rates, which usually follow the Bank of Canada’s prime rates. Typically, rates are fixed for a set period of time. While mortgage amortization periods are usually 25 years, you usually have to renew your mortgage every 5 or so years. This means that the fixed rate is only guaranteed until your next mortgage renewal.

The benefit of a fixed rate mortgage over a variable mortgage is that you will have a defined period of time where your monthly payments would not change. This predictability makes planning finances and budgeting easier. A fixed rate will be slightly higher than the variable rate, as you are paying for the predictability that comes with this option.

What is a variable mortgage?

A variable mortgage follows many of the same rules as fixed mortgages. The major difference between the two is the fact that the rate of interest you are paying as a borrower can change over the course of your mortgage rate period. This means that the monthly payments can either go up, down, or stay the same. In general, a variable mortgage begins at a lower rate than a fixed mortgage. As mentioned before, those who pick fixed mortgages are paying a premium for the security.

Variable mortgages are adjustable rates. This means that they can go up or down depending on the prime rate. Now, keep in mind that there are interest rate caps, or maximums, in place. However, small changes to the prime rate can still add thousands of dollars to your payments over the years, so understanding the risks and benefits associated with variable mortgages is important before making any decisions.

Should I get a fixed or variable mortgage?

This is a difficult question to answer, as there are many factors that homeowners need to consider when making this decision. One of which is where you believe the economy will be going and the role that it will play on the fluctuations of interest rates. If you think prime rates are going up, it is beneficial to lock in a lower rate through the fixed-rate option. If you think prime rates will be going down, then you do not want to be locked in at a higher rate, which means that the flexibility of the variable option would be more appealing.

Choosing between a fixed rate  mortgage or variable rate mortgage can also depend on your goals. For example, if the home you want to purchase is just a starter home and you don’t plan on spending too long there, then it might be worth it to go with a variable mortgage, assuming the initial interest rate is on the low side. However, if this is your dream home and you plan on staying long term, then it might be safer to do a fixed rate mortgage. 

Your personal financial circumstances as a homeowner will also play a role. If you have a tight monthly budget that knowing that your mortgage interest rate will stay the same over the loan term can provide some stability and peace of mind. Plus, it makes it easier to budget and help avoid any potential stress about future mortgage payments.

Fixed rate vs variable rate pros and cons

There is no right or wrong answer when it comes to choosing between fixed rate vs variable rate mortgage loans. As mentioned above, it really depends on the economy, your life goals, and your current financial circumstances. Here’s a quick summary and breakdown of the main pros and cons to help you decide which route to go with your mortgage lender.

Fixed rate mortgages 

Pros: 

• “set it and forget it”
• Makes it easier to budget 
• Offers stability and eases anxiety 

Cons:

• You pay a premium for the stability offered by fixed rates
• Can end up costing you more over the fixed period depending on the current rates on offer

Variable rate mortgages

Pros: 

• Can result in lower interest payments over time. Historically speaking, variable interest rates have proven to be beneficial to many homeowners.

Cons:

• Financial uncertainty can increase your financial burden
• Can just as easily lead to paying more in interest as it can to paying less in interest

As you make your decision you can also play around with mortgage calculators. Your mortgage lender or even financial advisor can help you with this. Or you can easily find free ones online. 

What affects mortgage rates?

As briefly mentioned, mortgage rates offered by lenders such as financial institutions are correlated with the Bank of Canada’s current prime rates. These prime rates are the bank’s way of setting monetary policy and guiding the economy. In general, economic booms may result in increases to prime rates, while economic downturns may result in decreases to prime rates.

Aside from prime rates set by the Bank of Canada, personal circumstances like credit score and employment history will also impact the mortgage rate you are eligible for. A strong financial position will help you, as a homeowner, get lower interest rates.

Where to get a mortgage?

Regardless of whether you go fixed vs. variable mortgage, there are several ways to access mortgage services. One of the most common is to work with a mortgage broker. These brokers are specially trained to work with several different lenders to get the best rates for their clients. Brokers will “shop around” to different financial institutions and/or private lenders in order to find the lowest rates. This service is valuable to home buyers as it both saves time and also allows them to gain access to lenders that may not directly work with the public. Brokers often have built relationships over time and are able to access rates that you would not be able to find as an individual. Best of all, mortgage brokers are a free service, as their commissions are paid by the lender who will eventually get your mortgage.

If a buyer chooses to not work with a broker, they can also go to mortgage specialists at financial institutions. Some buyers may have established relationships at their bank and want to go this route. However, the downside of this approach is that you may not be able to get the lowest rates due to a lack of available options.

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In 2020, many employers asked employees to work from home in order to control the spread of the COVID 19 virus. By May, approximately 37 percent of all Canadians worked from home, according to Statistics Canada. Although that number fell to 22 percent by December of 2021, plenty of employers recognized that workers could be equally competent when they worked autonomously from their houses or apartments.

If you’ve been seeking work-at-home or online jobs – perhaps because you’re a stay-at-home mom, an unwilling commuter, or you simply want the freedom to pursue life as a digital nomad – read on for our list of the 16 best work-at-home jobs in Canada.

