Mortgage Broker FAQ

Going through a mortgage broker is often cheaper than going directly to a bank. The main reason is that a mortgage broker has access to a wide range of lenders and can shop around for the best mortgage rate and product for you, whereas a bank can only offer its own mortgage products.

Sometimes a bank may have the lowest rate, but this is not always the case. A mortgage broker can compare options from banks, credit unions, mortgage-only lenders and other financial institutions. Having access to multiple lenders creates more competition for your mortgage and can help you find a lower interest rate, better terms or a mortgage product that better suits your needs.

Best of all, in most cases there is no cost to use a mortgage broker. For traditional residential mortgages, mortgage brokers are typically compensated by the lender, so there is generally no additional fee to you and no premium added to your interest rate because you used a broker. Brokers can often access the same or better rates than you may receive by going directly to a bank branch.

It is important to look beyond just the lowest mortgage rate as well. Prepayment privileges, penalties, portability, refinancing options and other mortgage terms can have a significant impact on how much your mortgage ultimately costs. A mortgage broker can compare these features across multiple lenders to help you determine which mortgage provides the best overall value.

Bottom line: A mortgage broker gives you the advantage of shopping multiple lenders through one point of contact, generally at no cost to you. While a bank may occasionally have the best offer, working with a broker makes it easier to compare your options and determine which lender and mortgage are the best fit for your situation.

Yes, it is possible to borrow money for a down payment in Canada. Depending on the lender and mortgage insurer, the down payment may be borrowed from a personal line of credit, unsecured loan, or other approved credit facility. Borrowed down payments are generally available for owner-occupied properties. Many lenders look for a credit score of 650 or higher. It may be possible to borrow funds for a rental property purchase as well, depending on the lender. CMHC and Sagen both allow certain non-traditional or borrowed down payment sources, although the exact requirements can vary by lender and insurer.

One important factor is that the payment on the borrowed funds needs to be included when calculating your total debt service ratio. This means you may qualify for a slightly lower mortgage amount than you would if the down payment came from your own savings. Even so, a borrowed down payment can be a useful option for someone who has the income and credit to qualify for a mortgage but has not yet been able to save the full down payment.

A common example would be borrowing the minimum 5% down payment from a line of credit. The lender would then qualify you for the mortgage while also including the required line-of-credit payment in your debt ratios. The minimum credit score required can vary by lender and insurer; a score of 650 will have the best chances of approval. Sagen’s borrowed down payment program currently lists a minimum credit bureau score of 600, while individual lenders may impose higher requirements.

If you already own another property, accessing equity through a HELOC may also be an option. In that situation, the HELOC payment would normally be included in the qualification as well.

For first-time homebuyers in Nova Scotia, another option worth considering is the Nova Scotia Down Payment Assistance Program. Eligible buyers can receive a loan equal to 5% of the home’s purchase price. The loan is interest-free and is repaid over 10 years, which can make it considerably more affordable than borrowing the down payment through a traditional line of credit or loan. Applicants must meet the program’s eligibility requirements and pre-qualify for an insured mortgage.

There may also be other ways to put together a down payment, including personal savings, a gifted down payment from family, proceeds from another property, or eligible funds from an RRSP or FHSA.

Bottom line: You do not necessarily need to have the entire down payment sitting in savings before buying a home. A mortgage broker can review your income, credit and available down payment sources and determine whether a borrowed down payment, the Nova Scotia Down Payment Assistance Program, or another option makes the most sense for you.

Yes, you can use gifted money for a down payment on a home. In Canada, gifted down payment funds are commonly accepted by lenders, provided the gift comes from an acceptable source and is not expected to be repaid.

The gift will typically need to come from an immediate family member, such as a parent, grandparent, sibling or other close relative, depending on the lender and mortgage insurer. In some situations, a spouse may also be able to provide the gift if they are not part of the mortgage application. The exact rules can vary by lender, so it is important to confirm the source of the gift before relying on it for your purchase.

The lender will normally require a signed gift letter confirming that the money is a true gift and does not need to be repaid. They will also usually require confirmation that the funds have been deposited into your bank account before closing.

One advantage of a gifted down payment is that the gifted funds do not normally need the same 90-day history that is required when verifying your own saved down payment funds. However, lenders still need to be able to verify where the gift came from and that the funds are available for the purchase.

