Questions that should be answered when getting a mortgage in Canada

1. Your mortgage payment relative to your current net income (take-home pay) as opposed to GDS/TDS which are based on your gross income
2. Your potential mortgage payment at renewal (if rates were to rise)- We run through a couple scenarios
3. If you go with a variable rate mortgage, your ability to absorb any payment increases that result from rising interest rates.

• Your Family situation

1. A possible upcoming maternity leave during your mortgage (possible reduced income or the possibility of future part-time status)
2. Your family grows = tighter budget. Does an increase in your family size impact affordability? Is the term being considered appropriate?
3. Tenants in common (friends, common-law or related family members) – what if 1 or more people wants to exit the arrangement. Is it affordable for the remaining people involved? I encourage you to think about worst case ‘what if’ scenarios. Does a fixed rate where a larger penalty might be incurred due to early exit from the mortgage make sense? Would a shorter term or variable option be better suited? We need to find out!

• Your Work situation

Income & Employment Stability:

1. Is your employment expected to remain the same? Is any change anticipated in your employment and/or income (higher/lower)?
2. Your location of employment – any anticipated change? (further = increased transportation costs that might impact budget) (also portability to another province might not work)
3. Your method of compensation? Are you salaried, hourly, contract, bonus? Is income consistent, or not so? Is flexibility for extra prepayments required?
4. Your frequency of pays vs payments? If you are self-employed, is income consistent enough to comfortably maintain a payment frequency other than monthly?
5. Fixed vs Variable mortgages – are you able and comfortable absorbing payment increases due to rate increases should they occur?
6. Fixed vs. Variable mortgages – Are you comfortable committing to the term or is there any risk that major changes of circumstance might trigger a large IRD (Interest Rate Differential) penalty limit and flexibility and choices within the term of the mortgage?
7. What is the risk of possible ‘unemployment’? Is it affordable with the loss of one income, both incomes? What is a viable exit strategy?

• Life Stages

1. Are any large lump sums expected, ie inheritances, sale of assets, lottery winnings? Is flexibility for extra prepayments required?
2. Is retirement on your horizon? Will the mortgage continue to be affordable? Is there a plan for pay down of the balance?
3. Are there any anticipated large upcoming expenses, ie. vehicle purchase, post-secondary education? Are you sure you will qualify to purchase a new car and that it is affordable from a budget perspective? Is access to equity required, or ability to refinance within a defined period of time? We go through these scenarios.
4. Permanence and owner-occupied status? Do applicants intend to stay for awhile or is it considered a starter where they will want to ‘move up’ – does the term fit their desired timelines? Will you possibly buy a new property and rent out the current one you are buying?
5. This is a tough question- Is there any evidence or possibility of a marital or relationship split looming? Locking into a longer term may not be ideal, if so. Perhaps flexibility to exit should supersede other considerations?

1. Semi-annual compounding is the norm for the majority of mortgages
2. We go through the prepayment privileges – sufficient to meet needs? How frequently can prepayments be made, ie. every payment?
3. We go through the prepayment penalties – I advise how penalties are calculated in the event the mortgage needs to be paid off early.
4. I make you understand the flexibility to port the mortgage to a new property (with or without penalty?)
5. I make sure you understand the flexibility for the mortgage to be assumed by a purchaser of the property, upon lender approval?
6. Ensuring you are aware of all of the ‘duties’ of a mortgagor over/above making mortgage payments, ie. duty to maintain the property, duty to pay property taxes, duty to pay condo fees, etc?
7. For a variable rate option:
   • what are lender policies with respect to converting to Fixed if required, ie. guaranteed best broker rates available, or not?
   • When is variable rate adjusted based on changes in Prime?
8. Is the mortgage registered as a ‘mortgage’ or a ‘collateral mortgage’ – I ensure that you are aware of the restrictions of a collateral charge vs a mortgage, especially cost to switch.

1. Are you aware of the rights and risks of a guarantor?
2. If there is a co-borrower, that person is actually on title and has rights according to how title is taken (joint tenants or tenants in common)
3. Is the guarantor/co-borrower aware that their own borrowing ability will be impacted because the carrying costs of this mortgage will have to be factored into their own affordability calculation.
4. Are you aware there is a cost to taking a co-borrower off title when/if the primary applicant can qualify on their own (ie. Legal fees)
5. We find out if it possible to remove a co-borrower prior to the end of term?
6. Has everyone received legal advice in the event of the death of either the applicant(s) or co-borrower/guarantor? What are the implications to everyone involved?
7. Has consideration been given to sufficient life/disability insurance to cover the applicants so that the co-borrower/guarantor is not faced with a cash-flow challenge in the event the applicants are not in a position to meet their obligations due to death/disability?
8. I advise ‘gift givers’ of sizeable down payments to obtain independent legal advice: if down payment is gifted and the borrowers separate, is the ‘gifted down payment’ protected from a division of assets under the Family Law Act?