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Mortgages for Expats in Canada

Author: Jim Newham
Submitted: December 2013

Canadian banks and other lenders are relatively conservative in their outlook and lending policies. They did not lend money to people who never had any chance of paying it back in the mid-2000s, which helped Canada to avoid the worst effects of the credit crunch. However, this means that getting the mortgage you want may be a little harder in Canada. You may want to use a mortgage broker to help you, as the commission they earn is paid by the lender.

Requirements

You can only obtain a mortgage for a Canadian property through a Canadian lender. Whether you will be granted a mortgage or not depends greatly on your ability to pay. This is most clearly demonstrated in the requirement for a certain debt to income ratio. All the debts and liabilities you incur, including the proposed mortgage, must be no greater than 40% of your total gross income. The lender may include half of the prospective income from renting out your intended property in your total income.

While you will need to provide proof of your credit status, a credit check from your home country will be good enough for most lenders. A good credit history will also be looked upon favourably by the lender, though this will take time to build up if you are new to the country. Additionally, there is normally a minimum loan of C$100,000 in place.

Terms

For expats, the loan-to-value ratio (LTV) for a mortgage is generally 70% in Alberta, British Columbia, Ontario and Quebec, and 65% in all other regions. This means that the down payment you will need to make for an average Canadian property will be C$360,000 x 35% = C$126,000. Raising such a substantial amount as this may require refinancing.

The government has recently changed the law for insured mortgages. The maximum full term has fallen from 30 to 25 years. The maximum age at full term is still 70. These terms may however be relaxed if you are coming to work in Canada under employment incentive schemes. For example, you may be able to gain an LTV of 90% and favourable interest rates.

Note that arrangement fees are typically at 1% of the purchase price.

Mortgage types

Both fixed rate and variable rate mortgages are available. The fixed rate term is normally around five or six years. There are also the usual options for capital and interest repayment or interest only mortgages.

Open mortgages offer complete freedom of how much you can pay and when you complete payment. However, not that many lenders offer open mortgages. With a closed mortgage, you must generally repay the same amount and keep paying until full term. Nevertheless, some flexibility may be permitted. For closed mortgages, variable interest rates are currently at around 3%, and fixed rates average at 4-4.25%. Open mortgages have higher interest rates; the variable rate is currently around 4% and the fixed rate is at around 6.5%.

Application

In addition to the mortgage application form, documents you need to apply for a mortgage typically include:

  • two means of identification (e.g. passport, driving licence)
  • proof of address
  • personal references (normally two)
  • letter from your bank confirming your financial well-being and down payment
  • proof of income:
    • your last 3 months’ payslips (if employed)
    • your last 3 years’ audited accounts & 2 years’ tax returns (if self-employed)
    • your last 6 months’ bank statements
    • your most recent tax certificate, or an employer’s reference

Approval may take up to 48 hours after the application is submitted.

 

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