A gifted down payment can be a great option because it allows you to increase your down payment without taking on additional debt or monthly payments. This can potentially help you qualify for a higher purchase price, reduce your mortgage amount, or lower your mortgage default insurance premium if the larger gift moves you into a lower loan-to-value range.

Bottom line: Gifted down payment funds are widely accepted, but the lender will need to verify the gift and its source. A mortgage broker can confirm whether the person providing the gift is acceptable to the lender and make sure the documentation is completed properly before closing.

For most traditional mortgages in Canada, mortgage brokers are compensated by the lender, which means there is typically no additional cost to you for using a mortgage broker. The lender pays the broker a commission after the mortgage closes, and you generally do not pay a higher interest rate simply because you worked with a broker.

Mortgage lenders compensate brokers because it can be more cost-effective for them to obtain mortgage business through the broker channel rather than relying entirely on their own branches and employees. Mortgage brokers can also access a wide range of lenders, including banks, credit unions and mortgage-only lenders. Some mortgage lenders primarily or exclusively work through mortgage brokers, meaning you generally cannot apply with them directly.

For borrowers who qualify for a traditional or “A” mortgage, there is typically no broker fee. This is one of the main advantages of working with a mortgage broker: you can have someone compare multiple lenders, rates and mortgage products on your behalf without paying an additional fee in most situations.

There are some circumstances where mortgage broker fees may apply. This is most common with alternative mortgages, B lenders and private mortgages. These types of mortgages can be useful for borrowers who may not qualify with a traditional lender because of credit issues, self-employed or difficult-to-prove income, a recent bankruptcy or consumer proposal, being new to Canada, the type or condition of the property, or other unique circumstances.

With alternative and private mortgage financing, there may be a lender fee, a broker fee, or both. These fees vary depending on the lender, the mortgage amount, the strength of the application, the property and the level of risk involved. Depending on the situation, total lender and broker fees can range from approximately 1% to 6% of the mortgage amount, although every mortgage is different. Any applicable fees should be clearly disclosed before you agree to proceed.

It is also important to compare more than just the broker fee or interest rate. A mortgage with a slightly lower rate could have higher penalties, fewer prepayment privileges or less flexibility, so the overall mortgage terms should be considered when determining the best option.

Bottom line: For most traditional residential mortgages, a mortgage broker is typically free for the borrower because the lender pays the broker’s commission. Fees are more likely to apply when arranging specialized financing through an alternative or private lender. A mortgage broker should explain how they are being compensated and disclose any fees before you commit to the mortgage.

Yes, a mortgage broker is a great option when refinancing your home. A broker can review mortgage options from multiple lenders and help determine the best way to structure the refinance based on what you are trying to accomplish.

Refinancing allows you to access the equity you have built in your home. The funds can be used for many different purposes, such as consolidating higher-interest debt, completing renovations, investing, helping with a down payment on another property, or simply improving your overall cash flow.

A mortgage broker can also help determine the best way to access your equity. Depending on your situation, it may make sense to refinance your entire mortgage and take out additional funds, add a home equity line of credit (HELOC), or use a combination of a mortgage and HELOC. The best structure will depend on how much money you need, how you plan to use it and whether you need the funds all at once or want ongoing access to your equity.

There are also costs to consider when refinancing, including potentially breaking your existing mortgage early, legal fees and appraisal costs. A mortgage broker can calculate these costs and compare them against the potential savings or benefits of refinancing to determine whether it makes financial sense.

Some lenders also offer promotions for clients moving their mortgage to a new financial institution, such as cashback or assistance with certain legal or appraisal costs. A broker can compare these promotions along with the interest rate and mortgage terms to determine which lender provides the best overall value.

Bottom line: A mortgage broker can help you compare refinance options from multiple lenders while also determining the best way to structure your mortgage and access your home equity. The lowest rate isn’t always the best option, so looking at the interest rate, penalties, fees, HELOC options and lender promotions together can help you find the most cost-effective solution.

The documents required for a mortgage application depend on your employment, income, down payment and the type of property you are purchasing. Generally, a mortgage broker will need documents to verify your income, employment, down payment, credit and the property itself.

