Select Page
Building Credit History in Canada as a Newcomer

Building Credit History in Canada as a Newcomer

A credit report is displaying a excellent score of 760. This indicates a strong credit history.

A lesson many newcomers learn when they arrive in Canada is that you need credit to pay for large expenses, buy a car, or purchase a home. However, it’s difficult to borrow without a credit history in Canada. Canadian lenders typically check each applicant’s credit files at one of the main credit reporting agencies (Equifax Canada and TransUnion). This file is like a financial report card that tracks how much you borrow and how quickly you pay it back, to calculate your credit rating and credit score.

Without a credit history, newcomers may need a loan co-signer with a Canadian credit rating, and considerable assets as collateral, or they must demonstrate a history of stable income in Canada to receive a loan. Fortunately, you can start to build your credit record and history shortly after you arrive in Canada.


Advertisement:


Getting Started

The financial decisions you make when you arrive in Canada have a huge impact on your credit history and score. The concept of credit can sometimes lead to a debate about how it can help, or hurt you when you are building your credit rating. On one hand, credit can be a fantastic tool to help you:

  • Get a loan or a mortgage
  • Save on credit card and loan interest rates
  • Get approval for lines of credit
  • Obtain certain jobs (i.e. some finance-related roles will require a credit check as a condition of employment)
  • Rent a home.

Advertisement:


On the other hand, if poorly managed, credit can haunt you for many years, and make you miss out on financial opportunities. Creditors can run a credit check on you to assess if you are a low-risk or high-risk borrower. They will also decide to grant or deny you a loan or charge you a higher interest rate.

What is Credit History?

Your credit history shows lenders that you are responsible when it comes to paying your financial obligations. Whether that is your monthly rent, utility bills, loans, etc. If you have come from a country where you have credit bureaus, you know how important your credit history is. Maintaining a good credit history in Canada is also important.

We’ll share tips to help you build and maintain a healthy credit report. With a strong credit history, you can save money and have more financial freedom.

So what is your credit score when you come to Canada? Nothing. Think of it as a blank slate. Everything you do henceforth will dictate what direction your credit rating will go, up or down.

Top 10 financial steps to take before you leave for Canada


Advertisement:


First things to do after landing in Canada

Renting Without a Credit History

No Spend Challenge | A Journey to Financial Freedom

Banking and Finance in Canada: Your First Steps

Your credit history or credit rating starts the first time you get a credit card or loan in your name from a Canadian bank. You can begin by applying for and using a credit card responsibly.

Even if you don’t have immediate plans to buy a house or vehicle, it’s good to establish a credit history, since banks may give special consideration to recent newcomers.

Newcomers may be eligible for a ‘secured’ credit card. A secured credit card is different than a regular credit card because it requires a security deposit equal to the amount of the credit limit. Think of it as a stepping stone to getting an unsecured credit card. Such special offers may be more difficult to obtain later, especially if your income does not grow as fast as you had hoped. A credit card is also useful for larger purchases and as a secondary piece of identification.

 

Why is Your Credit Score Important?

Your credit score is important for several reasons:

  1. Lenders will review your credit score when you want a mortgage to buy a home, or a loan to buy a car. They want to understand your payment history, and your ability to manage credit and pay off debt.

2. Landlords will conduct a credit check before renting their property to you.

3. Some employers will conduct a credit check before they make an offer of employment. This is common with banks and other financial institutions such as insurance companies.

 

What Credit Score is Good?

Your credit score can fall between the range of 300 – 900. Generally, and depending on the credit score model that your financial institute is using a good score is greater than 680. As a benchmark, to get a mortgage to buy a house in Canada, you need a credit score between 600 – 700. If your credit score is lower than 600, you will want to take steps to increase your credit score.

Canadian Credit Score Range

Once you receive a credit card, use it wisely to establish a credit score so that lenders will have confidence in your ability to repay loans.

Your credit is scored on a point system that ranges from 300 – 900 points, where 900 is the best score. To qualify for a loan, your score should be 650 points or higher. If you score lower than 650, it may be difficult to get a loan or receive new credit. However, if you have a low credit score, you can improve your score by carefully managing your credit use.

How Much Credit Limit Should I Use?

If possible, avoid using more than 30% of your credit limit (balance-to-limit ratio). For example, if you have a credit limit of $1,000, you should try not to spend more than $300 and pay the bill in full by the due date.

