Credit rating and savings are not always a mortgage slam dunk

Anytime someone wants to borrow money – for whatever reason, from whomever, lenders always ask themselves one  simple question –“will they pay this back?” This is true even if it is your best friend hitting you up for a personal loan, or if you are sitting in your local bank branch filling out an application for a mortgage.

Two years ago, a young lady I had worked with for several years decided to dip her toe into the condo market in downtown Toronto. Her credit report had always been spectacular, and she was a prodigious saver. She was by nature risk-averse, and I know there was no chance at all she would ever renege on a mortgage – no matter what. (She also had the deep pockets of parental support behind her should she run into difficulties.)dark side

Sounds like a slam dunk? Well no, this was a high ratio CMHC insured mortgage – and her present level of income meant there was no chance she would legitimately qualify for a mortgage (the debt service ratios were WAY out of whack). And although her parents were in her corner if need be, they did not want to formally co-sign or guarantee her mortgage.

What can you do if you need a mortgage co-signer but don’t want one?

With regret, I told her I could not do the deal as presented – a couple of parental signatures and she would be on her way. But she and they were adamant that would not be necessary – and it turned out they were right.

She paid a visit to her personal banker and told her she needed a mortgage. She was told the best way to ensure approval was to declare a second (concurrent) full time job. Once that was done, the mortgage was approved effortlessly.

The lender knew her customer – she knew this mortgage would never be in jeopardy, and she decided it was worth “crossing the line” in this instance.

Lenders and their agents often face such decisions – it’s not a subject often discussed in the media, and I am sure you can understand why.

Related Articles

Learn the Lingo of Mortgages

There are many terms specific to mortgage financing that you may never have needed before. Best you become familiar with them


If you decide to buy another home, can you take your mortgage with you? This can be great if you have awesome terms or if you want to avoid paying a prepayment penalty.

I wrote an article called mortgage portability can be a borrower’s lifeline. This feature saved our client $13,000 in prepayment penalties.


Same idea as portability – only in this case the buyer of your home assumes your mortgage – lock, stock and barrel. Again, this can save you a prepayment penalty and may enhance the perceived value of your home if the mortgage terms are very favorable.


Mortgage professionals often fall into the trap of presuming knowledge and understanding of our terminology that simply isn’t there – especially with first time home buyers. I was reminded of this when a financially responsible new buyer recently asked us how come her mortgage rate was going to change in five years – after all, she had signed up for a twenty-five year amortization period.

In  Canada, most mortgages have a term of five years or less. This means your interest rate is set for say five years and is renegotiated at the end of the term you have chosen.

But most of us will need many years to be able to repay this debt. Typically we want the option to take as long as 25 or even 30 years. This allows us to make manageable monthly payments, as the loan repayment is ‘stretched out’.
Your lender basically says” Look, you only have this interest rate guaranteed for five years, but to make your monthly payment affordable, let’s pretend it was for 25 years, and we will set your monthly payment on that basis.”

This is called the amortization period. It is the total amount of time you will take to repay the mortgage loan.

Even when your mortgage matures at the end of its term, it will renew (almost certainly) at a different interest rate, but your amortization period will remain on track.

Some people routinely refinance their mortgages, and especially at renewal time (when there are no prepayment penalties) and extend their amortization period as long as is allowed.

They do this because they want to keep their monthly payment as small as possible. But the downside is they will reduce the actual balance owing by less than their friends with shorter amortization periods.

As time goes by, your financial circumstances change, and you may well move into a different home. You will always have choices how to structure your amortization, your payment, and the term of your mortgage as your needs evolve.

The most common initial amortization is 25 years in Canada. Provided you put down at least 20%, you can go up to 30 years.

You can shorten your amortization period on the fly if you want to, simply by making bigger payments. The more you pay on each payment, the quicker you’ll pay down the loan.

And if you really want, your mortgage broker/agent can arrange a thirty five year am from one of a handful of lenders still offering this. A slight rate premium will likely be applied.