The good news: none of these online jobs in Canada requires a significant financial investment, and many are suitable for stay-at-home moms, students, and other Canadians who have a day job, but want a side hustle.

1. Teach English online

How much you can earn: US$20 to US$30 per hour

If you have a good command of the English language, you have a skill you can sell online – sometimes with no degree required! If you have a BA, a teaching certificate or a college degree, so much the better. Teaching English is often one of the first work from home jobs in Canada people think of.

Where to find work: Some of the more popular websites include:

• Skooli.com (specializes in teaching English online at the middle school, high school and university level)
• VIPKid. com (online classes for students from kindergarten to Grade 9)
• Preply.com (tutor students in English, Spanish, French and a number of other languages)
• Qkids.com (pre-designed lesson plans to teach children aged 6 to 12 English)
• You could also check out WhalesEnglish.com, iTutorGroup.com and cambly.com.

2. Become an online writer, editor or graphic designer

How much you can earn: Dependent on expertise and market value.

Whether you’re a freelance writer, editor or graphic designer, you can likely find an online job in Canada. Any number of websites allow you to sell your services, and you can set your own rates (providing someone is willing to pay what you think you’re worth).

The caveat: although you may get an online gig the minute you sign up, in many cases, it takes a few weeks before you begin to get a steady supply.

Where to find work: Most freelancer websites require you to create an account and then browse the listings to find work from home jobs you’d like to apply for or bid on.

• Upwork.com – A gig work site for designers, coders, writing and translation, sales and marketing, as well as accountants and finance folks, admin and customer support.
• Workmarket.com – This site caters to designers, writers and other creatives, as well as those in the info tech and health care fields.
• Fiverr.com – At this site, you can offer any service you wish as long as it’s legal and complies with the website’s terms.
• Freelancer.ca – Claims to be the world’s largest freelancer and crowdsourcing marketplace whether you’re a web or app designer, graphic designer, writer or marketing specialist, to name just a few.

3. Sell your unused stuff

How much you can earn: Whatever the market allows.

There are plenty of websites where you can sell your ‘pre-loved’ stuff online. You can post a listing in minutes, and answer inquiries whenever convenient.

As a rule of thumb, though, you have to be at least 18 years old (although Kijiji allows users to post ads at 16). If you haven’t yet reached that age threshold, you may be able to post your items under the account of a trusted adult. This is one of the more popular stay at home mom jobs in Canada.

Where to find a market: There are numerous online marketplaces where you can sell goods to eager buyers, and many are free to use. Among the more popular:

• Kijiji.ca – Sell new or used goods, as well as all manner of services, only in your own city or province, or across Canada.
• eBay.com – From action figures to auto parts, you can post up to 250 items free that buyers can then bid on.
• Facebook marketplace – A destination on Facebook to discover, buy and sell items; buyers can browse listings, search for items for sale in their area, or find products available for shipping.
• Shopify.com – Offers marketing templates and takes care of everything from marketing to payments to secure transactions and shipping starting at $38 per month. Or try it out for $1 per month over the first three months.

4. Got extra space: turn a profit from it on Airbnb or VRBO

How much you can earn: Both Airbnb and VRBO have property calculators that can give you an idea of how much you can charge for your property, depending on the location and size.

Whether you’re going on vacay and want to rent out your house, or you have a room in your apartment you’re not using, that extra space can translate to cold, hard cash. Technically speaking, Airbnb does require some work in person, but many people consider one of the better work from home jobs in Canada, if you own a property.

You must be 18 to set up a listing on either site. And you will have to upload plenty of photos of your property, along with a detailed description and a listing of house rules for guests. Also, bear in mind that some Canadian provinces, regions, towns or cities may require you to purchase a business license or special permit to rent out part of all of your property, while some neighbourhoods don’t allow it at all.

The caveat: You’ll want to have short-term rental insurance. With guests bunking down in your beds and cooking in your kitchen, it’s wise to protect yourself against anything from stolen property to plumbing disasters. And particularly for short-term rentals, you may need to hire a cleaner (or simply do it yourself).

Where to start: The following sites are good bets, but you can also list your property on Kijiji and other online marketplaces.

• Airbnb.com – Charges a three percent commission and has millions of hosts and guests who’ve created accounts to rent or share space.)
• VRBO.com – Charges a five percent commission and lists two million-plus properties around the world.)

5. Take online surveys

How much you can earn: Between 50 cents and $10 per survey. Online surveys tend to range from five to 60 minutes each, so you probably shouldn’t give up your day job. But if you’re just seeking online jobs in Canada for a bit of pocket money, or you’re a stay at home mom looking for opportunities to earn cash online while baby is napping, you’re golden.

Plenty of companies want your feedback, opinions and preferences. The good news: they’re often willing to pay for the info in the form of cold, hard cash or points that can be redeemed for gift cards.

For the most part, you don’t need any experience. You just need to be 13-plus years and have a computer or mobile device with access to the Internet, as well as an email account and a way to be paid online (such as Paypal).

Where to start: You’ll have to set up a profile first, but the only cost is your time. The caveat: Avoid scam survey sites and services by checking out the reviews before signing up.