Your credit score may decline if your balance-to-limit ratio exceeds 30% as it may indicate to creditors that you are a higher-risk borrower.

How Many Credit Cards Can I Have?

It’s best to start with only one until you are financially comfortable enough to afford more. Avoid opening many credit accounts. Many credit card accounts can signal financial distress to lenders, especially if they all carry a balance on them.

Why Credit History is Important to Rent a Home in Canada

A young Asian man is seated on the floor with his wife and baby in their new rental apartment.

Your credit history is one of the things landlords want to see before giving out their home to you. Your credit history will tell the landlord how reliably you pay debt. A good credit score will tell the landlord that you are reliable and will likely pay your rent on time. This is important to landlords as it guides them in their decision regarding who to rent their home to and who to avoid.

While this arrangement is great for landlords, it can be problematic for newcomers who are looking to rent a home. If you are a newcomer to Canada, you likely will not have a credit history. It takes a minimum of six months to build a credit history. Because of this, it can often be hard to convince a landlord that you will be a reliable tenant. However, there are some tips that you can follow to rent a home without a credit history.

How Do I Rent a Home Without a Credit History?

The first thing you can do is show proof to your future landlord that you have a good amount of savings in your bank account. This will tell the landlord that you have enough money to pay the rent and will pay it on time.

If you don’t have a good amount of savings, your top priority would probably be to secure a source of income. Once you have done that, you can show proof of income to your landlord. This will also satisfy landlords because it means that you have enough money coming in every month to pay the rent.

There is also another way to get a house on rent without a credit history. Some landlords openly accept newcomers and reserve their homes, especially for newcomers. These rentals may be small and less than ideal. However, they are a good option if you need a place to stay while you build your credit score. Many times, these rental homes have basic furniture like beds and sofas which makes it easier for newcomers to move into.

In the meantime, paying your bills on time and being reliable with all of your payments is a great way to show lenders that you are financially responsible. And over time, you will build a strong credit history that will provide many financial benefits.

How Do I Maintain a Good Credit History? Five Tips to Follow

Young Indian woman holding a smart phone and using a mobile app to pay a monthly credit card bill.

1. Take Advantage of Your Fresh Start in Canada to Build a Good Credit History

Get a credit card or two, and use them, but use them sensibly. Pay off your balance each month and avoid going over your balance to show potential lenders your reliability.

Paying in full each month will also reduce the amount of interest you pay. And with the average credit card interest rate at approximately 19%, any balance on your credit card can become very expensive. But, if you don’t pay the balance in full each month, be aware of the interest rate charges.

If you can’t pay the full balance on your credit card, at least pay the minimum balance and make regular payments, to pay off debts as quickly as possible. But, avoid missing payments. Missing payments can damage your credit score and make it difficult to get a future loan such as a car loan, or mortgage.

Using your credit card for cash advances is even more expensive. Typically, the interest rate is higher and you pay interest from the date of the cash advance. There is no grace period like there is for a regular credit card purchase.

 2. Read the Small Print on Cancellation Fees and Penalties

On top of paying your monthly bills and loan installments on time, you need to be careful when you sign up for services such as cable, telephone, internet, gym subscriptions, and other monthly subscriptions. Check the cancellation fees and deadlines when you sign up for such services. Otherwise, these fees can be high.

Be sure to ask questions about your contract if there is anything that you do not clearly understand.

3. Keep Track of Your Utility Changes

When you move, don’t forget to cancel or transfer your services and utilities to your new address. Sometimes final bills end up in collections out of sheer neglect, and from collections, they land on your credit report for the next six years. Always keep track when you make such changes, by recording the date, the names of the agents you speak to, and your case number. Or, if you are given a receipt, be sure to hang on to it to prove that you cancelled the service.

4. Negotiate a Payment Schedule with Creditors if You Hit a Rough Patch

If you hit a rough patch, such as an extended period of unemployment, do not be complacent about your credit. Call your creditors and negotiate your monthly payments. They will likely be willing to help you because sending outstanding accounts to collections would cost them more money. Cancel or suspend services you can do without, rather than have the bills rack up.

It’s wise to live within your financial means. As the saying goes, “It’s not how much you earn, it’s how much you spend.”

5. Use Services to Track Your Credit History and Maintain a Good Credit Report

Most banks including Scotiabank offer account holders this facility. Alternatively, use free services like Borrowell to monitor your credit. If you notice outstanding payments that you have paid off on your report you should inform the reporting agency in writing so that this may be removed.  

