Not sure you’ve got the latest facts about mortgages in Ontario? You’re not alone.
Mortgage myths are all around us, after all. When they’re shared by everyone from family members who offer well-meaning assumptions to online sources that misinform or give outdated advice, it can be hard to separate fact from fiction.
That’s why it’s important to get the right advice from local mortgage experts. At Meridian, we’re here to help. To start, here are six common myths about mortgages in Canada.
Myth #1: With my student loans, it'll be hard to get a mortgage
According to Abacus Data, by 2023, more than half of Ontario post-secondary graduates had used student loans to finance their education. (Abacus Data report: Impact of student debt on homeownership in Ontario)
Many graduates worry that having student loans will prevent them from securing a mortgage. Thankfully, this falls into the category of mortgage myths.
Your student loans are not an automatic red mark on your mortgage application. Instead, they are one part of an equation with many variables.
Let’s say you owe $35,000 in student loans, but you have savings, no car loan, low credit card balances, and a good income. Each of these variables plays a role in calculating your total debt service (TDS) ratio.
Your lender will use your TDS, in conjunction with other data, such as your monthly housing costs, to determine your mortgage eligibility.
For more information on the impact of debt on a mortgage application, see this Government of Canada resource.
Myth #2: My credit score is all that matters for mortgage approval
Your credit score acts like a report card on your history with bills and debt. The more you’ve paid your bills and debts on time, the better your score will be.
Many first-time homebuyers assume that their credit score is the most important part of their mortgage application. Fortunately, this isn’t true.
When applying for a mortgage, your lender will pull your credit report, as part of your application. But they will also consider your:
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Income and employment information
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Financial statements (assets, down payment)
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Property information (details of the size and condition of the property you want to purchase)
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Total monthly housing costs (mortgage, utilities, property taxes, condo fees, etc.)
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Your total debt load (credit cards, student loans, car loans, other debts or regular expenses)
So, while your credit score is valuable information to a lender, it's only part of a larger picture.
For more information, learn how to improve your credit score.
Myth #3: I need to use a “big bank” for my mortgage
This is one of the most common mortgage myths. In Canada, mortgages are available from a long list of lenders, from the big five banks and credit unions to private and alternative lenders.
Keep in mind, there are significant risks to consider with private and alternative lenders, including higher interest rates and additional fees. Be sure to evaluate these lenders carefully.
When you’re planning to buy a home, it’s important to do your research, as each lender offers different products and terms. Smaller lenders, including credit unions, can offer several advantages over big banks, including more competitive mortgage rates and features.
Credit unions are member-owned, which allows them to reinvest profits into better rates and services. They can provide customized mortgage solutions, while prioritizing transparency and trust.
At Meridian, we offer a wide range of mortgage options, including those with specific perks that allow you to pay off your mortgage faster or skip a payment, when needed.
Learn more about the perks that set a Meridian mortgage apart.
Myth #4: Pre-approval guarantees my mortgage will be approved
It’s easy to see why this is one of the most widely held mortgage myths.
The common assumption: “If I have mortgage pre-approval or pre-qualification, doesn’t that mean I have final mortgage approval?”
In fact, neither pre-approval nor pre-qualification means your final mortgage will be approved.
While the terms sound similar, “pre-approval” is an important and in-depth process that collects and verifies your financial documents and details ahead of your property search, while “pre-qualification” is only a cursory look at your financial information that does not offer much assurance that your mortgage will be approved.
At Meridian, we do a full pre-approval ahead of time, verifying your current financial situation so you can make an offer with confidence. With a pre-approval in hand, you can search for a home with greater confidence, knowing that you have:
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A locked-in interest rate (most commonly held for 90 to 120 days)
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A maximum mortgage value to search within
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Estimated monthly mortgage payments
To get started, see details on how to get pre-approved for a mortgage.
Myth #5: For a mortgage, fixed rate is better than variable rate
Among long-running mortgage myths, this is one of the most debated. Let’s find out why.
When you secure a mortgage to buy a home, the interest rate will be set one term at a time. For each term (typically lasting 3 to 5 years), you’ll decide whether you want to use a fixed-rate or variable-rate mortgage.
Here’s how they’re different:
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Fixed-rate mortgage: payments remain stable throughout the term, offering predictability and peace of mind
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Variable-rate mortgage: payments are tied to changes in the prime rate, which means monthly payments can rise or fall from one month to the next
While it’s not always the case, variable-rate mortgages are generally offered at a lower rate than fixed-rate loans. So why do more Canadians choose fixed-rate options? It often comes down to risk tolerance.
If you’re able to tolerate the risk that interest rates (and your monthly payments) could climb, a variable-rate mortgage might be right for you. If you prefer the security of steady payments, fixed rate is likely the way to go.
To determine which mortgage option is best for you, it helps to meet with an expert. Reach out to meet with a Meridian Mortgage specialist.
Myth #6: It's perfectly safe to choose a “no down payment” mortgage
You may have heard of a “no down payment” or “flex down” mortgage, which allows you to borrow the entire amount of your loan, without needing to have cash for a down payment. While it may be tempting to buy a house this way, the idea that it’s a smart or safe approach can be misleading.
Here are a few reasons to avoid being tempted by a “no down payment” mortgage:
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Your overall debt load will be far higher, and you’ll pay interest over a longer period of time
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Your monthly mortgage payments will be higher
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You’ll also pay higher mortgage insurance premiums
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Since “no down payment” mortgages are considered higher risk, you’ll have higher term interest rates
There are also mortgage variations that mean you wouldn’t need money for a down payment. Shared equity mortgage programs, for example, can help with a down payment, in exchange for owning a percentage of your home’s equity.
But before you agree to any arrangement that would reduce your equity in your home, it’s important to discuss your options with a mortgage expert.
To learn more about “no down payment” mortgages, and why it’s important to treat them with caution, see Be very cautious with a “no down payment” mortgage.
As you prepare to buy your first home, you’ll learn plenty about mortgage options and terminology. Along the way, it’s important to identify and dispel mortgage myths, as well.
To explore mortgage options with an expert, make an appointment with a Meridian Mortgage specialist.