Related Article: 35 year amortization periods are still available

Related Article : Buyer needs 35 year am to qualify for a mortgage

Alternative lenders

Sometimes your profile doesn’t quite fit into the banks’ or other ‘A lenders’ lending guidelines. But in all respects, you feel ready and capable of buying a home and taking on a mortgage.

There are alternative institutional lenders who play a valuable role in funding people like you. And they arethe fastest growing segment of the market, as the government seems to be making qualification tougher with each passing year. In 2015, alternative lending grew at a 25 % clip in Canada!

The interest rates are higher and there are often lender and broker fees associated with these mortgages, but they get the job done.

Most people pick a mortgage term of one or two years with these lenders, hoping their circumstances may have changed sufficiently to switch back over to the “A side” at renewal time.

These lenders do not insure their mortgages, and will only lend up to 80% loan to value. If your covenant is strong though, they may allow you to place a second mortgage behind them for another five, maybe even ten percent of the purchase price.

Lenders in this space include Equitable Bank, HomeTrust Company, XCEED mortgages, IC Savings, and many more.

Private mortgages

And if you don’t fit into the alternative lenders’ guidelines, there are still individuals and mortgage companies who will lend you money anyway.

These are usually lenders of last resort, since the interest rates are much higher than your neighbor’s, and you will be paying your broker a fee and most likely your lender too. And you will have to pay the lender’s legal costs, your legal costs, and likely the appraisal costs.

Reputable mortgage specialists who place you with a private lender will always want to know your ‘exit strategy” to get back to more mainstream lenders.

This all said, we do regularly place mortgages with private lenders, and are thankful they are in the marketplace.

The appraisal

As one might expect, an appraiser appraises the value of a property (tells you what it’s worth).

Your mortgage lender often requires your property be appraised before funding your mortgage. Many lenders have lists of specific appraisers they will work with, so let your mortgage agent/broker arrange it for you.

The appraiser will carefully examine all of the home’s characteristics before comparing it to other recent sales in your area. Appraisals range from $250 to $500 or more for outlying areas or unique properties.

Related Article: What if your appraisal reveals problems?

Property Insurance

You need to get your house insurance in place before you get the keys. Your mortgage lender will insist on this. Your real estate agent or mortgage broker/agent can refer you to a property insurer if you don’t have one.

An insurance broker will explain the various types of scenarios that you need to be insured for, and work with you to find a package that fits your needs. The insurance broker’s costs are almost always included in the insurance they provide.

Home Inspection

In some cases, you don’t technically need a home inspector, but one can never be too careful when making such a large and important purchase.

Ask your professional experts for a referral. Unless you’re a construction expert, this member of your team will be your eyes and ears when it comes to looking at the most important stuff (no, not the granite countertops and walk-in closets).

I’m talking about whether the foundation is stable, what (if any) repairs need to be done, and if there were problems in the past.

A home inspector conducts a visual inspection where they walk through the house and look at everything from plumbing and electrical, to looking at what problems the drainage pattern of a property could present.

She will even be able to give you an educated guess on when certain parts of a building will likely need to be replaced.  Often, homebuyers fall in love with a new paint job and hardwood floors right away.

Unfortunately, their souls are sometimes crushed when they find out that $30,000 in repairs are needed just to keep the basement from collapsing, or to keep water from pouring in during the next heavy rain. A decent home inspection should cost no more than $500, depending on your region, and it’s usually worth every penny.

Title Insurance, by Robert McLister

Title insurance is usually an afterthought for people getting a mortgage. But it’s becoming more of a decision point since so many lenders now require it.

The purpose of title insurance is to protect you if there’s a problem with your title. Those problems can turn into expensive nightmares in the small chance that you encounter them.  Read more….

Fixtures and chattels by Stephen Tar

“When purchasing a home, you must keep in mind that many of the features that contribute to the overall attractiveness of a home may not be included in the final purchase. It is common to see features such as fixtures and Chattels be excluded from final purchases.

Fixtures include all those items that are securely attached to the house; such as chandeliers and kitchen sinks.

Chattels are any moveable pieces of personal property including kitchen appliances and the furniture in the home.

