Banks and lenders in Canada provide a variety of mortgage products, just like in the UK. Understanding the best mortgage option for you might be challenging given the range of mortgages available.
1. Repayment mortgage
The most popular kind of financing for international buyers of real estate in Canada is this one.
Repayment mortgages call for the borrower to pay back both the principal and interest of their loan at the same time in fixed payments over an agreed-upon term, which is typically more than 25 years. Each mortgage is associated with a period that can be anywhere between one and ten years. Over a 25 or 30 year amortization period, that is renewable in blocks.
2. Interest-only Mortgage
Even though it could be conceivable for a Canadian bank or lender to provide a mortgage on the basis of interest-only payments, these can be more challenging to get.
This is due to the fact that, since only the interest on the loan is often paid on a monthly basis, the danger of the mortgage not being repaid in full to the lender is increased.
This leaves the full loan balance, which may be a sizeable sum of money, to be paid back at the conclusion of the mortgage period.
Having said that, there are circumstances in which obtaining an interest-only mortgage in Canada may be advantageous.
Self-employed borrowers may benefit from the flexibility that an interest-only mortgage can provide because they can pay their interest during times of low income and portion of their principal during times of strong income.
This is typically the time when a private loan is needed.
3. Fixed and variable rate mortgages
A mortgage in Canada with a fixed interest rate is a loan with a rate of interest that won’t fluctuate over the course of the mortgage.
Since your mortgage payments will remain constant over the entire period, this offers some stability.
However, there are several advantages to a variable rate mortgage in Canada. This is because the amount of interest you pay will depend on the Prime Rate set by the Government of Canada, less any discounts awarded by the lender.
Those reductions stay the same for the duration of your term, but the Prime may cause changes to your payments.
You would be making a payment based on an interest rate of 2.50%, for instance, if the prime rate was 3.00% and the bank offered you a reduction to prime of 0.5%. Until the prime changes, that payment won’t alter.
Your contract will always have a payment that is 0.5% below prime even if the prime rate increases to 3.50%; nevertheless, your new payment will be 3.00%. If the Prime rate falls to 2.50%, the inverse is also true.
Your new payment will now be just 0.5% less, or 2.00%. Over the course of the loan, a variable mortgage may result in fluctuating payments.
This may occasionally result in higher interest charges, but it also may result in lower charges.
4. Remortgaging in Canada
This can be feasible for you depending on your financial situation because Canadian lenders provide remortgaging options.
Paystubs, bank statements, an employment contract, and any interest payments—which may be greater than the actual rate in your mortgage agreement—that show you can afford your mortgage are required as proof.
Although the amount you can borrow against your house will depend on how much equity you hold, some Canadian lenders offer remortgaging loans up to 80% of the property’s worth.
Non-residents, however, are not covered by this. The highest loan amount is 65%.
5. Second home mortgage
In Canada, getting a second mortgage is not unusual, particularly for people wishing to finance a vacation house or an investment property.
Lender eligibility and your ability to finance two mortgages are the two main factors that determine whether you can obtain a second mortgage for a Canadian property.
For a second mortgage, many Canadian lenders demand a 20% down payment, and you might also discover that the total amount you can borrow is constrained.
6. Buy-to-let mortgage
Foreign purchasers in Canada can obtain buy-to-let mortgages, but financing an investment property is a little more difficult.
For instance, whether or not you will be occupying the property can influence the amount that you can borrow and the conditions of your agreement.
Be advised that there can be a restriction of up to 4 units if you’re thinking about purchasing several homes in one building.
This is so because a building in Canada is considered a commercial building if it has more than 5 units.
So, you would have to submit an application for a commercial mortgage.
7. Commercial mortgages
In Canada, the requirements for qualifying for a commercial mortgage are far stricter than those for a residential buy-to-let mortgage. A significantly higher interest rates are also possible.
Are there any mortgage regulations in Canada that I need to be aware of?
Yes, regardless of the size of the down payment, banks in Canada are now required to “stress test” ALL homebuyers as of November 2018.
To determine if buyers can afford their mortgage and interest payments, the test has been introduced. It uses the higher of the current 5-year posted rate from the Bank of Canada or the customer’s mortgage interest rate plus an extra 2%.
This stress test’s goals are to reduce consumer debt and ensure that borrowers would be able to continue making their payments if interest rates rise.
What’s the best mortgage rate in Canada that I can get?
It can take some time to find mortgage lenders with the cheapest rates, especially if you’re not familiar with the Canadian real estate market.
You may filter out the lenders who are less suited and concentrate on the lenders with more competitive rates by speaking to one of the knowledgeable mortgage brokers we work with.
A reputable Canadian mortgage broker will be able to compare mortgage interest rates across Canada, taking into account:
- 1. Montreal
- 2. Vancouver
- 3. Calgary
- 4. Edmonton
- 5. Ottawa
How can a mortgage broker in Canada assist you with your mortgage?
There are a number of ways a mortgage broker can support you while you apply for a mortgage for a piece of real estate in Canada, but the following are some of the most important ones:
- 1. Negotiating the terms and conditions of your mortgage
2. Before you sign anything, be sure you fully understand the conditions of your mortgage agreement.
3 Letting you know about any additional fees or expenses you could have to pay
4. Managing any paperwork and timely submitting it to the appropriate authorities