Common Mortgage Misconceptions

1) You must have at least a 10% down payment in order to purchase a home in Canada.

FALSE: You can purchase a home with a 5% down payment but must have a high credit score, steady income and the home you want to purchase must become your primary residence. Also, if you have less than a 20% down payment you will have to pay mortgage insurance so your lender is insured if you can’t make payments on your mortgage. With insurance you will end up paying the same insurance premium for the full term of your mortgage no matter how much of your principal portion you have previously paid. If you don’t have the cash for a 5% down payment there are other ways to find the funds.

Check out First Foundation’s Mortgage Qualifier Calculator to see how much of a down payment you will need for the house you want, or to see how mortgage insurance might affect your payments.

2) Mortgage brokerages charge you, the borrower, a commission fee in order to be compensated for their services.

FALSE: Most mortgage broker services are free as long as you have good credit. The commissions the licensed associates and brokers at First Foundation receive come from the lenders and are based on one or more of the following: size of the mortgage, volume of business between the lender and brokerage, referral fees, efficiency of business with the lenders. However, you may encounter extra costs such as appraisal fees, mortgage insurance, title insurance, legal fees, etc.

3) Variable rate mortgage and adjustable are the same thing.

FALSE: These terms are often used interchangeably, but there are some differences which can affect you. A variable rate mortgage has a fixed payment which means you will pay less or more of the principal balance depending on the direction of the interest rates. As well, the amortization period can change which will increase or decrease the length of time it takes you to pay off your mortgage. An adjustable rate mortgage has a payment that changes as the interest rate changes. For example, you would be paying a greater payment if the interest rate increases but a smaller payment if rates go down. In this case the principal portion you are paying on your mortgage stays the same so your amortization period will not change either.