If you are a salaried employee or have guaranteed hours, a recent letter of employment and pay stub will often be enough to verify your income. If your income fluctuates because of overtime, bonuses, commissions or variable hours, the lender may also require your two most recent years of T4s so they can determine an average or otherwise confirm your qualifying income.

If you are self-employed, more documentation is typically required. Lenders will commonly ask for your two most recent years of T1 General tax returns and Notices of Assessment (NOAs). Depending on how your business is structured and the lender being used, they may also request business financial statements, corporate documents or additional information to verify the income available to qualify for the mortgage.

For your down payment, lenders generally require a 90-day history showing where the money came from. This could include bank, investment, RRSP or FHSA statements. Different documentation may be required if the down payment is coming from another acceptable source, such as a gift from a family member, proceeds from the sale of another property or an approved borrowed down payment.

Other common mortgage documents can include government-issued identification and a void cheque or pre-authorized debit form for the account the mortgage payments will come from. For a home purchase, the lender will also need property-related documents such as the accepted Agreement of Purchase and Sale and, in many cases, the MLS listing.

There are also situations where additional forms of income can be used to help qualify:

• Canada Child Benefit income: If eligible to be included by the lender, they may request your current benefit statement along with bank statements showing that the payments are being deposited into your account.
• Rental income: If you own a rental property or are purchasing a property with rental income, the lender may request a current lease, bank statements showing rental deposits, tax documents or, in some cases, an appraisal with a market rent assessment.
• Pension or retirement income: If you are retired, lenders may request documents such as your most recent T4A or other pension statements, along with bank statements showing the income continues to be deposited.

If you already own property, the lender may also request documents related to your existing mortgage, property taxes, condo fees or rental property expenses.

The good news is that you don’t necessarily need to know exactly what documents are required before getting started. A mortgage broker can review your situation first and provide a customized document checklist based on your income, down payment and the type of mortgage you are applying for.

Bottom line: For most mortgage applications, expect to provide identification, income verification, down payment history and property documents. The exact requirements vary significantly depending on whether you are salaried, self-employed, receiving rental or pension income, or using a non-traditional source for your down payment.

The best way to find a mortgage broker if you are self-employed is to look for a broker who has extensive experience working with self-employed borrowers. Self-employed mortgage applications can be more complex than salaried applications, so the broker’s experience can make a significant difference in which lenders and programs are available to you.

A good mortgage broker for a self-employed borrower should understand both traditional lending and alternative financing solutions. It is worth asking how many self-employed mortgage applications they have worked on and what types of self-employed programs they regularly use.

There are several different ways self-employed income may be considered for mortgage qualification. Depending on the lender and your situation, this can include:

• Using a two-year average of your reported income
• Applying an allowable gross-up to qualifying income in certain situations
• Adding back eligible business expenses or write-offs
• Using insured stated-income programs
• Using alternative lender stated-income programs when traditional income documentation (tax returns) does not fully reflect the strength of the business
• Reviewing corporate financial statements, bank statements or other business documentation to support income

For example, someone who owns a successful business may have strong cash flow but report lower taxable income because of legitimate business expenses and tax planning. A broker who understands self-employed mortgages can review the full picture and determine whether there are acceptable add-backs, gross-ups or alternative programs that could help support the application.

It is also important that the broker has access to a wide range of lenders. Self-employed borrowers may qualify with a traditional bank, credit union or mortgage lender, while others may be better suited to an alternative lender. The goal should be to use the most competitive lender and program that fits your situation, rather than automatically assuming that being self-employed means you need a higher-rate mortgage.

Bottom line: If you are self-employed, look for a mortgage broker who regularly handles self-employed mortgage applications and understands both traditional and alternative lending programs. The right broker can help identify income that may be used for qualification, compare more lending options and potentially make the difference between an approval and a decline.

Yes, good mortgage brokers can often negotiate better rates for their clients. Experienced brokers stay on top of lender pricing and know which lenders are offering rate exceptions, promotional pricing and special discounts that may not always be obvious to someone shopping for a mortgage on their own.

A good mortgage broker will compare rates across multiple lenders and understand which lenders are currently the most competitive for your specific type of mortgage. In some cases, the broker may also be able to request a rate exception from the lender to improve the pricing further.

