Before you can get a mortgage, you must show a great level of commitment. In British Columbia, the procedure can be quite tedious and may even be your biggest monetary commitment so far. That is why you need to calculate the mortgage you want to collect in your province. It allows you to figure out, in advance, the exact amount the transaction will cost.
Using a mortgage calculator does not guarantee you the money. It is only a first step to understanding the factors that affect the price. Therefore, in this article, we will discuss what it takes to get a mortgage in British Columbia.
Canadian Mortgage Fees, Regulations, and Taxes
There are different fees, regulations, and taxes to check when you want to calculate the mortgage amount and monthly repayments. Some of the variables are similar across the country, but some territories and provinces slightly differ.
The Canadian Ministry of Finance is responsible for establishing regulations to protect lenders and home buyers alike. Also, the regulations include CMHC insurance guidelines, maximum amortization period, and minimum down payment. Below are some key regulations that you can find in a Canadian mortgage calculator.
- You must purchase CMHC insurance for a down payment between 5 to 20 percent.
- The highest amortization period is twenty-five years for a down payment below 20 percent and thirty-five years for a higher down payment.
- The least down payment is between 5 to 10 percent, depending on how much you purchase the home.
British Columbia Fees and Taxes
As earlier mentioned, most fees and taxes are set according to provinces. In BC, homebuyers need to obtain the mortgage rates for British Columbia and cover the cost of taxes on land transfer. However, for first-time buyers, there is a tax rebate on the land transfer.
Taxes on Land Transfer in BC
In BC, the tax on land transfer is calculated using the property’s percentage value, which is estimated at the purchase price. Also, the marginal rate of this tax varies between 1 to 2 percent depending on the amount the buyer negotiates.
Tax Rebate on Land Transfer in BC
First-time buyers are entitled to a full refund on tax for land transfer. This is specifically for homes costing around $425000 or less. If the property costs between $426000 and $450000, the buyer will get a partial tax rebate. You may want to read this article on buying your first home in Canada.
What is CMHC Insurance?
CHMC insurance, also known as insurance for mortgage default, protects lenders if the borrower defaults on the loan. In Canada, buyers must make a down payment, which is usually 20 percent less than the property’s purchase price, to cover the cost of insurance. The borrower pays for the insurance premium in full at the beginning of the mortgage.
Although CMHC insurance costs between 2.8 percent to 4 percent of the loan amount, it allows Canadians who are unable to purchase property to access the real estate industry. If it wasn’t this way, mortgage rates will be higher, thereby, increasing the defaulting risks. When a loan is secure, lenders can offer lower rates because the defaulting risk is passed down to the insurer.
How to Qualify for the CMHC Insurance
Borrowers must meet certain requirements to qualify them for CMHC insurance. These requirements are:
- The insurance is not available for properties costing above one million dollars. This implies that the buyer must make a down payment of twenty percent on such properties.
- If the property costs around $500000 to $999999, the down payment will be higher. For the first five hundred thousand dollars, the least down payment you can make is 5 percent and 10 percent of the remainder.
- The highest amortization for mortgages with insurance is twenty-five years.
There are other requirements but due to the pandemic in 2020, some changes were made. Therefore, to qualify for CMHC insurance, borrowers must:
- Not borrow funds to make down payment.
- Have a good credit score (a minimum of 680).
- Have a debt service total ratio of below 42.
- Have a debt service gross ratio of below 35.
You can visit https://www.investopedia.com/terms/c/cmhc.asp to have a better understanding of CMHC insurance.
To access a mortgage, you must meet certain requirements and they vary according to province. Therefore, if you live in British Columbia, we discussed the requirements that apply to you. Having a good knowledge of how things function will help you to calculate the loan and the interest you will pay at the end of the tenure.