• Swagbucks.com – Earn cashback from the comfort of your home.
• BrandedSurveys.com – Take paid surveys and participate in a daily poll. This is one of the few survey sites in Canada that has membership levels, meaning you earn more when you’re more active.
• Rewardia.ca – Sign up for free and take surveys to earn points redeemable for gift cards or cash at Amazon, Foodland, Best Buy, the Home Depot and many more.
• YouGov.com – Share your opinions so that companies, governments and institutions can do better and get cash payouts as a reward.
• For a list of 45 different survey companies operating in Canada, check out paidfromsurveys.com.

6. Turn your designs into cash

How much you can earn: You usually get a portion of the sale cost, so your earnings depend on how many people order your products. On the plus side, this is passive income; if you’ve already created the designs or artwork, you don’t have to do a thing once set up is completed. But you may have to wait for a payout until your reach a specific minimum payment threshold.

If you’re an artist or designer, print-on-demand sites offer an opportunity to make money online by putting your designs on posters, mugs, calendars and shirts, with no need to handle your own inventory and shipping.

You’ll need an hour or two to create an account and upload digital files of your designs. And, for the most part, you have to be 18 or older, but one site (RedBubble) specifies you can sell your work at 16, and others allow you to sell with the permission of a parent or guardian.

Where to start: There are many print-on-demand options in Canada, but you could start with the following.

• RedBubble.com – From Boston to Bangkok, millions of visitors come to Redbubble looking for their weirdly meaningful thing. Upload your artwork to products in your ‘shop’, and the site handles the rest.
• Printful.com – Turn your designs into premium products from baseball hats to backpacks, mugs and clothing.
• Teehatch.com – This site requires you to have an online store for your work, which you can connect to Teehatch. When a customer places an order, Teehatch prints it on a t-shirt and ships it out.
• ArtofWhere.com – Create products on Art of Where with your art and stock your online store.

7. Become a virtual assistant

How much can you earn: Between $7.25 and $37.50 an hour depending on your skills and how well you market yourself. 

The basic requirement to become a virtual assistant is proficiency with the computer. For the most part, you must be able to use the Internet, manage email inboxes and use cloud-based communication services, such as file sharing, teleconferencing and password managers. Although the pay not be the best, it’s one of the few work from home jobs in Canada that doesn’t require too many hard skills.

How to start: Highlight your skills in a resume and upload it to various job sites. Good bets include:

• Indeed.com
• Upwork.com
• Workmarket.com
• Fiverr.com
• Freelancer.ca

8. Be an online middle man and dropship

How much you can earn: Dependant on your products, the market you’re able to reach and the effort you invest in selling your goods. Most payments are through e-transfers.

Dropshipping is similar to print-on-demand, except you’re selling goods you don’t keep in stock, rather than artwork and designs. In a nutshell, you set up a website to sell your chosen products. When you get an order, you send it directly to the manufacturer, retailer or wholesaler and they ship directly to your buyer. You’re basically the middle man, so you get to keep a share of the profits for products that can run the gamut from cosmetics to furniture.

You don’t need to have experience, but it can take weeks to get an e-commerce site set up and going, and you will likely have to spend some money on it (anywhere from a few hundred dollars to thousands).

Where to get started: There are a number of reputable dropshipping sites, including the following:

• Shopfiy.com – Everything you need to open your own online ‘shop,’ from store design templates to fulfillment services.
• Web.com – Sell on Etsy, Amazon, eBay and more.
• Wix.com – Everything you need to create and manage websites and mobile sites for your direct-to-consumer brand using simple drag and drop tools.
• Squareup.com – An online e-commerce solution for whatever you have to sell, including tickets, appointments and products.

9. Sell your photos to an image bank

How much you can earn: Payment varies depending on the site, but is usually a percentage of the sale price.

If photography is your thing and you want to start building a career in the field, seek out one of the online stock photography services. You can upload photos to an account and earn money every time someone downloads a pic. Generally, you must be 18 years old, but some allow people as young as 14 to create an account.

Where to start: All you need is a phone or camera to take high-quality photos, as well as an Internet account and a way to accept online payments. It takes just minutes to upload photos, but it could be some time before anyone chooses to purchase them.

• Alamy.com – One of the larger sites with millions of images, videos and vectors. Photographers get 50% of the sale price, which can range from $20 for personal use to $200 for use in a marketing package.
• Shutterstock – This company has a large customer base of companies and marketers. Payouts can range from 10 cents to about $6, according to online sources.
• Smugmug.com – Store, share or sell photos with custom price lists.

10. Tutor online

How much you can earn: Rates vary, but according to tutors.com, prices start at US$25 per hour in the beginning and up to US$80 an hour if you’re a certified expert.

Whether you’re a math, science or English whiz, or you excel at test preparation, you can parlay your talents into a job tutoring students, from kids to adults.

Where to start: Some sites require a degree, diploma or some kind of specialized qualifications as well as an online interview. Others ask only for expertise in the subject. Simply set up an account and a lesson plan (although some sites provide them) and begin earning money. Good bets include:

• SuperProf.ca – Choose your subject of expertise, list your qualifications and begin to build a client base.
• Skooli.com – Popular subject areas include math, algebra, trigonometry, chemistry, etc.
• Preply.com – Tutor students in languages or math.