The most important thing a mortgage broker can do, though, is look at your exact situation and find the lender that offers the best combination of interest rate, mortgage terms and flexibility. The lowest advertised mortgage rate is not always the best mortgage. Features such as prepayment privileges, penalties, portability, refinancing options and access to a home equity line of credit can all affect the overall cost and flexibility of the mortgage.

Mortgage brokers can also keep an eye on interest rates after your mortgage has been approved. If the lender reduces its rates before your mortgage closes, a good broker can often request that your rate be floated down to the lower available rate, provided the lender’s policies allow it. This gives you the benefit of having a rate secured while still potentially taking advantage of lower rates before closing.

Another advantage is that brokers can monitor promotions across multiple lenders at once. These may include lower promotional rates, cashback offers, appraisal incentives or lenders covering certain transfer or legal costs.

Bottom line: A good mortgage broker does more than simply find an advertised rate. They compare multiple lenders, look for promotions and rate exceptions, negotiate where possible, and continue monitoring rates up until closing to help ensure you receive the best overall mortgage available for your situation.

A mortgage broker can be a great option if you have bad or bruised credit and are trying to buy your first home. Because brokers have access to a wide range of lenders, they can look for options that may not be available if you only approach one bank.

One advantage is that an experienced mortgage broker can review your credit in detail and help determine why your score is low. In some cases, the issue may be high credit utilization, missed payments, collections, limited credit history or an error on your credit report. A broker can explain what is affecting your score and what steps may help improve it if qualifying with a traditional lender is not possible right away.

Mortgage brokers may also have access to lenders that are more flexible with credit. Some alternative lenders and specialized mortgage lenders will consider borrowers with lower credit scores, recent credit issues or a history of missed payments, especially if the rest of the application is strong.

In some situations, a broker may also be able to work with lenders that rely on different credit bureaus or underwriting criteria. Since Equifax and TransUnion scores can differ, this can sometimes create additional options depending on the lender and the rest of your application.

If you cannot qualify with a traditional lender today, a broker can also help create a plan for getting there. That may include improving your credit score, reducing debt, increasing your down payment, adding a co-signer, or using an alternative mortgage temporarily and then moving to a traditional lender later once your credit has improved.

The amount of down payment required will depend on your credit profile, income and the lender being used. In many cases, borrowers with weaker credit may need a larger down payment than someone with strong credit.

Bottom line: Having bad credit does not automatically mean you cannot buy your first home. A mortgage broker can review your credit, compare traditional and alternative lenders, identify possible ways to strengthen the application, and help you determine the best path toward approval.

A mortgage prepayment in Canada is an extra payment you make toward your mortgage principal above and beyond your regularly scheduled mortgage payments. This could be a lump-sum payment or additional payments made throughout the year, depending on the prepayment privileges offered by your lender.

Making mortgage prepayments can help you pay down your principal faster, shorten your mortgage amortization, and reduce the total amount of interest you pay over the life of your mortgage. Depending on how your mortgage is structured, a prepayment may also help reduce your payments when your mortgage is renewed or restructured.

Most mortgages in Canada have specific prepayment privileges that determine how much extra you can pay each year without a penalty, so it’s important to understand the terms of your mortgage before making a large prepayment.

The amount you can prepay on your mortgage without a penalty depends on your lender and the specific prepayment privileges included in your mortgage.

In Canada, some lenders allow you to make a lump-sum payment of up to 10% of your original mortgage amount each year and increase your regular mortgage payments by up to 10%. These are generally on the more restrictive end of mortgage prepayment privileges. Some lenders also offer restricted mortgages with lower interest rates but significantly less flexibility when it comes to making extra payments or paying off the mortgage early.

On the more flexible end, some lenders allow you to prepay up to 20% of your original mortgage amount each year without penalty and increase your regular mortgage payments by up to 20%. Certain lenders may also allow you to double your mortgage payments, while others may offer the ability to increase your regular payments by as much as 100% under specific terms.

Mortgage prepayment privileges can vary significantly between lenders and mortgage products. Before making an extra payment, it’s important to check the exact terms of your mortgage with your lender or mortgage broker to confirm how much you can prepay without triggering a penalty.

