Mortgage Questions and Answers

The key to choosing the right mortgage is to understand the range of features and options available to you, as well as your budget, circumstances and goals. The more you know, the more comfortable you will be choosing the best options for you and your family.

While there is a lot to consider, such as fixed or variable rate, short– or long–term, open or closed, we’re here to offer advice on the various features and options, some of which may help you to save thousands of dollars in interest over the life of your mortgage.

Our “Which type of mortgage is right for me? ” tool can help you make your selection. By answering a few simple questions about your financial goals and preferences we'll be able to recommend the RBC Royal Bank mortgage options that meet your needs.

If you're buying your first home or another property and need guidance, one of our mortgage specialists can also help you decide. He or she will ask you about your short- and long-term financial goals and plans for your home. Your mortgage specialist will then explain the types of mortgages available to you, the terms, and the rates to help you select a mortgage that fits your lifestyle and potentially cuts years off your mortgage.

Buying a home will most likely be the largest purchase of your life—so you need to be sure that you own a home that's compatible with your financial situation.

The simplest way to determine how much home you can afford is to compare your gross income to your total debt.

Use our “How much home can I afford? ” calculator to figure out the amount you can afford to borrow. It factors in your total earnings and debts to give you a maximum affordable monthly housing cost, including mortgage payment, property taxes, heating costs and condo fees if applicable.

Yes, you should! Getting pre-approved for a mortgage is FREE and puts you under no obligation. Best of all, when you start looking at properties you'll know what you can afford

When you get pre-approved for a mortgage, you will:

• Know exactly how much you can reasonably borrow to buy a home.
• Know what your mortgage payments will be.
• Have the confidence to negotiate your purchase and be taken seriously by prospective sellers and their agents.
• Understand the closing costs associated with purchasing a home, including legal fees and other expenses.
• Be able to lock in an interest rate for a specific length of time to protect against an increase in interest rates. If rates go down before that time period elapses, you will automatically get the lower rate for the term you selected.

After we receive your final offer to purchase, your mortgage can be quickly processed, subject to a satisfactory property appraisal and credit review.

An RBC mortgage specialist is here to guide you through your entire purchase. Whether you are buying your first home or have bought a property before, he or she will look at your situation from every angle to help you choose the best mortgage for your financial situation and goals.

Your mortgage specialist will provide:

• Personalized one-on-one service
• Free, no-obligation advice and information about RBC Royal Bank mortgage products
• Tips on how to maximize your mortgage features to save money
• Valuable assistance with things like realtors, lawyers and anything else that has to do with the purchase of your home
• Competitive rates on your RBC Royal Bank mortgage
• A single point of contact for your mortgage inquiries

Mortgage specialists are available to discuss your mortgage needs anywhere you want—24 hours a day, 7 days a week.

Find a Mortgage Specialist

RBC mortgage specialists work for RBC Royal Bank and are here to provide you with personal one-on-one service. They provide free, no-obligation financial advice and information about RBC home financing options and will help guide you through the entire purchase process. Because our mortgage specialists work with a team of banking professionals, they can also give you access to experts who can help meet your other financial needs, if desired.

A mortgage broker shops a list of several banks and alternative lenders to find a mortgage for his or her clients. Some bank financing solutions (including RBC products) are not available through a broker.

Find a Mortgage Specialist

Your mortgage down payment is the portion of your home purchase price that you pay upfront yourself. The amount of your down payment (which represents your financial stake or the equity in your new home) should be determined before you start house-hunting.

• To secure a conventional mortgage, you'll need a down payment of 20% or more of the purchase price of the home. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
• Or, you can apply for a low down payment insured mortgage with as little as 5% down. Due to Government legislation, low down payment mortgages must be insured to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include an insurance premium.

The larger your down payment, the less your home will cost you in the long run. With a smaller mortgage, your interest costs will be lower and over time this will add up to significant savings.

See how a homeowner can save over $25,000 in interest costs on a $100,000 home by making a down payment of 25% versus a down payment of 5%.