What’s in Your Credit Report?

Credit reporting agencies such as Equifax and TransUnion Canada record your credit history. Your credit report will contain information on your:

  • Loans
  • Credit accounts
  • Bills (for example, outstanding cell phone bills can be listed on your credit report)
  • Collections items (for example, if an outstanding debt is sent to a collections agency), and
  • Legal items (for example, if a court order is issued against you for an outstanding debt).

Collections items stay on your credit report for six years, and legal items stay for ten years. So it’s essential to practice good financial habits that don’t jeopardize your credit rating.

Your credit history speaks volumes to lenders about what kind of risks they take when they agree to lend you money. It takes a long time to build a credit history. Yet, it’s easy to sabotage and takes even longer to rebuild.

So, can you live without credit? Yes. But, should you try to do without it? No. Because without credit, it will be difficult to improve your living standards, at the very least, not as quickly as you would like. And, when it comes to making major purchases such as buying your first home in Canada, a strong credit report is essential. When you manage how you use credit, you’ll remain in good financial standing and be able to secure credit to achieve your important dreams.

How to Manage Your Personal Finances When You’re New to Canada

How to Manage Your Personal Finances When You’re New to Canada

For newcomers, carefully managing your finances is vitally important, especially if you have not yet landed your ideal job. And, settlement agencies suggest that it can take up to six months to land a job that matches your skills and experiences. In the meantime, managing your finances and spending can serve to reduce stress and financial pressure. In addition, managing your finances well will help you build your Canadian credit history and influence your credit score. Here, we’ll explore how you can create a budget for some of the main expenses you will have to cover in Canada. So where to start, which is essential to achieving future loans! You need to establish your Canadian credit history because it will be important for many reasons including buying your first home.

One of the most important factors in your financial situation is not how much you earn, but rather how much you spend. But, many Canadians get caught in too much debt, trying to “keep up with the neighbours” — in other words, buying everything you want, from cars to electronics, even if you can’t afford it. Overspending can get you caught in a trap that you want to avoid.


Advertisement:


Create a Budget to Manage Your Personal Finances

To manage your personal finances, you can prepare a budget. with the following costs in mind. But the cost of living in Canada depends greatly on the city in which you choose to settle and on the size of your family. Large cities attract the bulk of new immigrants and offer the most job opportunities, however, living costs are also higher. Here are some of the basic expenses that you can keep in mind to help you manage your finances:

Rent Payments


Advertisement:


Newcomers often rent an apartment as their first means of accommodation. Typically, rent prices for a small one-bedroom apartment begin at $700 and can be as high as $2,500 per month depending on the city you choose to settle in.

When renting, make sure that you conduct thorough research on the apartment building and its surroundings and then outline the positives and negatives to see if it is the right place for you. Perhaps the property is close to amenities like shops, swimming pools, libraries, and public transport which depending on your requirements may make it an attractive option for you.

Our Rentals for Newcomers site is a practical and easy-to-navigate site that can help you find housing that meets your unique needs! And you can even determine the average costs of rentals in cities across Canada. This is helpful since rental prices change often. You’ll also find some helpful articles related to housing in Canada.

What is the Cost of Accommodation in Canada?

Why Credit History is Important When You Rent a Home in Canada


Advertisement:


Sharing Accommodation in Canada as a Newcomer

New Call-to-action

Utility Bills

You will need to budget for the cost of utilities such as electricity (hydro), heating, telephone, cable, and internet.

Many rentals include heating and some include even hydro in the cost of the rent. If you have to pay for electricity, you can ask the landlord what you expect to pay every month. But, your bill will also depend on usage and time of day.

When it comes to internet, cable, and telephone, the best option is to shop for bundles (combined service plans) from different telecom providers in your area. A bundle can cost anywhere between $60 per month to more than $100 per month. Or, check out streaming services that can be less expensive than cable television.

Cell phone plans range from $15 per month to more than $150, depending on the number of free minutes and text messages and the data usage limits. Voicemail activation usually costs extra. You can start with a basic plan and upgrade according to your needs.

While not a bill per se, the cost of doing laundry will be similar from one month to the next. Apartment buildings come with laundry rooms with coin or card-operated washing machines. A washing cycle costs between $2.25 to $3.50 depending on the length, and a dryer cycle has a similar cost.