How to get what you want

By default in standard purchase agreements, fixtures are included with the house and chattels are not. However, there are circumstances you should look out for if you want to avoid unpleasant surprises when you move in.

Look out for excluded fixtures – Sometimes the fixtures in a house, like an heirloom chandelier, have personal value to the sellers. To keep the chandelier, the seller must specifically exclude it in the Purchase Agreement. So if you walk into a home and are blown away by the light fixtures, or any other fixture, make sure they are not excluded when it comes time to buy.

Include chattels you want – Again, kitchens are big selling features and, as a buyer, when you spot one that is just right, you may not want to change a thing. But, while kitchen appliances are often included in a sale, the sellers have the right to take the appliances with them. If you want to have kitchen appliances or any other chattel included in the sale, you need to say so in the purchase agreement.

It’s also important to be very specific, even to the point of including appliance model names and numbers. If you simply add “kitchen appliances” to the agreement, the sellers could replace the ones you saw with different appliances.

Remember to pay attention to what you find attractive about a home you want to buy, and make sure you get what you expect when you buy it.”

What is a HELOC?

A home equity line of credit (often called HELOC and pronounced Hee-lock) is a special form of mortgage. Think of it as a pre-arranged credit facility secured by the equity in your home (just like a personal line of credit, though usually for a much larger amount)

HELOC’s are revolving credit – which means you only incur interest charges if you use it, and only to the extent of your actual balance, not your approved limit. Minimum payments vary from lender to lender – some are as little as interest only, if that is your wish.

Most HELOC’s are priced at Prime plus 0.5%, which in today’s market is 3.20%.  Compared to a VARIABLE RATE MORTGAGE, your rate is almost one percent higher – that’s the trade-off for a HELOC’s incredible flexibility.

Many people like to have a HELOC and a first mortgage. The best kind are readvanceable, which means that every time you make a mortgage payment, your HELOC limit increases by the amount of principal you just paid.

Collateral charges explained, by Robert McLister

A collateral charge is a method of securing a mortgage or loan against your property. The main rub with collateral charges is that it’s harder to switch lenders without paying legal fees.

Collateral charges also impact people’s negotiating leverage at renewal and restrict borrowers from taking out second mortgages or HELOCs elsewhere (unless one’s property value skyrockets). Read more…

Rent-to-Own Mortgages

Another niche strategy for getting into a home is using a rent-to-own option. These mortgages are most often used by people who cannot get a conventional or high-ratio mortgage for the time being, but are hoping that after a period of renting they will qualify.

Rent to own simply means you rent the home with an option to buy it within a pre-defined period of time. The deal involves an ‘Option to Purchase Agreement’ plus an Occupancy Agreement. The future purchase price of the home is set in the agreement as well making it a long-term rent plus mortgage hybrid combination.

Some experts claim that renting to own is never a great option. Others think that for people in a very small percentage of situations (such as a recent divorcee), it makes some sense.

Michael Sugar from Mortgage Intelligence says  “Rent to own can be a great option for some people who aren’t yet ready for home ownership. Most of the time its’s because their credit history is in recovery mode.

To qualify for a Rent-to-Own program you must already have saved up at least five percent of the required down payment. You enter into a contract to purchase the property in a specified period of time (typically three years) for a pre-agreed price.”

The basic idea is that if a buyer finds a home they like, they pre-negotiate a deal with the seller whereby they will rent the home for a certain amount of time. Sellers sometimes use a deal like this as a “carrot-on-the-stick” incentive to get people into their house.

Most of the time buyers will pay an upfront fee of 2% the house’s appraised value +/-, in order to give themselves the “option to purchase” at the end of the agreement. Sometimes an extra premium is also added into the monthly rent. That goes towards the prospective buyer’s down payment at the end of the agreement.

If you come across another term you are not familiar with, try the search feature at the top of this page – chances are we’ve written about it already!

Why choose us for your mortgage?

  • Specialize in difficult mortgages
  • Years of experience and expertise
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  • Best rates and trusted lenders
  • Creative and customized solutions
  • Proven results


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