Your Mortgage Questions Answered: A Q&A with Sarah McEwan
Buying a home in Alberta? You probably have questions, and a lot of them. From down payment minimums and first-time buyer incentives to fixed vs. variable rates, local mortgage broker Sarah McEwan breaks it down for you.
How much house can I afford?
This is one of the first questions almost every buyer asks and an accurate answer requires a pre-approval, but I can talk a bit about how someone’s maximum purchase price is determined.
Lenders have policies about their maximum lending ratios, and we have to stay within those ranges to get an approval.
When lenders calculate affordability, they look at a combination of:
Income
Existing debts
Credit score
Down payment amount
Property taxes and heating costs
Current interest rates
In Canada, lenders use debt servicing ratios to determine how much mortgage you qualify for. For prime mortgages, housing costs can’t exceed 39% of gross income and total monthly costs including all other debts can not exceed 44% of gross income. When someone comes to me for a pre-approval, I always look at ways to maximize approval and monthly cash flow through strategic planning. Things like optimizing debt, structuring the down payment properly, or choosing the right mortgage product.
It’s important to note that qualifying for a certain amount and comfortably affording the monthly payment are sometimes two different things. My goal as a mortgage broker is to help clients find the sweet spot; a home you love without going over your personal monthly budget.
The best first step? A mortgage pre-approval. It allows us to make a game plan, gives you a realistic price range, and lets you shop with confidence.
How much down payment is needed to buy a home in Alberta?
Down payment minimums in Alberta depend on the price of the home.
5% on the first $500,000
10% on the portion between $500,000 and 1.5 million
20% for homes over 1.5 million
Your down payment can come from several sources including:
Personal savings
Equity from the sale of another property
RRSPs
Gifted funds
When talking about downpayment it is good to note that if you put a down payment great than 20% of the purchase price you do not have to pay for CMHC insurance on your mortgage. I will say though, it’s important to budget for all of the other costs associated with a home purchase such as legal fees, inspections, and adjustments, new furniture, moving expenses, etc. so proper planning is key.
Incentives for first-time home buyers
There are some really great programs available to help first-time buyers get into the market and make home ownership more affordable. Here are some of the highlights:
First Home Savings Account (FHSA)
One of the best tools for available first time home right now. This is a unique savings account available only for first time home buyers, where contributions are tax-deductible like an RRSP and withdrawals for a down payment are tax-free like an TFSA. You can contribute up to $8000 per year to a maximum of $40,000. If you don’t use the money for a downpayment, it can be transferred to your RRSP tax free or withdrawn and taxed.
Home Buyers’ Plan (HBP)
Allows eligible buyers to withdraw up to $60,000 from their RRSP tax-free to use toward a down payment. You have 15 years to repay the funds back to your RRSP or you will be taxed on the amount you withdrew.
30 Year Amortization Option
A new benefit has become available to first-time home buyers, allowing them to take out a mortgage over 30 years. This can be used as a tool to either to reduce monthly payments on a buyer’s current approval or increase the approval size.
First-Time Home Buyers’ Tax Credit
A federal tax credit designed to help offset some of the costs associated with buying your first home. You can claim up to $10,000 on your taxes the year you move. The credit is calculated at 15% so you’ll be eligible for a $1,500 non-refundable tax credit. This means it would reduce the amount of taxes owed that year. If you don’t owe anything that year, you do not receive cash back. This credit can be split between you and your spouse.
GST Rebate on New Builds
First time buyers purchasing new construction homes qualify for a full GST up to $50,000. To qualify you need to be over 18, a permanent resident or Canadian citizen and all applicants need to be first-time home buyers who haven’t received a FTHB GST rebate previously.
The mortgage world changes quickly, and programs are updated often, so working with a mortgage broker can be helpful make sure you’re taking advantage of every option available to you.
Fixed vs. Variable Mortgages
Ahhhh… the age-old question in the mortgage space.