Total Purchase Price: $100,000

Here are some common strategies for raising money towards a down payment:

• Set up an automatic savings plan and save as much of your paycheque as you can afford.
• Use your RRSP as a down payment. With the federal government's Home Buyer's Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help make the down payment on your first home. You then have 15 years to repay your RRSP. To qualify, the RRSP funds you're using must be on deposit for at least 90 days.
• Get a cash gift from a parent or relative.

If you have less than a 20% down payment, you will need a low down payment insured mortgage. Low down payment mortgages provide insurance to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include the insurance premium.

Many first-time home buyers use their RRSP savings to help finance a down payment. With the federal government's Home Buyer's Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help make the down payment on your first home. You then have 15 years to repay your RRSP.

To qualify, the RRSP funds you're using must be on deposit for at least 90 days. You'll also need a signed agreement to buy a qualifying home.

Even if you have already saved for your down payment, it could make sense to access your savings through the Home Buyer's Plan. For example, if you had already saved $25,000 for a down payment—and assuming you still had enough “contribution room” in your RRSP for a contribution of that amount, you could move your savings into a registered investment at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyer's Plan.

The advantage? Your $25,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.

While using your RRSP for a down payment may help you buy a home sooner, it can also mean missing out on some tax-sheltered investment growth. Be sure to ask your financial planner whether this strategy makes sense based on your personal financial situation.

For more information, visit Canada Revenue Agency Website

A fixed rate mortgage is a mortgage with a fixed interest rate for a specific term. This type of mortgage gives you the security of locking in your interest rate for the full term of your mortgage, so that you don’t have to think about interest rate fluctuations.

That means you'll know exactly what to expect, including:

• The interest rate of your mortgage
• The amount of your regular mortgage payments
• The portion of your payment that goes toward principal and interest
• The amortization of your mortgage (how long it will take to pay it off)

You can get a fixed rate mortgage with a closed, open or convertible term.

Fixed Rate Mortgages

Unlike a fixed rate term mortgage, a variable rate mortgage does not provide a rate guarantee for a specific period. With a variable rate mortgage the interest you pay fluctuates based on the RBC Prime Rate; however, a variable rate mortgage generally offers the lowest interest rate available. Depending on the direction of the RBC Prime Rate, a variable rate mortgage could help you save in interest costs over the life of your mortgage.

With a variable rate mortgage your payment amount stays fixed for the term. If the RBC Prime Rate goes down, more of your payment will go towards paying off your principal; if the RBC Prime Rate goes up, more of your payment will go towards interest costs.

Variable Rate Mortgages

A closed term mortgage may be ideal if you're not planning to pay off your mortgage in the short term. Interest rates for closed term mortgages are generally lower than for open term mortgages. Closed term mortgages offer you the ability to save on interest costs and pay off your mortgage faster. You will pay a prepayment charge if you wish to renegotiate your interest rate or pay off your mortgage balance prior to the end of its term.

A convertible mortgage gives you the same benefits as a closed mortgage, but can be converted to a longer, closed term at any time without prepayment charges.

Open term mortgages may be appealing if you are planning to pay off your mortgage in the near future. They can be repaid either in part or in full at any time without prepayment charges. Open mortgages can be converted to any other term, at any time, without a prepayment charge. Interest rates for open mortgages are generally higher than for closed mortgages because of the added pre-payment flexibility.

• The amount of money you receive is based on the size and term of your mortgage—up to 7% of its value (to a maximum of $20,000)
• Your cash back is paid on the date your mortgage is advanced
• The money you receive is yours to keep so long as you hold your mortgage to the end of its negotiated term

Cash Back Mortgage

When buying a home, you can expect to encounter the following costs:

• Mortgage down payment
• Closing costs
• Other expenses

Tip: The RBC^® Cash Back Mortgage can help you cover many of these costs.

Mortgage down payment

First and foremost, you should consider how much money you have for a down payment—the portion of the purchase price that you furnish yourself.

To qualify for a conventional mortgage you will need a down payment of 20% or more. However, you can qualify for a low down payment insured mortgage with a down payment as low as 5%.