11. Market your services as a translator/interpreter

How much you can earn: According to ZipRecruiter, the average pay for an online translator in 2023 was US$38.25 per hour.

If you’re fluent in more than one language, you can earn good money doing online translation/interpreting work on a permanent or part-time basis. This is one of the easiest online jobs in Canada.

Where to start: Some of these sites require previous experience, but at the very least, you have to be fluent in more than one language. Good bets include:

• Upwork.com – Hire yourself out as a translator, interpreter or subtitling specialist.
• Gengo.com – A translation specialist hiring fluent speakers of Chinese, Portuguese, Dutch, German, etc.
• Pro Translating – Represents translators for more than 300 languages and regional dialects.
• LanguageLine Solutions – Represents 16,000-plus interpreters in 240 languages, including American Sign Language.

12. Turn your crafts into cash

How much you can earn: That is totally dependent on your product and how much demand it generates.

If you’re looking for stay home mom jobs in Canada, consider selling your crafts. Whether knitting or designing and building furniture is your thing, you can find a market for your unique and beautiful products online. After all, the ‘maker’ movement is hot right now. If you’re looking for work from home jobs in Canada, this is one to consider.

Where to start: Set up your own online store at a marketplace frequented by people seeking one-of-a-kind products. Good bets include:

• Etsy.com – By far the largest of the marketplaces for handcrafted and unique products, Etsy allows you to set up your own storefront for a minimal listing price and then takes a cut of whatever you earn. It will even advertise your products on other websites for a fee.
• Creativemarket.com – This site specializes in digital artists.
• Shopify.com – With Shopify, you can set up sales on your own personal site.

13. Become a proofreader

How much you can earn: From $20 to $25 per hour.

If your English or French skills are stellar, you can earn cash online in Canada by checking other people’s content for spelling mistakes and grammatical errors. Publications that hire proofreaders range from blogs, to newspapers, magazines and book publishers.

Where to start: Some sites specialize in proofreading for a particular market, so if you already have skills or qualifications, you may have an edge. Good bets include:

• Scribendi.com – You will need a university degree in STEM-related field and professional editing or proofreading experience.
• Proofreadingservices.com – You’ll have to pass a quick proofreading test to apply.
• Gramlee.com – Takes applications for part-time proofreaders on an ongoing basis.

14. Sell your skills as a website developer or UI/UX designer

How much you can earn: From US$75 to $US300 per hour.

If you have the skills needed to build online websites or apps for businesses, all you need is a laptop to develop a client base you can handle full-time or as a lucrative side hustle. Working from home opportunities such as being a UI/UX designer requires specific skills. You don’t need to stay in Canada, you can do this job from anywhere.

Where to start: You need some good experience if you are to persuade legitimate businesses you have the talent they need. But once you’ve proven your skills, you can easily build a client base in this high-demand field (both in Canada and further afield). Check out the listings at:

• Flexjobs.com
• Upwork.com
• Indeed.com

15. Start your own blog

How much you can make: If you manage to build a significant following, you can not only market products and services to your readers, but you can also sell ads or sponsored posts on your site. This could easily make you four to five digits a month. That said, some bloggers never make a cent, others make six-figure salaries.

You can blog from anywhere in the world as long as you have internet access, which makes this the perfect job if you long to be a digital nomad. You’ll have to choose a topic that interests you (and hopefully, lots of other people) and then write about it.

Where to start: There is any number of ‘hosting platforms’ that offer customizable templates so you can design your own blog. Among them:

• WordPress.com
• Site123.com
• Wix.com

16. Become a life coach

How much you can make: That depends on your market and whether you can create a name for yourself, but the average life coach salary in Canada is about $47,000. Experience life coaches make an average of $83,000.

If your thing is helping people, either to grow their business, manage their time, raise their children or simply cope with life’s problems, you might consider a career as a life coach. It helps if you have specific educational training (for example, you’ve taken a life coaching course, or you have a degree or experience in business or as a social worker or psychologist). It’s generally wise to pick a niche and then offer one-on-one or group sessions.

Where to start: Unless you already have a thriving blog or website, you will likely want to list your services on one of the many life coaching directories. Among them:

• Noomi.com- A top site with worldwide listings, but you’ll pay $400-plus to list.
• Lifecoachspotter.com – Free to join, but there are limited spots available.
• Mycoachspace.com – This site Lists many types of coaching, including business and career, money and wealth, health and fitness and love and relationships

Benefits of working at home

For many people, online jobs in Canada has tremendous appeal. One Muse survey conducted in February 2022, found that almost 81 percent of the 4,681 respondents would like to work from home full or part-time going forward. Here are some of the primary benefits of working from home:

• Your commute is nonexistent – Being able to nix the long car or transit ride to work frees up more time in your day to be productive and have fun.
• Your wardrobe fees are cut in half – Depending on your job, you may be able to work in your PJs.
• You have more control over your schedule – Many online jobs give you the flexibility to pick and choose when you will work, who you will work for, and what you do in between jobs. You can throw in a load of laundry, chop up some veggies for dinner, or work out when there’s a lull.
• You can eliminate costs – From gas or transit tickets, to clothing and food, you will almost inevitably spend less when you work from home. And if you’re a stay at home mom, working online may well allow you to cut down or even eliminate daycare costs.
• You can live where you choose – Big cities are expensive. When you eliminate the long commute, you can choose to live in a lower-cost location and perhaps indulge your inner country girl/boy.

