Dealing with paperwork before immigrating sucks, but luckily buying property as a foreign national is relatively easier in Canada. To be exact, 18% of Canadian mortgage consumers are newcomers!
Here’s a 3-step guide breaking down the entire journey if you’ve just stepped foot on Canadian soil. Watch the video above for a complete breakdown!
Step 1 – Get Qualified
- Open a Canadian bank account
- Get your work permit (watch this video to find out more about working in Canada)
- Prepare your credit reference reports
- Procure letters of employment, pay stubs, and tax returns
- Provide your existing banking institution’s letter of recommendation
- Declare s statement of personal net worth
- Make sure you have photos of your ID in several copies
Bonus Tip #1: Begin saving right as you settle into your job! The more you save, the more qualified you’ll be for lower down payments.
Bonus Tip #2: Start working on your credit score ASAP so you can get a better interest rate from your lender! Watch the video above to see how you can improve your credit score.
Step 2 – Choose Your Mortgage
Before you can make the right decision, you need to get familiar with the following terms:
Monthly Mortgage Payment = Principal Payment + Interest Payment
Mortgage Term – Period of your Mortgage Contract; Lasts 5 Years; Option to Refinance or Remortgage at the end of the term
Mortgage Rate – based on Prime Rate, which is set by commercial banks (keep up to date with the prime rate here)
History of Prime Rates & Bank of Canada Overnight Rate 1940-2020; Wikipedia
Usually, you’ll have to pick from two mortgage types.
Open Mortgages
- Apply for early repayment at any point in time
- Pay off the loan faster
- Save interest costs over the life of the loan
- Downside: has higher interest rates
Closed Mortgages
- More popular than open mortgages
- Does not allow you to pay off or refinance before the end of the term
- Charges hefty penalty fee for early repayment
- Upside: lower interest rates & stability of repayment schedule
Next, you’ll have to decide which type of interest rate suits you best.
Fixed interest rate:
- the interest rate does not change during the mortgage term
- Benefits: more stable
- Downsides: rates are higher and penalty for early repayment is more harsh
Variable interest rate:
- the interest rate fluctuates according to the prime rate
- Benefits: rates lower and penalty for early repayment is low
- Downsides: interest rates might be too unpredictable.
Here are two further differentiations of variable interest rates:
Adjustable payments – the monthly principal payment remains the same but interest payment varies.
Fixed payments – principal payment and interest payment change in proportion to each other. The following figures illustrate how.
Affect on fixed payment when interest rates increase or decrease; Denzity
Finally, you should consider whether you need mortgage default insurance.
In Canada, 20% is considered the benchmark for down payments. However, if you’re aiming to buy a property valued BELOW 1 million CAD, you may be eligible for lower discounts (5%-10%). Since a bigger loan means that a lender has to bear a higher risk, they require you to get the insurance before the mortgage can be approved.
Step 3 – Research Lenders
In Canada, there are three kinds of lenders:
Types of Mortgage lenders in Canada; Denzity
A lenders” are typical mainstream institutions that require a comprehensive credit history and a high credit score, but you can always hunt for other options amongst alternative and private lenders who tend to have laxer qualifications and take bigger risks. Remember to do your due diligence!
Canada investment information:
- Canadian Taxes | The tax facts you need to know before moving to Canada
- Canada Investment | What do Hong Kong investors need to know when they invest in Canada?
The Canada local information:
Property investment is a long-term game and planning is the key. Watch more videos for a better decision!
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