Buying a home is a complicated process with many factors to consider. You have to decide on your budget, your ideal neighbourhood, how many bedrooms you’d like, whether you want a fixer upper or something move-in ready, and what features are must haves. Then you must choose a real estate agent and decide whether to go with a traditional lender or a mortgage broker.
With so many choices to make in a short period of time, it can be tempting to simply apply for a mortgage with your current financial institution. Taking this easy route can be a mistake because there may be another institution out there that offers better mortgage options or better mortgage rates. It’s important to consider all of your options before applying for your mortgage, and below we’re going to look at getting a mortgage with TD Canada Trust. Let’s look at the unique features their mortgages offer:
The down payment
Like many lenders, TD Canada Trust is limited by federal regulations regarding the required size of your down payment. The federal regulations mean that this part of getting a mortgage with TD Canada Trust is the same as it is with any other lender. The minimum size of your home’s down payment is tied to the purchase price of the home. Here are the minimum required sizes according to the federal government:
- If the purchase price is less than $500,000, the minimum down payment is 5%.
- If the purchase price is between $500,000 and $999,999.99, the minimum down payment is 5% on the first $500,000 and 10% on the remaining amount.
- If the purchase price is more than $1 million, the minimum down payment is 20%.
There are some benefits to putting a down payment on your home that’s larger than the minimum. First, you can purchase more house when you put down a large down payment. You can use Ratehub.ca’s mortgage affordability calculator to help determine how a larger down payment will affect your maximum purchase price. Second, it can reduce the amount of mortgage default insurance you must pay.
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Mortgage default insurance
Mortgage default insurance, also known as CMHC insurance, protects the lender in case you default on your mortgage. If your down payment is less than 20% of the home’s purchase price, your mortgage is considered a high-ratio mortgage and you must purchase mortgage default insurance by law. The most common provider of mortgage default insurance is the Canada Mortgage and Housing Corporation (CMHC), which is why it is often just called CMHC insurance.
Your insurance premium is calculated as a percentage of your purchase price, and you’ll pay different premiums depending on how large your down payment is. Here are the different premium rates:
- For down payments between 5% and 9.99% of the home’s purchase price, you’ll pay CMHC insurance premiums equaling 4% of the home’s purchase price.
- For down payments between 10% and 14.99%, you’ll pay insurance premiums equaling 3.1% of the home’s purchase price.
- For down payments between 15% and 19.99%, you’ll pay insurance premiums equaling 2.8% of the home’s purchase price.
- If your down payment is 20% or more of the home’s purchase price, your mortgage is considered a conventional mortgage and you don’t have to purchase mortgage default insurance.
If you did some quick math while reading those rules, you know that your mortgage default insurance premium could end up being quite large, especially if you’re buying a home in Toronto or Vancouver. Fortunately, you don’t have to pay that premium out of pocket; it’s tacked onto your mortgage amount. The larger your down payment, the lower your insurance premiums will be (as well as your regular mortgage payments). Use Ratehub.ca’s mortgage payment calculator to see how your down payment amount will affect your premiums and thus your regular mortgage payment.
Your mortgage’s amortization period is the total length of your mortgage. If you’re purchasing a home and plan to put down less than 20% as your down payment, the maximum amortization period you can choose is 25 years. If your home down payment is 20% or greater, you can also choose an amortization period of 30 years.
A shorter amortization will mean your mortgage is paid off sooner, resulting in less interest paid overall but a higher monthly mortgage payment. A longer amortization period will decrease your monthly payments but increase the amount of interest you’ll pay over the life of the loan.
Your mortgage’s term is the specified period that you have negotiated a specific interest rate with a specific lender. TD Canada Trust offers terms as short as one year and as long as 10 years. It also offers fixed and variable interest rates that go along with these terms, as well as a few options for borrowers in unique situations.
Fixed rates are exactly what the name implies. A fixed rate doesn’t change for the length of term, no matter what. For example, the special rate on a three-year fixed-rate mortgage with TD Canada Trust is 2.36% (as of June 6, 2017) for the entire term. TD Canada Trust offers fixed mortgage terms for lengths from one to 10 years.
Your payment frequency is how often you make a payment on your mortgage. Most lenders offer several options for payment frequency, and TD Canada Trust is no exception. With this institution, you can pay your mortgage monthly or choose one of its rapid payment options and pay your mortgage weekly or biweekly.
There may come a time when you’ll want to make extra payments on your mortgage to become mortgage-free sooner. When this happens, your lender’s unique mortgage prepayment privileges will determine how much extra you can pay, and when.
With TD Canada Trust, you can double up on your monthly mortgage payment once per year, and make a lump-sum payment of 15% of the mortgage balance once per year.
Like prepayment privileges, mortgage interest rates also vary widely from lender to lender. The mortgage interest rate you choose will affect your purchase price, your monthly payment, and how much interest you’ll pay over the life of your mortgage. For this reason, it’s important to give your mortgage’s interest rate a lot of weight when you decide which lender to choose for your mortgage.
TD Canada Trust’s three-year fixed rate is 2.36%. This isn’t the greatest mortgage rate, and you can obtain a mortgage with a much lower rate from a mortgage broker or by using a mortgage rate comparison website. According to Ratehub.ca, the best mortgage rate for a three-year fixed mortgage is 1.99%. Getting the lower rate could mean thousands of dollars in savings over the life of your mortgage.