The Blackwood Mortgage Guide: everything you need to prepare.

The three types of mortgage lenders

Not every lender plays by the same rulebook. Knowing which tier your file belongs in is the difference between an approval and a decline.

A lenders

• Banks, monolines, trust companies and credit unions.
• Can offer insured mortgages with less than 20% down, insurable transfers, and all conventional mortgages.
• Typically the lowest interest rates, and no lender fee.
• Strictest stress-test ratios, and the narrowest view of what counts as acceptable income and credit.

B lenders (alternative)

• Separate trust companies, monolines, or the alternative arm of a bank.
• Require 20% down or more; no insurable transfers, but conventional mortgages are available.
• Rates run modestly higher than A lenders, usually with a 1% lender fee.
• More generous debt-service ratios, often 48-50% GDS/TDS, so self-employed, newcomer and bruised-credit files can fit.

Private lenders

• Mortgage Investment Corporations (MICs) or direct private investors.
• Consider income and credit that A and B lenders will not, and require far less documentation.
• Close much faster, useful for deposit loans, construction draws and short-term bridges.
• Highest rates and fees, priced to the risk of the specific file. Almost always a 12-month exit plan, not a long-term home.

Mortgage products, in plain language

The right product matters as much as the right lender. Here is what each one actually does.

• Mortgage: a loan secured against the title of your property. Once it is repaid in full, the lender registers a discharge.
• Home Equity Line of Credit (HELOC): a revolving line secured by your home, usually far cheaper than unsecured credit. Up to 80% of value when combined with a mortgage, or up to 65% as a stand-alone line. You pay interest monthly on what you draw.
• Bridge financing: short-term funds that cover your down payment when your purchase closes before your sale does.
• Second mortgage: financing registered behind your first, commonly used to consolidate debt or fund renovations or an investment. Higher rate, because the lender is second in line.
• Construction loan: funds advanced in stages as a build or major renovation progresses.
• Rate hold / pre-approval: a rate locked for 90 to 120 days while the parameters of your file stay unchanged.
• Commercial mortgage: medium to long-term financing on commercial property or an operating business premises.
• Reverse mortgage: for homeowners 55+, converts equity to tax-free funds with no required monthly payment. Interest compounds, so it belongs in a plan, not a panic.

The five components of every mortgage

Five levers. Change any one and you change what the mortgage costs you.

• Term: the length of the contract you are locking into, whether 6 months, or 1 through 10 years. Your rate type is fixed for that term only.
• Payment: the amount paid each period, split between principal and interest.
• Payment frequency: monthly, semi-monthly, biweekly, biweekly accelerated, weekly, or weekly accelerated.
• Amortization: the total number of years to repay in full. Twenty-five years is standard; 30 years is available on conventional (20%+ down) files and on insured purchases of newly built homes for first-time buyers.
• Interest rate: the price of borrowing, expressed as a percentage. Important, but as you will see, not the whole story.

Fixed versus variable

Fixed rates follow bond yields. Variable rates follow the Bank of Canada. That is why they sometimes move in opposite directions.

Fixed

• Rate and payment stay the same for the whole term.
• Priced off the lender's cost of funds, which tracks government bond yields.
• Buys certainty, and often carries the harshest penalty if you break early.

Variable and adjustable

• Priced as lender prime plus or minus a discount, tied to the Bank of Canada overnight rate.
• A variable-rate mortgage (VRM) keeps the payment fixed and lets the principal/interest split move, watch for the trigger rate, where your payment covers interest only.
• An adjustable-rate mortgage (ARM) moves the payment itself with every prime change.
• Usually a three-months-interest penalty to break, which is why it suits anyone who may sell, refinance or restructure mid-term.

Eight things that matter as much as your rate

Across 60+ lenders, dozens will quote you the same best rate. What separates them is everything below.

Here is the scale of it. On a $500,000 mortgage:

• A 0.25% rate difference costs about $29 biweekly, roughly $19,100 in total interest.
• Five extra years of amortization costs about $122 biweekly, roughly $42,600 in total interest.
• An extra $100 biweekly toward principal saves roughly $24,500 in total interest.

Advertising has trained us to shop on rate alone. Chase only the rate and you can quietly sign up for thousands in avoidable interest and penalties.

1. Loan to value (LTV)

• High ratio (LTV above 80%): insured by CMHC, Sagen or Canada Guaranty. Lower rates because the lender's risk is insured. Purchase or transfer only, never a refinance. Generally 25-year amortization, with 30 years available to first-time buyers on newly built homes.
• Conventional (LTV of 80% or less): no insurance premium, slightly higher rates, and 30-year amortization allowed.

2. Mortgage term

• One and two-year terms often carry higher rates and put you back in closing costs, lawyer, appraisal, more frequently.
• The five-year term is Canada's default, but can carry the steepest penalty to break.
• Ten-year terms suit a very specific plan, and price accordingly.
• Three-year terms have become the quiet middle ground for borrowers who want flexibility without paying for a decade of certainty.

