Why Downpayment Source Matters

Tim Lyon • September 28, 2023

If you’re looking to purchase a property, although you might not think it matters too much, the source of your downpayment means a great deal to the lender. Let’s discuss the lender requirements, what your downpayment tells the lender about your financial situation, a how downpayment helps establish the mortgage loan to value.


Anti-money laundering

 

Lenders care about your downpayment source because, legally, they have to. To prevent money laundering, lenders have to document the source of the downpayment on every home purchase.


Acceptable forms of downpayment are money from your resources, borrowed funds through an insured program called the FlexDown, or money you receive as a gift from an immediate family member.


To prove the funds are from your resources and not laundered money from the proceeds of crime, you’ll be required to provide bank statements showing the money has been in your account for at least 90 days or that you’ve accumulated the funds through payroll deposits or other acceptable means.


Now, if you’re borrowing all or part of your downpayment, you’ll need to include the costs of carrying the payments on the borrowed downpayment in your debt service ratios. If you’re the recipient of a gift from a direct family member, you’ll need to provide a signed gift letter indicating that the funds are a true gift and have no schedule for repayment. From there, you’ll need to show the money deposit into your account.


Financial suitability


Lenders care about the source of the downpayment because it is an indicator that you are financially able to purchase the property.


Showing the lender that your downpayment is coming from your resources is the best. This demonstrates that you have positive cash flow and that you’re able to save money and manage your finances in a way that indicates you’ll most likely make your mortgage payments on time. If your downpayment is borrowed or from a gift, there’s a chance that they’ll want to scrutinize the rest of your application more closely.


The bigger your downpayment, the better, well, as far as the lender is concerned. The way they see it, there is a direct correlation between how much money you have as equity to the likelihood you will or won’t default on their mortgage. Essentially, the more equity you have, the less likely you will walk away from the mortgage, which lessens their risk.


Downpayment establishes the loan to value (LTV)


Thirdly, your downpayment establishes the loan to value ratio. The loan to value ratio or LTV is the percentage of the property’s value compared to the mortgage amount. In Canada, a lender cannot lend more than 95% of a property’s value. So, if you’re buying a home for $400k, the lender can lend $380k, and you’re responsible for coming up with 5%, $ 20k in this situation.


But you might be asking yourself, how does the source of the downpayment impact LTV? Great question, and to answer this, we have to look at how to establish property value. Simply put, something is worth what someone is willing to pay for it and what someone is willing to sell it for. Of course, within reason, having no external factors coming into play. When dealing with real estate, an appraisal of the property will include comparisons of what other people have agreed to pay for similar properties in the past.


You’ll often hear of situations where buyers and sellers try to inflate the sale price to help finalize the transaction artificially. Any scenario where the buyer isn’t coming up with all of the money for the downpayment, independent of the seller, impacts the LTV.


All details of a real estate transaction purchase and sale have to be disclosed to the lender. If there’s any money transferring behind the scenes, this impacts the LTV, and the lender won’t proceed with financing. Non-disclosure to the lender is mortgage fraud.


So there you have it; hopefully, this provides context to why lenders ask for documents to prove the source of your downpayment. If you’d like to talk about mortgage financing, please connect anytime; it would be a pleasure to work with you.