Disadvantages of working from home

When considering whether work from home jobs in Canada is an option for you, it’s wise to be realistic about your individual likes and needs. Here are five good reasons you may want to ditch the idea of working online:

• You have workaholic tendencies – When you work from home, it can be tough to separate your working life from your home life. You may find you work too many hours because you’re always connected.
• You can’t stay focused – Conversely, you may put off working because there are demands on you at home (particularly if you are a stay-at-home mom working online). What’s more, if you’re apt to succumb to temptation, you may well be distracted by the latest episode of White Lotus, or a call from your mom.
• You could be lonely – Those breaks to discuss your weekend around the water cooler can be a way of connecting with other people. If you do choose to opt for a work-from-home job online, you may be able to alleviate the sense of isolation by planning to walk regularly with a friend, scheduling meet-ups with fellow online workers or pursuing a passion outside of work that puts you in touch with like-minded people.
• You may find it difficult to maintain your creative edge –  If you’ve turned your hobby into an online business, you may find it becomes no more than a job, and you lose the joy you once got from creating.

While there’s no denying that the First-Time Home Buyer Incentive can be beneficial to potential homeowners, not everyone qualifies for it. Also, with the Home Buyer’s Plan available, you may not even need the assistance. Here’s everything you wanted to know about the First-Time Home Buyer Incentive in plain English.

What is the First Time Home Buyer Incentive?

With the First Time Home Buyer Incentive (FTHBI), the Canadian government will provide you with 5%-10% of the purchase price of your home which gets added to your down payment. That’s right, they’ll literally give you money to buy a home. How much you get depends on what you’re purchasing, but it breaks down as follows:

• 5% or 10% for the purchase of a newly constructed home
• 5% for the purchase of a resale home
• 5% for the purchase of a new or resale mobile/manufactured home

While free money is great, there’s a catch. You’re sharing the equity with the government. If you borrow 5%, then the government gets 5% of any equity that you gain. On a positive note, if there’s ever a downturn in the market, the government also shares the losses. 

The obvious advantage of the FTHBI is the fact that you won’t need to save as much for your down payment. Let’s say you want to buy a new home that has a value of $500,000. If you’re aiming for a 20% down payment, then you would need to save $100,000. Since the FTHBI gives you up to 10%, in this case, $50,000, you’d only have to save $50,000.

This isn’t a completely free ride as the money does need to be paid back eventually. That said, the hope is, the value of your home would have gone up when you decide to sell, so it would have benefited you to take advantage of the FTHBI.

First-Time Home Buyer Incentive eligibility

The First-Time Home Buyer Incentive eligibility is where things get tricky. There are quite a few rules in place to ensure that the money is provided to people who actually need it. Here’s what it takes to qualify for the FTHBI.

• You must be a Canadian citizen, permanent resident or non-permanent resident authorized to work in Canada
• You or your partner must be a first-time homebuyer
• Your total annual income can’t exceed $120,000 (If you’re buying in Toronto, Vancouver or Victoria, your income can’t exceed $150,000)
• The amount you’re borrowing is no more than 4 times your income (If you’re buying in Toronto, Vancouver or Victoria, it’s 4.5 times your income)
• The property you’re buying must be in Canada
• Your portion of the down payment is not borrowed

One thing that’s worth noting right away is the definition of a first-time home buyer. You’re considered a first-time home buyer if you haven’t owned a home in the last four years. That means if you were a previous homeowner, you could still qualify as a first-time homebuyer. In addition, with the First-Time Home Buyer Incentive, either you or your partner need to be a first-time homebuyer to qualify for the First-Time Home Buyer Incentive. That’s relevant because the Home Buyer’s Plan requires both partners to be first-time buyers. 

You need to think of the FTHBI as a second mortgage. That means your first mortgage can’t be greater than 80% of the value of the property. Since you’re dealing with two different mortgages, your real estate lawyer may charge you additional fees.

How the First Time Home Buyer Incentive works

Now that you know how the First Time Home Buyer Incentive works and what the eligibility requirements are, you might be wondering how it works in a practical setting. Let’s assume for a second that you want to buy a new home that costs $500,000 and you meet all the qualifications for the FTHBI.

You still need to save the minimum down payment of 5% on your own, which is $25,000 in this scenario. If you were to take advantage of the FTHBI, you could get another 5% or 10% to increase your down payment. Let’s say you decide to take the 10% incentive. That’s $50,000 the government would give you, so the total amount of your down payment is now $75,000.

Since you have a greater down payment, your mortgage payments would be lower. That’s good for you since it could help you manage your finances. You do need to fill out the following forms when applying for the FTHBI.