3. Amortization period

Amortization affects what you pay the lender as much as, often more than, the interest rate. On a $300,000 mortgage at 2.5% over a five-year term:

4. Prepayment privileges

• Double-up: pay double your regular payment on any payment date.
• Payment increase: permanently raise your payment so more goes to principal.
• Lump sum: a single payment straight to principal. Some lenders restrict this to the anniversary date. Ideal if you receive bonus income.
• Accelerated payments: a modest increase in each regular payment that typically cuts about two years off your amortization.

5. Discounted versus posted rates

• Contract rate: the rate you actually pay.
• Discounted rate: some lenders record your contract rate as a large 'discount' off an inflated posted rate. That paperwork detail is harmless until you break the mortgage, at which point it can cost thousands.

6. Prepayment penalties

This is the single line item that can cost you the most. It will be either three months' interest, typical on variable, or an Interest Rate Differential (IRD), which every lender calculates differently.

Roughly 65% of Canadians break their mortgage before the term ends, through a sale, a separation, a job change, a debt consolidation, a refinance to a better rate, or simply to restructure. Plan for the exit before you sign the entrance.

7. Charge type on title

• Standard charge: only the amount you borrow is registered. Simple to move to another lender, and usually cheaper to break.
• Collateral charge: a higher amount is registered so you can add products later without new legal fees. Common at the big banks, typically a mortgage plus a line of credit. Harder and more expensive to leave.
• Choose collateral only if you genuinely expect to draw more funds, a business launch, planned renovations, and you are unlikely to switch lenders at renewal.

8. Portability and assumability

• Portable: take the mortgage with you to a new property, usually with both closings within 90 days, subject to the new property being acceptable to the lender.
• Assumable: the buyer of your home takes over your mortgage, provided they qualify. Rare, and quietly valuable when your rate is below market.

How the stress test actually works

Lenders qualify you at a rate higher than the one you pay, to prove you can still carry the mortgage if rates rise.

You are qualified at the greater of the minimum qualifying rate or your contract rate plus 2%. Your payment at that higher rate is then run through two ratios.

• Gross Debt Service (GDS): (mortgage payment + property taxes + heating + 50% of condo fees) ÷ gross monthly income.
• Total Debt Service (TDS): the same, plus all other debt payments, divided by gross monthly income.

Most A lenders cap GDS at 39% and TDS at 44%. B lenders and some specialty A products stretch to 48-50% on both. That single difference is why the same file can be declined at one institution and approved at another.

Down payment: where it can come from

Every dollar has to be traceable. Here are the sources lenders accept, and what each one requires.

• Savings or short-term investments: expect to show three or more months of history and to explain any large deposits.
• Gifted funds: a signed gift letter from an immediate relative confirming the money is not repayable, with the funds in your account at least 15 days before closing.
• Property sale: a firm offer to purchase plus a mortgage statement showing the balance owing.
• First Home Savings Account (FHSA): up to $8,000 per year and $40,000 lifetime, tax-deductible going in and tax-free coming out. Stackable with the Home Buyers' Plan.
• RRSP Home Buyers' Plan: withdraw up to $60,000 per person tax-free, repayable over 15 years, with repayments now beginning in the fifth year for withdrawals made between 2022 and 2025.
• Borrowed down payment: possible via a loan, line of credit or lender cash-back, but it carries higher insurance premiums and stricter credit criteria, and the payment counts against your ratios. Tell your broker before you borrow, not after.

Closing costs to reserve for

Budget roughly 1.5% to 4% of the purchase price on top of your down payment.

• Land transfer tax: provincial, plus a second municipal tax inside the City of Toronto. First-time buyers in Ontario can claim up to $4,000 provincially and $4,475 municipally in Toronto.
• Legal fees: typically $1,200 to $2,000 plus HST in Ontario, before disbursements and title insurance.
• Default insurance sales tax: with less than 20% down, the CMHC/Sagen/Canada Guaranty premium can be added to the mortgage, but the Ontario PST on that premium is due in cash at closing.
• Adjustments to the seller: prepaid property taxes, utilities, and rentals such as a hot water tank.
• Non-Resident Speculation Tax: 25% of the value province-wide in Ontario for non-residents, with rebates in defined circumstances.
• HST on new construction: applies to newly built or substantially renovated homes; often included in the builder price, but confirm with your lawyer.
• Interest adjustment: interest owed between your closing date and your first regular payment date.
• Smaller items: appraisal, home inspection, status certificate, survey, title insurance and registration fees.

Document checklist: what to have ready

Files that close smoothly are files that arrive complete. Gather these before we speak.

Everyone

• Government-issued photo ID.
• 90 days of statements for the account holding your down payment.
• Void cheque or pre-authorized debit form.
• Current mortgage statement and property tax bill, if you own.

Employed income

• Recent pay stub.
• Letter of employment stating position, start date, salary and status.
• Last two years of T4s and Notices of Assessment.

Self-employed or commission income

• Two years of T1 Generals with all schedules, and matching Notices of Assessment.
• Business registration or articles of incorporation.
• Two years of financial statements if incorporated, plus proof taxes are current.

Rental or investment property

• Signed leases for each unit.
• Mortgage statements and property tax bills for each property.
• T776 statements of real estate rentals from your last two returns.