Money Management Tips for Newcomers to Canada

Cost-Savings Ideas: 22 Practical Tips for Newcomers

Banking and Finance in Canada: Your First Steps

Insurance

Even if you are renting, it’s a good idea to purchase renter’s insurance to protect you against damage and theft. The insurance can cost up to a few hundred dollars a year. Auto insurance is $1,000 or more a year.

Depending on your province, you may also have to pay health insurance premiums, which vary from province to province and according to the size of your family. You will also need to factor in the premiums for any private health insurance you may choose to buy.

Insurance in Canada: What Newcomers Need to Know

Public Transit

A streetcar travelling along King St. in downtown Toronto at night.

Public transit is probably the most affordable to travel within your city. And, all cities offer affordable travel options such as buses, trains, subways, light-rail trains, and streetcars. A monthly transit pass can cost anywhere between $70 to more than $150 depending on the city and the number of travel routes that it covers. In large cities, such as Toronto, the public transit system covers the broader Greater Toronto Area, and you can easily transfer from one mode of transportation to another.

To use public transit, you can purchase individual tickets starting at $2.50, but you can use a transfer at the start of your destination to transfer to different modes of transportation. In other words, you only have to pay once at the start of your destination. You can also buy transit passes that allow you unlimited transit use for a period of time. Some cities offer an electric fare payment system that allows you to load money onto a card to make travelling easier and at a discounted fare.

You can find specific fare information about public transit in your city by visiting the website of your city government, or the public transit system.

Food and Other Groceries

The cost of your food bill will depend largely on your dietary limitations and personal standards, but also on the area in which you live. The stores and supermarkets in popular posh areas will be more expensive and will offer more high-quality gourmet and organic products, while cheaper areas will have more low-cost options. Food can set you back anywhere from $100 per month for a single person to several hundred. Cooking at home and planning your meals will help to balance cost and nutrition.

In terms of personal care items and other supplies, costs can start at $1 at dollar stores, but you will often have to compromise on quality. Supermarkets have their own store brands that are usually cheaper than name brands and, in many cases, of comparable quality.

Clothing

Again, your personal standards will have the final say when it comes to clothing. You should bring with you quality items that will last you for a while because clothes shopping is best kept until after you find employment. You can pay anywhere from a few dollars for an item of clothing at a cheap retailer or a thrift (second-hand) store to hundreds and even thousands at high-end designer stores. Read more about the types of clothing you’ll need in Canada.

Entertainment

Movie tickets can cost from $7 to $15 depending on the movie and the time of day. Most theatre tickets usually start at $20, and concerts of popular performers can cost well over $100. You can take advantage of local libraries to borrow DVDs and look for community theatres with free performances or performances by donation. It’s important to budget for entertainment, but this may be a personal finance area that you can cut back on if necessary.

Other Personal Finance Expenses

Big cities can be very tempting with their variety of cultures and cuisines, so you will probably want to treat yourself and your family to occasional restaurant outings. The costs can be anywhere from a few dollars per person at fast-food restaurants, to more than $50 per person at an average restaurant. Never forget to factor in the tip, which should be at least 15 to 20 percent of the bill.

Staying fit and healthy should always be a priority. Some rental buildings come with their own gyms and the price may be very low or included in the rent. If you plan to subscribe to a gym, always read the fine print. The monthly cost is usually $60 to $100, but most gyms charge introductory fees and substantial cancellation fees.

Personal care costs also cover the range from basic to luxury. Expect to pay at least $25 for a simple haircut (plus tip) and anywhere from $40 to $60 for a manicure.

If you’ve recently arrived in Canada, managing your personal finances carefully will help you to reduce financial stress until you find your first job. And, the strong personal finance habits that you follow during your first year in Canada will help you to achieve many of your long-term financial goals.

How to Buy a Franchise on a Limited Budget

How to Buy a Franchise on a Limited Budget

A young couple are reviewing their finances to determine if they can buy a franchise in Canada on a limited budget

Are you looking to buy a franchise in Canada but are unsure if you can afford the costs? It’s true, an average middle-class salary alone probably won’t be enough to make your dream a reality. But, that doesn’t mean starting a franchise is impossible even on a limited budget. You just have to know where to find the help you need.

Franchise Start-Up Costs

Start-up costs vary widely and can range from as low as $10,000 to more than $1,000,000. A big factor is whether or not you need to own own or lease real estate for your franchise business. You can find the cost to open a franchise in the franchisor’s Franchise Disclosure Document (FDD). Item 5 contains the initial or franchise fee, or the cost to join the franchise system. Item 7 lists additional start-up costs required such as real estate, equipment, inventory, signage, business licenses, and insurance.