• FTHBI – SEM Information Package (PDF) 
• SEM Attestation and Consent Form (PDF) 

Once you’ve completed and signed those forms, send them over to your lender or mortgage broker as they’ll submit it for you. Once everything is completed, you should get a signed copy. It’s a good idea to send that over to your real estate lawyer so they have a record of it.

While this program sounds great in theory, the income and purchase price restrictions will limit the number of people who can actually use the FTHBI. While it’s true the FTHBI will help you lower your monthly payments, you might be forced to lower your purchasing price to do so. For many potential buyers, that’s not a realistic scenario.

First-Time Home Buyer Incentive repayments

Generally speaking, the First-Time Home Buyer Incentive needs to be repaid under two conditions.

• When you sell your home
• After 25 years

Whichever scenario comes first is when you need to pay the money back. Remember, the FTHBI is a shared equity program. If you took the 10% incentive, then the government would get 10% of the capital gains from the sale of your house.

Even if you don’t sell your home, or the value doesn’t increase, you still need to pay back the FTHBI in full after 25 years. There are no partial payments.  There are also a few other scenarios where you may have to immediately pay back the FTHBI including:

• You go through a breakup and you’re buying out your partner. If you need additional insured funds, then you need to pay back the FTHBI
• Porting your mortgage to another lender would trigger the pay back

The actual repayment process can be a pain as you need to contact the FTHBI program administrator. Assuming you’re repaying due to the sale of your home, you need to provide proof of the current property value. That could be the sale documents or an appraisal. For those who are waiting 25 years to make a repayment, your home would be appraised at that time to calculate what you owe. Once the program administrator has reviewed the documents, you’ll be sent an invoice and payment instructions.

Is the First Time Home Buyer Incentive worth it?

At a quick glance, you would think the FTHBI is a win-win situation. Your monthly mortgage payments are lower and if the value of your home decreases, so does the amount you have to pay. While both of those points are true, there are some cons to consider.

• You could owe much more – Since this is a shared equity mortgage, you have to pay back the government an equal amount when you sell. Let’s say your home’s purchase price was $400,000 and you took advantage of the 10% incentive. That means you would have borrowed $40,000. Now let’s say you sold at $600,000. You’d have to pay bac; 10% which is $60,000. That’s quite the premium.
• You may not actually qualify for the FTHBI – Even though the rules of the FTHBI were expanded recently, it really hasn’t helped many more people. That’s because home prices have increased at an alarming rate. Basically, the FHTBI is useless in many parts of the country.

Using the Home Buyers’ Plan instead

Instead of focusing on the First-Time Home Buyer Incentive, you may want to consider the Home Buyers’ Plan (HBP) which may be more appealing to you. Under the HBP, each partner purchasing a home can withdraw up to $35,000 from their Registered Retirement Savings Plan (RRSP). That would give a couple a combined total of up to $70,000 that they could withdraw.

Using the HBP is more beneficial compared to the FTHBI since you’re not giving up any equity, there’s no maximum income or purchase limit, and you don’t pay tax on the withdrawals. The only catch is that you need to have the money in your RRSP for at least 90 days before you make the withdrawal since you’re borrowing from yourself.

When it comes to repaying the HBP, you have 15 years to do so starting from the second year after you made the withdrawal. Each payment would be 1/15th of what you took out. Let’s say you withdrew $30,000 from your RRSP in 2021 as part of the HBP. Starting in 2022, you’d have to pay $2,000 every year. You’re allowed to pay back the HBP at any time without penalty. If you miss an HBP payment, it’ll be considered taxable income and you’ll lose that RRSP contribution room permanently. 

Final thoughts

The First Time Home Buyer Incentive is an interesting program from the government, but I’m not sure what the purpose is. Not many people will be able to take advantage of it since there are quite a few restrictions, and the Home Buyers’ Plan is arguably better. That said, the First Time Home Buyer Incentive can be combined with the First Time Home Buyer’s tax credit.

Plus, with real estate prices continuing to climb, even fewer people will be able to use the program in its current form. Don’t worry if you own a portion of a home through a company such as Willow and addy, as that doesn’t qualify as home ownership.

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It doesn’t matter if you’re applying for a new mortgage or renewing with a new lender, the mortgage stress. Some people find this test annoying as it limits how much home they can afford. While that’s undoubtedly true, you could argue that the stress test is a good thing since it’ll ensure you’re prepared when mortgage rates increase. More importantly, this stress likely isn’t going anywhere, so you might as well get used to it. Here’s how the Canadian mortgage stress test works.

What is the mortgage stress test?

Even though mortgage lenders use their own criteria to determine how much they’re willing to lend you, you still need to pass the mortgage stress test to qualify. This is what annoys many people as the mortgage stress test effectively lowers the amount you can borrow. Considering real estate prices in Canada have increased so quickly over the years, every dollar counts.

While having access to more funds could help you with your house hunting, the mortgage stress test was introduced to ensure you don’t overspend. Instead, it’s in place to protect you when mortgage rates eventually go back up. To pass the stress test, you need to prove that you have the income to meet the higher of the following scenarios:

• The rate your lender has offered you plus 2%
• 5.25%

How this applies to you depends on what mortgage rate you’re getting and how much you’re borrowing. Let’s say your lender will provide you with a mortgage of $500,000, amortized over 25 years, at a rate of 2%. That means your monthly payment would be $2,117.26. However, you need to qualify at 5.25% due to the mortgage stress test, which would put your monthly payments at $2,979.59. That’s an $862.33 difference, which is a fair amount. 