Closing costs

You will also need money for closing costs, which are costs that are payable when you finalize your home purchase. Below are some of the closing costs you may need to pay:

• Default (or High Ratio) Mortgage Insurance Premium and PST (where applicable). This coverage is required if your down payment is less than 20% of the purchase price. This premium, minus the Provincial Sales Tax (PST), can be added to your mortgage balance. The PST must be paid at closing.
• Appraisal Fee (if applicable). Your lender will have hired an independent appraiser to determine the value of the property and whether it meets its lending criteria. This may or may not be required depending on the type of property you are purchasing.
• Bridge Financing (if applicable). If your home purchase closes before the sale of your current home, you'll need to finance the cost of the home purchase for a short period of time.
• Estoppel Certificate (for condominium/strata units). This certificate provides documentation of the condominium corporation's financial well-being and legal state.
• Interest Adjustment Costs. Most lenders expect the first mortgage payment one month after closing the purchase. If you close mid-month, however, some lenders expect the first payment, or at least the interest accrued during that time period, at the beginning of the next month, two weeks before you would normally expect. When arranging your mortgage, ask how interest is collected to the interest adjustment date.
• Legal/Notarial Fees and Disbursements. You will be required to retain a lawyer or notary to act for you in the purchase and mortgaging of the property, and you will be responsible for payment of all related fees and disbursements. Fees for these services can vary significantly, so you may wish to shop around before making your decision.
• Title Insurance. Title insurance is an insurance policy that protects you, the homeowner, against challenges to the ownership of your home or from problems related to the title to your home. Talk to your lawyer or notary to see if a title insurance policy is right for you.
• Land Transfer Tax (Land Registry Tax). Most provinces levy a one-time tax (sometimes called the “Welcome Tax”) based on a percentage of the purchase price of the property.
• Township/Municipality Levies (applicable to new homes within subdivisions). For such items as tree planting, school taxes and other items until they are assumed by the town/municipality.
• Property Tax/Utility Bill Adjustments. The purchase price of a resale home is always payable "subject to the usual adjustments" at closing. This means that any amount that the seller has already prepaid will be adjusted so that you pay the excess amount back to the seller, and vice versa. The most common adjustments occur on property taxes and utility bills that have been paid ahead of time.
• Certificate of Location (Property Survey). Required by the financial institution for mortgage approval, and by your lawyer or notary for transfer of ownership. Ensure that this certificate reflects improvements such as decks, patios or pools. If outdated, your offer to purchase should indicate whether the seller or you will incur the necessary expense to obtain the appropriate certificate.
• Property Insurance. All homes must have adequate insurance coverage against fire, loss, theft and liability. Your mortgage lender will require you to provide your lawyer or notary with proof that your insurance is in place by the closing date.

Other expenses

• Home Inspection. If you want to have the home inspected by a professional building inspector you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required.
• Moving Costs. Remember to factor in the costs of moving from your current home to your new place.
• Miscellaneous Costs. Finally, there will be all kinds of things you'll have to purchase early on—appliances, garden tools, cleaning materials, etc. Be sure to also factor these expenses into your initial costs.

Depending on the province where you are buying a home, HST may apply on the purchase. Ask your lawyer or notary if it applies in your case.

Below is a list of common monthly expenses you can expect as a homeowner. Some of them, like taxes, may not be billed monthly, so you may wish to do the calculations to break them down into monthly costs.

• Mortgage Payment. This will probably be your largest monthly expense. Several factors—the amount you financed, term and rate, amortization and payment schedule—affect the amount of your payment.
• Property Taxes. Depending on your location, you'll get a property tax bill two, three or four times a year. You can usually pay your tax bill by a variety of methods: a cheque to your municipality, through online banking, or (if your municipality allows) automatic debit from your chequing account.
• Property Insurance. Your lender will require that you have property insurance in place at closing, but it's also an ongoing expense for as long as you own your home.
• School Taxes. In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year.
• Utilities. You'll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
• Maintenance and Upkeep. You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care, etc.

What you pay each month for your mortgage will depend on the amount you borrow, the interest rate, your mortgage term and your payment schedule.

Use our simple mortgage payment calculator to determine your mortgage payment.

The amortization period refers to the number of years it will take to pay off your entire mortgage. Amortization periods vary in length up to 30 years. Your amortization is made up of a number of mortgage terms.

Your mortgage term is the length of time you have agreed to a certain interest rate type (for example, fixed or variable) and a specified payment schedule. When the term expires, the balance of the principal is either repaid in full or the mortgage is renegotiated at then-current market rates and conditions.