If you pay more than your mortgage prepayment privilege allows, your lender may charge you a prepayment penalty on the amount that exceeds your permitted limit.

For example, if your mortgage allows you to make a lump-sum prepayment of up to 20% of the original mortgage amount each year and you exceed that limit, the additional amount may be subject to a penalty. The exact penalty and how it is calculated will depend on your lender, mortgage product, and the terms of your mortgage contract.

Before making a large lump-sum payment, it’s always a good idea to confirm your remaining prepayment allowance with your lender or mortgage broker. This can help you maximize your mortgage prepayment privileges without accidentally triggering an unnecessary penalty.

Whether it’s better to make a lump-sum mortgage payment or increase your regular payments really depends on your financial situation. Both strategies can help you pay down your mortgage faster, shorten your amortization, and reduce the amount of interest you pay over time.

Increasing your regular mortgage payments can be a great “set it and forget it” strategy. The extra amount is automatically applied with each payment, so you’re consistently paying down your mortgage without having to remember to make additional lump-sum payments throughout the year.

A lump-sum mortgage payment may make more sense if your income isn’t as predictable or you receive larger amounts of money periodically, such as an annual bonus, tax refund, commission income, or other unexpected funds. Instead of committing to a higher regular payment, you can apply extra money to your mortgage when it becomes available.

There isn’t necessarily a right or wrong approach. The most important thing is choosing a mortgage prepayment strategy that fits your cash flow and that you can stick with. For some homeowners, that means increasing every payment; for others, it means making one or more lump-sum payments throughout the year. Some borrowers may even benefit from using a combination of both strategies, provided they stay within their mortgage prepayment privileges.

The amount of interest you can save by making extra mortgage payments can be significant, but the exact savings will depend on several factors, including your mortgage balance, interest rate, remaining amortization, and the amount and timing of your extra payments.

When you make an additional payment toward your mortgage principal, you reduce the balance on which future interest is calculated. Generally, the earlier in your amortization you make extra payments, the more opportunity there is to save interest over the life of the mortgage.

For example, making regular additional payments or an annual lump-sum mortgage payment can potentially shorten your amortization by years and save you thousands of dollars in interest, depending on the size of your mortgage and the amount you prepay.

If you’re considering making extra mortgage payments, a mortgage broker can help you calculate the potential interest savings and show you how different prepayment amounts could affect your mortgage amortization and overall cost of borrowing.

Yes, you can pay off your entire mortgage early in Canada, but whether you can do so without a prepayment penalty depends on the type of mortgage you have and when you pay it off.

If you have an open mortgage, you can generally pay off the entire balance at any time without a mortgage prepayment penalty. A home equity line of credit (HELOC) can also generally be paid down or paid off at any time without a prepayment penalty, although the terms of your specific product should always be confirmed.

A HELOC can provide additional flexibility because, if it remains open after being paid down, you may continue to have access to the available credit secured against your home. In certain situations, structuring some or all of your borrowing as a HELOC can therefore be useful for someone who expects to repay a large amount of their mortgage early, although this strategy isn’t appropriate for everyone.

If you have a closed mortgage, paying off the entire mortgage before the end of your term will generally result in a prepayment penalty. The amount of that penalty depends on your mortgage, lender, interest rate and the time remaining in your term.

At your mortgage maturity date, you can generally pay off the remaining balance in full without a mortgage prepayment penalty rather than renewing for another term. Other discharge, registration or administrative fees may still apply.

If you know you may be paying off your mortgage early, it’s worth discussing this before choosing a mortgage. The lowest mortgage rate isn’t always the best option if the mortgage has restrictive prepayment privileges or potentially significant penalties for paying it off early.

In Canada, a mortgage prepayment penalty is generally calculated differently depending on whether you have a fixed-rate or variable-rate mortgage.

For a fixed-rate mortgage, the penalty is commonly the greater of three months’ interest or an Interest Rate Differential (IRD). The IRD is calculated by the lender and can take into account several factors, including your current mortgage rate, the lender’s comparison rate for a similar mortgage today, your outstanding mortgage balance, and the amount of time remaining in your mortgage term.