Ultimately the “best” option depends on your goals, risk tolerance, and overall financial picture; not necessarily what rates are doing today. Knowing the difference and your options are the key to you making a decision you feel good about.
Fixed Mortgages
A fixed mortgage has a set interest rate and payment throughout the term. These rates are based on the Canadian bond market.
Great for buyers who:
Like stability and predictability
Want consistent monthly payments
Prefer peace of mind during changing markets
Do not have fallback funds or are on a tight monthly budget and would find it difficult if their payments increased.
Variable Mortgages
A variable mortgage is based on the Bank of Canada prime lending rate. This is traditionally offered at a slightly lower rate than fixed rates but it’s important to know that as the prime lending rate fluctuates, your mortgage interest rate will fluctuate. This will mean either changes to your monthly payment or the percentage of your payment that is going towards principle depending on the type of variable you get.
Great for buyers who:
Are comfortable with some market movement
Want more flexibility, especially if you anticipate selling or moving before the end of your term
Are focused on long-term interest savings potential
Two things most people don’t realize:
1. Variable mortgages often have significantly lower penalties if you break the mortgage early compared to fixed mortgages. That can make a huge difference depending on future plans.
2. Variable rate mortgages can be converted to a fixed rate any time in your term with no penalty. Every lender is slightly different in what they offer but a typical example is if you have 3 years left in your term, the lender will offer you their current 3-year fixed interest rate.
There’s no one-size-fits-all answer, which is why strategy matters. My job is to walk clients through the positives and negatives of both options so they can make a confident and informed decision.
What are the benefits of using a mortgage broker instead of going directly to your bank?
This is a great question, and an important one. The financing side of buying a home can feel overwhelming, especially with so many moving parts and big financial decisions involved. While there are many ways a mortgage broker can help, here are some of the biggest advantages:
1. An Expert Working for You
A mortgage broker is an independent third party so we can recommend the mortgage product that truly makes the most sense for you. You get a professional advocating for your best interests throughout the process. Our job is to understand both your current financial picture and your future goals; not just today, but long term.
We also help clients understand the fine print that’s often overlooked: penalties, flexibility, prepayment options, renewal strategies, and overall mortgage structure. The lowest rate isn’t always the best mortgage, and having an experienced professional in your corner can potentially save you tens of thousands over the life of your loan.
2. More Options = Better Outcomes
With one application, a mortgage broker can access over 30 lenders, including major banks, credit unions, and monoline lenders. This gives clients more opportunities for approval and access to a wider range of rates, products, and strategies tailored to their specific needs. Instead of being limited to one bank’s offerings, you can compare multiple options to find the best overall fit for your financial goals.
Many people are surprised to learn that brokers can often still arrange financing with their existing bank if it ends up being the best fit. The difference is that you have someone negotiating, comparing options, and advocating on your behalf throughout the process.
3. Saving You Time, Stress & Uncertainty
Shopping around from bank to bank can be time-consuming and confusing. A mortgage broker does the legwork for you. Reviewing your application, comparing current rates and products, and guiding you through the financing process from start to finish.
Just like your realtor guides you through the home purchase itself, a broker helps navigate the financing side while keeping everything on track behind the scenes. We work closely with lenders, underwriters, and all parties involved to help ensure deadlines are met and approvals move forward as smoothly as possible.
And best of all, in most standard residential mortgage transactions, there is no cost to work with a mortgage broker. Brokers are typically paid by the lender once the mortgage is funded, similar to how a bank employee is compensated. So, clients gain access to expert advice, market comparison, and ongoing support without paying extra for the service.
If you have more questions about the mortgage process? Get in touch today.
Sarah MacEwan, Advantage Mortgage | Legacy Mortgage Group
Alanna Dawley & Jackie Fraser
REALTOR® | The Spring Team with Grassroots Realty Group
alanna@grassrootsrealtygroup.ca
(780) 288 6763
jackiefraser.realtor@gmail.com
(780) 297 2638