Advertisement:


You will also want to include a budget for professional fees for accounting and legal advice. It’s vital to speak to a franchise lawyer and financial advisor/business accountant before you sign a franchise agreement. They can help you to identify any legal or financial issues that may not be in your best interest.

How Much Can You Afford to Buy a Franchise?


Advertisement:


To determine how much you can afford to invest in a franchise, you need to have a good understanding of your current finances. You can start by determining your net worth by compiling a balance sheet that lists all assets and liabilities. Some franchise experts advise that you should not invest more than 15% of your own money, but this percentage may vary. When you work with a financial advisor, they can help you determine how much of your own money you can afford to invest based on your financial situation.

Unless you are interested in a low-cost franchise, you will likely need to borrow the majority of the funds to purchase your business. In general, lenders require you to provide 20-25% of the total investment. For example, if you have $50,000 to invest, you can research franchise opportunities in the $200,000 range. Before you approach any lender, make sure you are current on all bill payments and correct any mistakes on your credit report.

How to Calculate Your Net Worth

It’s really quite simple to calculate your approximate net worth in three simple steps:

STEP ONE:STEP TWO:STEP THREE:
List your assets (what you own). This may include your:

– Savings
– Retirement accounts
– Market value of your house and car.
List your liabilities (what you owe). This may include your:

– Mortgage
– Outstanding loans
– Credit card debt
Subtract your total liabilities from your total assets and you’ve just calculated your approximate net worth.
Franchisors may have a minimum net worth requirement.
Learn all about how to find a job in Canada

Eight Tips to Write a Canadian-Style Resume

Cover Letter Format that Employers Notice


Advertisement:


How to Negotiate a Salary | A Guide for Newcomers

Starting a Small Business in Canada | 8 Steps for Newcomers

Working in Canada | A 5-Step Approach

Traditional Bank Loans

Borrowers with good credit and collateral may be able to get a traditional loan from a bank or credit union. Most lenders are more likely to offer financing for a franchise business because they are associated with an established brand that has been proven in the marketplace. However, if you are interested in investing in a lesser-known brand such as an emerging franchise, or don’t have a stellar credit rating or collateral, a traditional lender may not be an option and you will need to look elsewhere for funding.

Personal Savings

When financing their new business venture, many franchisees will use personal savings like registered accounts such as Registered Retirement Savings Plans (RRSPs) and Tax Free Savings Accounts (TFSAs) to finance their new business. Some franchisees have used their homes as collateral to finance a franchise. But, the overall risk as well as tax implications often don’t make sense to finance a franchise in Canada in this manner. 

Government Assistance Small Business Loans:

Small businesses (including franchises) looking to purchase or improve their assets for new or expanded operations could benefit from the Canada Small Business Financing Program (CSBFP).

This government-sponsored loan program offers up to $1,000,000 ($350,000 for equipment and leasehold improvements). The program only finances equipment, leaseholds and real estate and can’t be applied to marketing costs, royalties, and franchise fees.

A key benefit is that 85% of the loan is guaranteed to the lending Bank by the Federal government. This means less risk to you, the borrower.

Other benefits include:

  • Various Floating Rates, Fixed Rates and Blended Rate Principal Plus Interest and Principal including Interest repayment options available to the borrower.
  • Attractive loan repayment terms ranging from 7 years on equipment, 10 years on leasehold improvement, and up to 15 years on real property loans
  • Business Loan Insurance Plan is available (certain conditions may apply)

The lender (bank) doesn’t provide this free and will usually charge:

  • a loan document preparation fee of around $175
  • a $100 loan application fee
  • a one-time-only Federal Government registration fee (2% of the loan amount which may be included in the amount borrowed)
  • a 1.25% Administration Fee included as part of your interest rate (not much, but something you have to factor into your debt repayment calculations).

Thinking Outside the Box

When more conventional lending sources can’t produce enough cash to fund your franchise start-up costs, you may need to look beyond traditional methods. An investor such as a family member, friend, or business partner may be willing to offer you funding as well. However, allowing others to invest can come with some strings attached.

Investors may require the ability to make decisions about the business and most will expect a return on their investment, which will cut your profits at first. Still, it may be worthwhile to take on investors if it allows you to get the franchise up and running.