For reference, before June 1, 2021, the mortgage stress test was just 4.79%, so it’s harder to pass the stress test. Note that even though it’s called a test, you can’t fail. You’d just not be able to borrow as much money.

How much mortgage can I afford?

In most cases, lenders use two ratios to figure out how much you can afford: the gross debt service (GDS) and the total debt service (TDS). With the GDS, lenders don’t want your housing costs to exceed 32% of your pre-tax income. Housing costs would include your mortgage payments, maintenance fees, utilities, and taxes. Under the TDS, lenders add any outstanding debt such as student loans, credit card balances, and auto financing to your GDS. That number can’t exceed 40% of your total income.

Using the scenario above, let’s say that maintenance fees, hydro, and property taxes are going to add another $800 a month to your housing payments. Your total monthly housing payments would be $2,917.26. As long as that amount is less than 32% of your pre-tax income, then you would pass the stress test. Of course, you still need to pass the mortgage stress test. The government of Canada has an outstanding mortgage qualifier tool, so you can figure out exactly how much you can afford.

It’s worth noting that if you require Canada Mortgage and Housing Corporation insurance, they have their own rules, which may affect your affordability. Your GDS can’t exceed 35%, and your TDS can’t be higher than 42%. 

How to avoid the mortgage stress test

Here’s the thing about the mortgage stress test, it only applies to federally regulated lenders. That would include all the major players such as RBC, BMO, Scotiabank, TD, and CIBC. However, the stress test only applies to federally regulated financial institutions. Credit unions are regulated provincially, so the stress test doesn’t apply to them. That doesn’t mean a credit union is less reliable or regulated. In fact, more than 10 million Canadians have an account with a provincially regulated credit union. They just use their own criteria to protect their members. There are also monoline lenders (private lenders) that don’t apply the mortgage stress test when extending you a mortgage.

Another trick to skip the mortgage stress test is to renew with your current lender. The terms may not be as favourable as some of the other lenders at the time of your renewal, but you won’t have to deal with the test. Of course, you could also just save more or borrow less, so the stress test won’t matter much to you. 

While looking for ways to avoid the mortgage stress test is understandable, you need to keep in mind that the rules are in place to protect you. Mortgage rates have been incredibly low for the last ten years, and there hasn’t been much of an increase. That said, rates can’t stay low forever, so you need to be prepared for when the cost of your mortgage eventually rises. Always have a buffer in your budget for unexpected expenses.

How does the stress test affect me?

It really comes down to affordability. Using the same example from above again, we’ve already established a monthly difference of $862.33 for mortgages of $500,000 that have an interest rate of 2%. Even though the stress test is theoretical, the government wants to ensure that you can afford the higher payments.

Since you’re always forced to factor in the higher rates, financial institutions can’t lend you as much money as they could have in the past. Again, most people are annoyed by this, but Canada has some record-high debt levels, and the government has implemented the mortgage stress test as one tool to help you manage your budget.

How to get the best mortgage rates

Even with the stress test in place, you should still strive to get the lowest mortgage rates possible. In most cases, using a mortgage broker can be beneficial to you. When you go to individual banks, they can only offer you the rates that they have available. However, mortgage brokers work with many lenders (sometimes 30+), so working with them is often better. 

Best of all, with mortgage brokers, you don’t need to do much work. Once you share some general information with them, they’ll shop for the best mortgage on your behalf. In just about every scenario, you’ll be offered better rates than what’s posted on the bank’s website. More importantly, mortgage brokers will be able to answer any questions you have about the mortgage process, including how the mortgage stress test will affect you.

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Home buyer incentives and perks

While the Canadian mortgage stress test will lower the amount you can borrow, there are also a few programs available that can help you increase your purchase price or lower your down payment. 

First-Time Home Buyer Incentive

The First-Time Home Buyer Incentive (FTHBI) is a relatively new program available to Canadians. Under the FTHBI, the government will provide you with 5% or 10% of the purchase price of a home. While this can be handy, you give up an equal amount in equity. For example, if you took 10% from the government, they would get 10% of the fair market when you sell or after 25 years.

Admittedly, this sounds like a good deal, but that equity you’re giving up is a fair amount. You also still need to come up with the minimum 5% down payment. The extra 5% or 10% that the government provides you with is meant to help you lower your monthly payments. To further complicate things, there are strict conditions for the FTHBI, so not everyone qualifies for it.

Home Buyers’ Plan

A more practical incentive is the Home Buyers’ Plan (HBP). If you’re a first-time home buyer, you’re allowed to withdraw up to $35,000 from your Registered Retirement Savings Plan (RRSP) tax free if you’re using the money as part of your down payment. This perk is available to both partners, so a couple could withdraw up to $70,000 from their RRSPs.