Mortgage Amortization

The longer your amortization period, the lower your monthly payment will be. However, longer amortizations increase the amount of interest you pay. Total interest costs are significantly increased if your amortization exceeds 25 years. An RBC mortgage specialist can help you decide what’s best for you.

Amortization Comparison Chart

Mortgage terms vary widely—from six months right up to 25 years. As a rule, the shorter the term, the lower the interest rate, and the longer the term, the higher the rate.

• A longer-term mortgage is worth considering if you don't want to keep an eye on mortgage rates. Our 4–, 5– and 7–year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.
• While 4– or 5–year mortgages are what home buyers typically choose, you may want to consider a short-term mortgage if you may be selling your home in the near future, if you believe interest rates may decrease in the future, or if you want flexibility in your mortgage and are not prepared to make a long-term commitment right now.

Before selecting your mortgage term, we suggest you answer the following questions:

• Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
• Do you believe that interest rates have bottomed out and are not likely to drop more? If that's the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
• Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
• Are you willing to follow interest rates closely and risk there being increased mortgage payments following a renewal? If that's the case, a short mortgage term may best suit your needs.

Our mortgages come with features that can help you reduce the number of years it takes to pay down your loan. If you use all of our mortgage features to their fullest, you could pay down as much as 20% or more of your original mortgage balance each year.

These five features are designed to help you build your home equity faster and save money over the life of your mortgage:

• Increasing Your Monthly Payments
• Making Double–Up^® Payments
• Accelerating Your Payment Schedule
• Selecting a Shorter Amortization
• Making Principal Prepayments

Yes! You can take advantage of our 120-day early renewal option, which allows you to renew early without any penalties (some restrictions apply). This could save you in interest costs if rates rise before your regular renewal date.

Mortgage Renewal Options

If you choose a shorter amortization period, you can save a lot of money and live mortgage-free sooner.

Take a look at how much you would save on your total interest costs on an $80,000 mortgage amortized over 15 years versus the same mortgage amortized over 25 years.

Mortgage $80,000: 25-Year vs. 15-Year amortization

You can also accelerate your payment frequency, increase the amount of your mortgage payments, make principal prepayments or make Double–Up payments to further reduce your amortization period.

There is no limit on how many times you can refinance. However, you must qualify each time you apply. For more information, contact a credit specialist.

Remember, you can also use the mortgage add-on option to borrow up to 85% of the appraised value of your home, minus the amount of your outstanding mortgage.

You could save a substantial amount of money by consolidating your outstanding high interest loan and credit card balances using our mortgage add-on option. Take a look:

Plus, you'll also enjoy the added convenience of having all your debt in one place.

Before you renegotiate your current fixed rate mortgage to take advantage of lower interest rates, there are several things to keep in mind—the most important one being how much will it cost you to break your fixed rate mortgage.

In order to lend you money at a fixed rate for a set period of time, RBC borrowed the funds needed in the market and entered into a fixed term contract. When you break your mortgage term, RBC is charged a breakage cost as that contract will not be fulfilled. Mortgage pre-payment charges are collected from you to partially offset the costs that RBC is charged.

The best way to know whether you can still save money in the long run after paying the mortgage pre-payment charge is to visit your RBC branch and talk with us.

Our calculator, "Should I Break My Fixed Rate Mortgage?" can also help you determine how much it could cost to break your mortgage and what interest rate you would need to get in order to "break even."

Understanding Mortgage Pre-payment Charges

Our mortgage portability option lets you transfer the terms and conditions of your current RBC Royal Bank mortgage to your new home, subject to a credit review and property appraisal when you make the new home purchase. You may also qualify to add-on to the mortgage if you require a larger mortgage amount.

Please note: the mortgage portability option cannot be used in combination with the assumable mortgage option.

• Portable Mortgages

You can use our assumable mortgage option to let a home buyer assume your mortgage if he or she qualifies. If your current mortgage is a low-interest, longer-term mortgage, offering a potential purchaser the opportunity to assume your mortgage may be a good tactic in a buyer's market, especially when mortgage rates are rising.

Assumable Mortgages