Mortgage Basics

A mortgage is a home loan secured by real property, commonly referred to as real estate. It is basically a contract that includes rights and obligations of both parties. A mortgage is often one of the most important financial transactions in one’s life. Here are a few things you should know about mortgages.


What Happens If I don’t Pay the mortgage?


Unfortunately no one really wants to ask this question, but I’ll address this elephant in the room. If you don’t pay your mortgage in Canada the lender will generally start a power of sale process. This is a legal process that requires the lender to take control of the property through the court system. It is very important to note that the lender does not take ownership of the property.


How much does the bank calculate how much I can afford?


Lenders all use two different type of ratios, the first is called GDS. GDS (Gross Debt Service) is a calculation that uses the total of you property cost, interest, taxes, and heating and condo fees (if any). According to CMHC this amount may go up to 39% of your monthly income. TDS or total debt service is GDS plus other obligations (such as line of credits, car loans, etc). According to CMHC this amount can go as high as 44% of your total monthly income.


Mortgage Rate Hold and what it means


To put it simply, it is when you call a lender or mortgage broker and they hold the rate for you. It is important to note that this is not a pre-approval. This is just a simple rate hold and there are no documents required. A pre-approval for a mortgage consists of a mortgage application and a credit check, as well as some supporting documents. Once the mortgage lender is satisfied they will give you a written confirmation of your rate and possibly your price range.


I have an approval, what are the next steps?


Your main job is to keep everything the same once you have that approval. Make sure you keep your credit cards close to paid off as possible, as the lender can check your credit. The lender may even check your employment, just to double check that you haven’t been let go recently.