The HBP is clearly beneficial, but you’re essentially borrowing from yourself. You need to pay back 1/15 of what you borrowed every year, for 15 years, starting from the second year in which you withdraw the funds. If you miss a payment, it’s considered taxable income, and you permanently lose that contribution space. Overall, using the HBP to increase your down payment is a helpful strategy as it would help you pass the Canadian mortgage stress test.

Final thoughts

The mortgage stress test was a reasonable thing for the Canadian government to introduce, but it’s effortless to avoid. That said, you really shouldn’t be trying to get around it since you could be taking on too much debt. A sudden rise in interest rates could bust your budget, but the mortgage stress test is meant to soften the blow.

Having the option to pay down your mortgage quicker is beneficial since you’ll pay less interest in the long run. However, having that option comes at a cost since the lender will potentially make less profit from you.

Making a decision between open vs closed mortgages is easy as long as you understand the differences.

What is a closed mortgage?

Closed mortgages have limited prepayment privileges. Generally, you won’t be able to fully pay off your mortgage, renegotiate, or refinance your mortgage before the end of the term without having to pay a hefty mortgage penalty charge. 

Generally speaking, most mortgage payments do have some prepayment terms in the contract. For example, you might be able to make up to an additional payment of 20% per payment. You may also be allowed to pay up to 20% of your initial mortgage balance once a year. These options will allow you to make additional payments, but you still won’t be able to pay off the full balance at any time without having to pay a fee.

What makes closed mortgages appealing in Canada is that you’ll get a lower interest rate compared to open mortgages. Since the lender knows you’re committed to the term, they’ll offer you a lower rate. Even if you do decide to pay off your mortgage early, the lender will happily take the fee that’s built into your contract.

Some people might be okay with paying the fee to pay off their mortgage early, but it can be expensive. The formula often used to determine your fee is based on the interest rate differential (IRD), or 3-months interest, whichever is higher. Depending on the size of your mortgage, you could end up spending thousands of dollars to get out of your contract. 

What is an open mortgage?

With open mortgages, the principal amount can be fully paid off at any time without a prepayment charge. You can also refinance or renegotiate your open mortgage before the maturity date, without having to worry about any fees. It doesn’t matter if you decide to pay off your balance a month after you get your mortgage, or a year later, there are no prepayment restrictions whatsoever.

The catch is that you won’t get the lowest interest rates with open mortgages. That’s because the lender has no idea when you’ll pay back your mortgage. They still want to profit from the loan, so they’ll charge you a higher interest rate. 

As you can imagine, open mortgages only make sense in a few specific situations. For example, let’s say you’re expecting to get a big work bonus or you’ll be getting an inheritance in the near future. You’re not sure when you’ll have the funds in your bank account, but you know it’s coming soon. In these scenarios, it would make sense to get an open mortgage as you can drop a lump sum into your mortgage at any time.

Keep in mind that an open mortgage contract still has a term. Unless you’re able to pay off the full balance from your financial windfall, you’d be on the hook for the higher interest rates for the rest of the term. 

Differences between an open and closed mortgage

The decision between choosing an open or closed mortgage is sometimes made easier when you look at the key differences.

• Prepayments – Open mortgages allow you to make a lump-sum payment with no restrictions, whereas closed mortgages have limited options.
• Prepayment penalty – There is no prepayment penalty with open mortgages. Closed mortgages will charge you the IRD penalty or three months of interest.
• Interest rate – Closed mortgages have lower mortgage rates compared to open mortgages.
• Term length – You can get a longer term of up to 10 years with closed mortgages. Open mortgages are typically capped at five-year terms.
• Refinancing options – Refinancing and renegotiating can be done at any time for open mortgages with no fees. You can refinance with closed mortgages, but you’ll have fewer options and a penalty will need to be paid.

Note that with both open and closed mortgages, you can still get a fixed-rate mortgage or variable mortgage.

Open or closed mortgage, which is right for you?

When looking at open vs closed mortgages, all you need to do is look at your personal situation to come up with a decision. A closed mortgage will be the best option for people who don’t anticipate paying off their mortgage before the end of their term. To be clear, closed mortgages are the most popular type of mortgage for Canadian borrowers.

Open mortgages will obviously appeal to homeowners that want maximum flexibility. Having a higher interest rate may not matter to you if you know you’re going to pay off your mortgage in a few months or within the next few years. The additional interest you pay with an open mortgage could actually be less than what you’d pay in penalties for breaking a closed mortgage.

Keep in mind that it’s not just your current financial standing or expected financial windfall that should affect your choice between an open or closed mortgage. If your mortgage is up for renewal, and you suspect you may need to sell your home during the next mortgage term, it could be worth getting an open mortgage. For example, let’s say you’re thinking about moving countries in the next few years and you’ll need to sell your home to fund that move. 

Always consider the following when deciding between open vs closed mortgages:

• How important is your monthly payment?
• Do you want to be able to pay off your entire mortgage balance early?
• Are you expecting a financial windfall?
• Is there a possibility that you’ll need to sell your home before the end date?

If you still can’t decide between an open or closed mortgage, you may want to speak to a mortgage broker. Not only will they be able to go over the differences and how it applies to your specific situation, but they can also give you quotes on current interest rates. When you have the monthly payments in front of you, it can make the decision easier when choosing between open vs closed mortgages.

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