No matter what kind of financing you choose, it’s important to get all the facts in advance so that you’re not caught off guard when it comes time to repay loans or investors down the line.

A limited budget does not have to mean postponing or giving up your plans to buy a franchise. By finding the right financing options to meet your needs you can buy a franchise now and take charge of your future.

Exploring Canada helps seniors to keep busy

Exploring Canada helps seniors to keep busy

senior immigrant in Canada

 


Advertisement:


Senior immigrants often face significant challenges when settling into Canada. Many struggle with language barriers, mobility issues, and feelings of isolation. They may rely heavily on their adult children who sponsored them to come to Canada, but this can lead to feelings of being taken advantage of, such as being overused for babysitting. Additionally, some may feel disconnected from their children and grandchildren as they adapt to Canadian society.


Advertisement:


 

However, there is good news. Many elderly immigrants find comfort in connecting with others who are in similar positions. They often organize events or meetings tailored to their age group or ethnic background. For instance, in Vancouver, a group of retired Russian people runs a chess club that hosts weekly tournaments. To find similar groups and programs, seniors can turn to their local ethnic newspapers or immigrant settlement agencies. These resources offer a variety of activities, ranging from outdoor outings to weekly dance classes to English lessons.

 

It is crucial for senior immigrants to actively engage with their community and explore all that Canada has to offer. By doing so, they can enhance their quality of life and find a sense of belonging in their new home.

 


Advertisement:


 Tips for senior immigrants to make the most of living in Canada:

  • Learn the language: Learning English or French can help senior immigrants communicate with locals, make friends, and feel more comfortable in their new home.
  • Get involved in the community: Joining community groups, volunteering, and attending local events can help senior immigrants meet new people and learn about Canadian culture.
  • Go to settlement organisations to receive free assistance in accessing services designed for seniors.
  • Get to know seniors from outside your ethnicity.
  • Go for walks in your neighbourhood and get to know the area; learn how to take public transportation or call a taxi.
  • Explore the city: Canada has many diverse cities and attractions. Exploring the city can help senior immigrants discover all it has to offer.
  • Stay active: Canada has many opportunities for seniors to stay active, such as senior centers, walking groups, and fitness classes. Staying active can help senior immigrants maintain their physical and mental health.
  • Stay connected with family and friends: If senior immigrants have family and friends back in their home country, staying connected with them through phone calls, video chats, and social media can help them feel less isolated.
  • Know their rights: It’s important for senior immigrants to know their rights and the services available to them in Canada. This includes healthcare, housing, and financial support.
  • Embrace Canadian culture: Embracing Canadian culture while also maintaining their own cultural identity can help senior immigrants feel more connected to their new home.
  • Be understanding of your children and grandchildren about their changing roles and expectations living in Canada.
5 Tips to Get the Best Mortgage Rates in Canada

5 Tips to Get the Best Mortgage Rates in Canada

A couple getting advice about the best mortgage rates in Canada.

When searching for your first home, here are five tips to ensure you get the best mortgage rates in Canada. And, to get the best rates will require you to research so you know how to select a mortgage that’s right for you. Many newcomers arrive with savings to own a home and establish roots in Canada. And getting the best mortgage rate can save you thousands of dollars over the course of your mortgage.

Buying your first home in Canada is an exciting time to make your dream of homeownership a reality.  But at the same time, it can create stress and confusion. You may have questions about the real estate process in Canada, the lending process, or other important questions. And, buying a home is likely the largest and most important decision that you will make. So, it’s important to understand what’s involved, and how you can save thousands of dollars with the best mortgage rate.


Advertisement:


Tips to Get the Best Mortgage Rates in Canada

Tip 1. Do Your Research

A home purchase is a major investment. So, spend some time understanding the lending and real estate process. Do your research so that you’re confident with the decisions you’ll have to make every step of the way. And, this includes understanding the different types of mortgages:

  • options (for example, open or closed mortgage)
  • features
  • restrictions.

Tip 2. Save for Your Down Payment to Get the Best Mortgage Rate


Advertisement:


Your down payment is money you pay towards your home purchase. It is deducted from the purchase price of your home. And, the remaining amount will be covered by your mortgage loan.

A 2019 survey conducted by Royal LePage revealed that 75% of newcomers arrive in Canada with savings to purchase a home. And the great news is that those savings can help you to get the best mortgage rate.

