A mortgage is a loan from a financial institution that uses real property as security. If a borrower fails to repay the loan, the lender is able to take possession of the property.
Because of stress test qualifications and strict government rules, getting a mortgage approved in BC can be extremely difficult, even for those with a good income. The best way to navigate the mortgage rules and regulations is by working with a mortgage broker. A mortgage broker works for you, and gets your application in front of the lender who is most likely going to approve it – something you wouldn’t be able to do on the consumer level.
Do you need a mortgage? Talk to a Vancouver Mortgage Broker about getting approved quickly and easily!
Mortgage Down Payment Requirements in BC
As you won’t be able to purchase a home entirely with mortgage funds, one of the first steps to becoming a homeowner in BC is to save up a down payment. How big of a down payment you’re able to put down will influence how expensive of a home you will be able to purchase, as well as the type of mortgage you’ll be offered by a lender.
In Canada, the government has created price brackets that determine the minimum down payment amount a borrower must be able to put down. A conventional mortgage down payment is 20%. While this is a standard down payment it is not a requirement. In some case, borrowers can actually qualify for a mortgage with as little as 5% down! This is known as a high ratio mortgage.
Homes that are priced under $500, 000 require a minimum down payment of 5%. Homes that are above $500, 000 but below $1, 000, 000 require 5% down on the first $500, 000 and 10% on the amount above that. Homes priced at $1, 000, 000 or more require a down payment of at least 20% of the purchase price.
The best thing about being able to put down a larger down payment is that you’ll require a smaller mortgage, and pay less interest. As an added bonus, by putting down 20% or more you can avoid paying mortgage default insurance premiums. The Canada Mortgage and Housing Corporation (CMHC) requires mortgages to be insured if they are covering more than 80% of the home’s purchase price. This protects the lender, in the event that the borrower were to default on their loan.
Qualifying for a Residential Mortgage in BC
Whether you’ve bought a home before, or you’re a first time home buyer, to qualify for a mortgage in BC, you’ll need to prove to the lender that you can afford to pay back the loan. To determine how much of a loan you qualify for, the lender will take a close look at your financial situation. The amount they feel you can afford will be based on your income, existing debts, other liabilities, and whether or not you are purchasing the home with someone else.
Stress Test Qualification for Residential Mortgages
In addition to qualifying for the mortgage rate provided by the lender, potential borrowers will also need to be able to pass the stress test, introduced in January of 2018. The stress test determines if you would be able to pay your mortgage in a worst case scenario (like if rates were to suddenly rise).
The stress test is calculated using either the Bank of Canada’s 5-year benchmark rate, or at the current contract rate plus 2% – whichever is higher. So if you were pre-approved at 3.19% and the current benchmark rate is set at 5.14%, you would actually need to qualify for a 5.19% interest rate. Qualifying for a higher rate ensures lenders that the borrower won’t default on their loan.
How Much Does a Mortgage Cost?
The cost of a mortgage in BC varies greatly as it depends on many things like house price, term, amortization, interest rate, interest type, and payment frequency.
Below is a rough example of what someone might pay each month if they bought a $600, 000 condo in Vancouver with a 20% down payment.
House price: $600, 000
Down payment: 20% ($120, 000)
Amortization Period: 20 Years
Term: 5 Years
Interest Rate: 3.19%
Interest Type: Fixed Rate
Payment Frequency: Monthly
This individual can expect to pay about $2, 703 each month for their mortgage. Because they were able to put down 20%, they avoided having to pay for mortgage default insurance.
Where to Get a Mortgage in BC
In BC and all across Canada, potential home buyers have the option of going to a bank or a mortgage broker to get a mortgage. To get approved quickly, with a great mortgage product and the best rate, it is highly recommended that you speak with a mortgage broker.
The downside of working with a bank, is that they only have access to their own products. Even if your local bank does approve you for a mortgage, it may not be the best product for you (undesirable terms or restrictions), or the best rate available.
The absolute best way to get a mortgage in BC is to work with a Vancouver Mortgage Broker. Unlike a bank, all a mortgage broker does is get mortgages approved – day in and day out. They can review your unique situation, and match you up with one of their many lenders, who is most likely to approve your application and give you a great rate. In addition to taking the work off your hands by finding you the best lender, their services are also free. A mortgage broker gets paid by the lender, but not until your mortgage has been approved and funded.