One important thing to understand is that not all lenders calculate the Interest Rate Differential the same way. Some major banks use posted rates or discounted-rate calculations that can potentially result in a significantly larger IRD penalty, while many monoline mortgage lenders use different calculations that may result in a lower penalty. This is one reason why it’s important to consider more than just the interest rate when choosing a mortgage.

For most variable-rate mortgages, the prepayment penalty is typically three months’ interest. This is generally calculated using the mortgage balance and applicable interest rate, although the exact calculation depends on your lender and mortgage contract.

If you’re considering breaking, refinancing, or paying off your mortgage early, it’s a good idea to request an up-to-date prepayment penalty quote directly from your lender. Your mortgage broker can then help you review the penalty and determine whether breaking the mortgage makes financial sense.

The Interest Rate Differential (IRD) is a calculation that lenders may use to determine the prepayment penalty when you break, refinance, or pay off a fixed-rate mortgage before the end of its term.

Generally, the IRD is designed to account for the difference between the interest rate on your existing mortgage and the rate the lender could potentially charge today for a comparable mortgage with a similar term remaining. The calculation can also take into account your outstanding mortgage balance and the amount of time left in your mortgage term.

For example, if you have two years remaining on your fixed-rate mortgage and current comparable mortgage rates are lower than the rate you’re paying, the lender may use an IRD calculation to determine the cost of ending your mortgage early.

One of the most important things to understand about an Interest Rate Differential is that there is no single IRD calculation used by every lender in Canada. Banks and other mortgage lenders can use different formulas and comparison rates, which means two borrowers with similar mortgages could potentially face very different prepayment penalties depending on their lender.

Some major banks may use posted rates or discounted-rate calculations when determining an IRD, which can potentially result in larger penalties. Many monoline lenders, which specialize primarily in mortgages, may calculate the IRD differently. This is why the potential cost of breaking a mortgage should be considered alongside the interest rate and prepayment privileges when choosing a lender.

For most closed fixed-rate mortgages, the prepayment penalty is typically calculated as the greater of three months’ interest or the IRD, subject to the specific terms of your mortgage contract.

If you’re thinking about breaking your mortgage early, the most accurate way to determine your IRD is to request a current prepayment penalty quote directly from your lender. A mortgage broker can then help you compare the penalty against the potential savings of refinancing or moving to another mortgage.

No, unused mortgage prepayment privileges generally do not carry over from one year to the next. If you don’t use your available prepayment amount during the applicable year, you typically lose that unused room rather than having it accumulate for future years.

For example, if your lender allows you to make an annual lump-sum payment of up to 20% of your original mortgage amount and you don’t use it, you generally can’t add that unused 20% to the following year’s allowance.

Instead, your mortgage prepayment privilege resets each year. Depending on the lender and mortgage product, this may reset on your mortgage anniversary date or another date specified in your mortgage contract.

If you’re planning to make a large mortgage prepayment, it’s worth checking when your prepayment privileges reset. In some situations, timing your payments around the reset date could allow you to make one prepayment before the reset and another after it, while staying within your lender’s penalty-free prepayment limits.

Making a mortgage prepayment before renewing or refinancing can be beneficial, but whether you should do it depends on the timing of your mortgage and how much you plan to pay down.

If your mortgage is reaching its maturity date, you generally don’t need to worry about your existing lender’s annual prepayment privilege. At maturity, you’ve reached the end of your mortgage term and can generally pay down as much of the mortgage as you’d like, or even pay it off in full, without a mortgage prepayment penalty.

However, if you’re planning to make a smaller lump-sum payment that falls within your existing mortgage’s prepayment privileges, there can be an advantage to making that payment before switching lenders. Doing so may allow you to preserve the prepayment privileges available under your new mortgage for additional payments later.

If you’re refinancing or breaking your mortgage before the maturity date, the situation is different. In some cases, using your available prepayment privilege before refinancing may reduce your outstanding mortgage balance and potentially reduce the prepayment penalty. The exact rules vary by lender, so it’s important to confirm your available prepayment amount and any restrictions before making the payment.

If you have a large amount of money you want to put toward your mortgage around renewal or refinancing, speak with your mortgage broker before moving the funds. Properly timing the prepayment can help you make the most of both your existing and new mortgage prepayment privileges.