If you can pay 20% or more of the property value, you can get a conventional mortgage loan. But, with less than 20% of your down payment, you’ll get a high-ratio mortgage. And, high-ratio mortgages require home buyers to purchase mortgage default insurance. This mortgage insurance allows homebuyers to buy a home with less than a 20% down payment of the purchase price.

However, mortgage insurance only protects your lender. Therefore, it’s important to understand the terms and conditions of mortgage insurance in the event that you’re unable to pay your mortgage.

Homebuyers require a minimum down payment of 5% of the home purchase price. So, if you have less than 5%, keep saving!


Advertisement:


Clearly, when you have a bigger down payment it can save you money over the lifetime of your mortgage. But, if you have less than 20% of the purchase price, your lender will require you to pay for mortgage insurance.

New call-to-action

Buying your first home in Canada

Savings in Canada: Helping Newcomers Invest

Building Credit History in Canada

Banking and Finance in Canada: Your Financial First Steps

Tip 3. Improve Your Credit Score

There’s nothing like a poor credit score to stand in the way of getting the best mortgage rates in Canada. The minimum required credit score to get a mortgage in Canada is between 620 – 679. But, with a good credit score (usually between 680 – 724 points), you may get better borrowing rates.

Although, even if you have a good credit score, it’s wise to practice good financial habits to increase your ability to borrow money. For example:

  • Spending less than 30% of your credit line
  • Limiting the number of credit cards you apply for
  • Paying all bills (phone, cable, hydro, etc) on time.

Tip 4. Get Professional Advice about Mortgage Rates

If you’re a first-time homebuyer, working with a mortgage broker can help you to navigate the complexity of mortgage products, options, and features. A mortgage broker can access a broad range of financing options.

Buying your first home in Canada can come with uncertainty about unexpected costs, affordability, or paying too much for your home. And, you’ll likely have questions that a mortgage broker can answer.

A professional mortgage broker can inform you about the variety of mortgage options and features. Because different mortgage options may be more suitable for you based on your needs and future plans. For example, you will need this information to help you make decisions related to:

  • mortgage type: open or closed mortgage
  • mortgage rate: fixed or variable interest rates.

In addition to knowledge and experience, mortgage brokers:

  • Help you look at what is important to you and get you the best possible mortgage rate
  • Discuss your down payment options and how to budget for a new home
  • Help you understand the financial advantages and disadvantages of your mortgage options.

Lenders may have important restrictions related to each mortgage option, and that may end up costing you more money. Working with a mortgage broker can save you thousands of dollars in your overall costs.

Tip 5. Get Pre-approved for a Mortgage

When searching for your new home, it’s difficult to predict if mortgage rates will increase or decrease. So, a pre-approved mortgage can protect you against interest rate hikes while you search. With a pre-approved mortgage, you can lock in a mortgage rate for up to 120 days.

In addition, getting pre-approved will help you understand how much you can afford to buy your first house in Canada.

Do I Need a Mortgage Broker?

Female mortgage broker showing a young couple a presentation on a laptop computer.
Mortgage brokers work on your behalf to get you the best possible rate.

You can get a mortgage from your bank or from a mortgage broker. However, working with a broker who is a subject matter expert with specialized mortgage knowledge can offer several advantages. For example, you can:

  • Get a better rate with a mortgage broker than a bank because mortgage brokers get wholesale rates. Bank customers get retail rates. And yes, wholesale rates are lower!
  • Get a wider product choice than working with a bank that will only offer the products they have.

A broker works with several lenders including top banks, credit unions, and other lenders to get you a more flexible deal. And with one single mortgage application, they get a number of lenders to “bid” for your business to get you the best possible rate.

In addition, a mortgage broker acts as a single point of contact who can manage everything from applying for the mortgage to negotiating your rate and disbursing the funds. All of this can create a stress-free experience, especially if you’re unfamiliar with the process.

Key Takeaways:

  • Your home purchase is a major investment. Ensure you get the best mortgage rate to help you save money over the lifetime of your mortgage.
  • A professional mortgage broker can help you understand the different types of mortgages, features, and restrictions.
  • A pre-approved mortgage can help you lock in your interest rate while you search for your dream home.

Establishing roots in Canada through homeownership is exciting! Achieve your dream with the best mortgage rate to save you thousands of dollars over the course of your mortgage.

For more information and resources, visit our Banking in Canada: Financial First Steps Resource Page.