New Mortgage Loan

A new mortgage loan is the financing you secure when purchasing a home you do not yet own—your very first mortgage on that property. In Canada, lenders qualify you using federal “stress-test” rules, verify your income and credit, and register a first lien on the home as collateral. Your mortgage balance amortizes—typically over 25 or 30 years— but your term (the rate-lock period) ranges from 1 to 10 years, with five-year fixed the most common choice.

Mortgage Options for First-Time and Repeat Buyers

High-Ratio (Insured) Mortgage. Down payment under 20 % of the purchase price. You pay a one-time default-insurance premium to CMHC, Sagen, or Canada Guaranty, which can be rolled into the loan. Insurance lets lenders offer best-tier rates even with small down payments.

Conventional Mortgage. Down payment 20 % or more—no default-insurance premium required, and you immediately own at least one-fifth of the house outright.

Fixed-Rate Mortgage. Rate is locked for the entire term; payments never change during that period. Ideal for budgeting stability.

Variable-Rate Mortgage. Rate floats with the lender’s prime. Payments may stay level (with the interest/principal mix adjusting) or may rise/fall with prime. Historically cheaper but riskier if rates climb.

Hybrid or Flex Mortgage. Combines fixed and variable portions—e.g., 60 % fixed, 40 % variable—to balance savings with security.

Down-Payment Rules

• 5 % on the first $500,000 of purchase price
• 10 % on the portion from $500,001 to $999,999
• 20 % minimum on homes ≥ $1 million (no insurance available)
• Down payment can come from savings, RRSPs (Home Buyers’ Plan), or an immediate-family gift—with a signed gift letter

Key Eligibility Factors

• Credit Score: 680+ unlocks best rates; insured programs permit ~600 with solid income.
• Income & Employment: Full-time salary, hourly with guaranteed hours, pension, or two-year averaged self-employment.
• Debt-Service Ratios: GDS ≤ 39 % of gross income; TDS ≤ 44 % (some flex to 50 % for strong credit).
• Stress Test: Must qualify at the greater of your contract rate + 2 % or the Bank of Canada benchmark (currently 5.25 %).
• Closing Costs: Proof you have 1.5 %–2 % of the purchase price for legal, land-transfer tax, and adjustments.

Step-by-Step Process

1. Pre-Qualification. Quick estimate of purchase budget using online calculators or a mortgage broker.
2. Pre-Approval. Full application, credit pull, and document review; lender holds today’s rate for 90–120 days.
3. House Hunting & Offer. Make a conditional offer (financing, inspection).
4. Appraisal & Final Approval. Lender orders appraisal; underwriter reviews property and title.
5. Remove Conditions. Once financing approved, waive conditions and submit deposit as instructed in the offer.
6. Lawyer / Notary Closing. Meet to sign mortgage and title docs, pay land-transfer tax, legal fees, and insurance premiums.
7. Possession Day. Funds move from lender to seller via lawyer’s trust account; you receive keys.

Costs & Current Rates (Spring 2025)

• 5-yr Fixed (insured): 4.49 % – 4.69 %
• 5-yr Fixed (conventional): 4.69 % – 4.99 %
• 5-yr Variable: Prime ± 0.00 % to Prime – 0.75 % (Prime currently 7.20 %)
• CMHC Premium: 4 % on 5 % down; decreases to 2.8 % at 15 % down
• Legal, title, and disbursements: $1,000–$2,000
• Land-Transfer Tax: provincial + municipal (Toronto), rebates for first-time buyers

Amortization & Payment Strategies

Default amortization is 25 years (insured) or up to 30 years (conventional). A longer amortization lowers monthly payments but increases total interest. Choosing accelerated bi-weekly payments (26 payments per year) shaves ~3 years off a 25-year schedule with minimal pain. Most lenders permit lump-sum prepayments of 10 %–20 % annually and let you increase the scheduled payment by the same margin—both powerful tools to burn principal faster.

Government Programs for New Mortgages

• First-Time Home Buyer Incentive: Shared-equity loan of 5 %–10 % of the purchase price to reduce payments (repayable at resale/after 25 years).
• Home Buyers’ Plan (HBP): Withdraw up to $60,000 (combined couple $120,000) from RRSPs tax-free to use as down payment; repay to RRSP over 15 years.
• GST/HST Rebate on New Homes: Partial refund for newly built properties up to $450,000.

Pros & Cons

Pros: Leverage for homeownership, fixed payments protect against rent inflation, potential property appreciation, forced savings via principal repayment.

Cons: Up-front costs (land-transfer tax, legal), market-rate risk at renewal, maintenance expenses, foreclosure risk if income drops.

Tips for Securing the Best Deal

• Maintain credit score > 680 by keeping card balances < 30 % and paying on time.
• Save a little extra: rates and insurance premiums drop at 10 % and 15 % down-payment tiers.
• Avoid major credit purchases (car lease, new credit cards) during the house hunt.
• Compare at least three lenders or use a broker—0.10 % rate difference saves thousands.
• Ask about portability and assumability clauses if you may move before term-end.

Frequently Asked Questions

How long does a pre-approval last?
Most lenders lock the rate for 90–120 days.

Can gig-economy or self-employed income qualify?
Yes—expect to supply two years of Notices of Assessment and business financials or use a stated-income/alt-doc program at a slightly higher rate.

What if rates fall before closing?
Your broker or lender can “float down” once if market rates drop significantly; ask during pre-approval.

Is mortgage life insurance required?
No, it’s optional. Compare lender-offered insurance to independent term-life quotes.

When should I lock in a rate?
If you fear increases, lock early. With variable, you can convert to fixed anytime at that day’s posted rate without penalty.