Tim Lyon

Mortgage Consultant

How Pre-Payments Can Save You Time and Money

By Tim Lyon • September 23, 2025
Did you know you could pay off your mortgage years earlier — and save thousands in interest — just by making extra payments? It doesn’t take a massive lump sum to make a big difference. Even small, regular pre-payments can add up over time. In this blog, we’ll look at what pre-payment privileges are, how they work, and how to use them to your advantage. What Are Pre-Payment Privileges? Pre-payment privileges are options built into many mortgages that allow you to pay extra toward your principal balance without penalty. Since regular mortgage payments include both principal (the loan amount) and interest (the cost of borrowing), paying down extra principal early reduces the total interest you’ll pay over the life of your mortgage. Most lenders offer at least one of the following: Lump sum payments (up to a certain percentage of the original mortgage each year) Double-up payments (making two regular payments at once) Payment increases (raising your regular payment by a set percentage) Example: The Impact of a 1% Pre-Payment Let’s say you have a $500,000 mortgage with: 25-year amortization 5.25% interest rate If you make a $5,000 lump sum payment every year (about 1% of the mortgage amount), here’s the difference: With no pre-payments, the numbers look like this: Total Pre-Payments: $0 Total Paid Over Time: $898,871 Interest Paid: $398,872 Time to Pay Off Mortgage: 25 years Now compare that to making just one $5,000 lump sum pre-payment each year : Total Pre-Payments: $95,000 Total Paid Over Time: $806,078 Interest Paid: $306,078 Time to Pay Off Mortgage: 19 years and 8 months That means by making manageable yearly pre-payments, you’d save almost $93,000 in interest and become mortgage-free more than 5 years earlier . Other Pre-Payment Options Double-Up Payments This option lets you double your regular mortgage payment whenever you choose, accelerating principal repayment significantly. Payment Increase Privilege Most lenders allow you to increase your regular payment by up to 15% once per year. Which can be a manageable and consistent way to get ahead because the additional payment still goes directly towards the principal. Why Pre-Payments Matter Save Thousands: Reduce the lifetime interest you pay Pay Off Faster: Shorten your mortgage term by years Build Equity Quicker: Increase the value you own in your home sooner Things to Keep in Mind Every lender has different rules about when and how you can make pre-payments Some allow flexible payments anytime; others limit them to specific dates Minimum pre-payment amounts usually apply (often $100 or more) If you’re not sure about your lender’s policy, ask — or I can help you find out. Quick Summary • Lump Sum Payments: Extra payments directly against your mortgage balance • Double-Up Payments: Pay twice your regular installment for faster repayment • Payment Increases: Raise your monthly payment within set limits • Bottom Line: Even small pre-payments can add up to big savings over time Next Steps If becoming mortgage-free faster sounds appealing, review your pre-payment options and start small. Even $100 extra here and there can have a meaningful impact. If you’d like help building a pre-payment strategy that fits your budget, I’m here to guide you. Book a consultation or call 778-988-8409 .  Mortgage Term Glossary Amortization: Total length of time to fully repay your mortgage (usually 25–30 years in Canada) Interest: The cost of borrowing money, charged by the lender as a percentage of your loan balance Lump Sum Payment: An extra payment made directly toward your mortgage balance Payment Increase Privilege: An option to raise your regular mortgage payments within lender limits Pre-Payment Privilege: Contractual allowance to make extra payments without penalty Principal: The original loan amount, not including interest

How Debt Impacts Your Borrowing Power

By Tim Lyon • September 22, 2025
Have you ever wondered how your car loan, credit card balance, or line of credit might affect your ability to qualify for a mortgage? For many buyers, non-mortgage debts play a bigger role than they realize in shaping what lenders will approve. In this blog, we’ll break down how debts impact your borrowing power, why lenders look closely at them, and what practical steps you can take if you’re preparing to buy a home. Understanding Borrowing Power Your borrowing power is primarily determined by your income. If you earn $1,000 per month, no lender will approve a loan requiring $990 in monthly payments, because that would leave you only $10 for all other expenses—a clear recipe for financial trouble. There are two thresholds lenders look at to evaluate your maximum mortgage: The first is the Gross Debt Service (GDS) ratio , which typically allows about 39% of your gross income to go toward a stress-tested mortgage payment and housing costs. The second is the Total Debt Service (TDS) ratio , which looks at all debts combined. It is typically capped around 44% of your gross (before-tax) income and includes: Stress-tested mortgage payment Property taxes Heating costs Any other monthly debt payments How Debts Reduce Borrowing Power For insured mortgages that follow the standard thresholds of 39% and 44%, you can have the equivalent of 5% of your gross income in additional debts before they start to reduce your borrowing power. For uninsured mortgages, exceptions can often increase the GDS limit to 44%, meaning any additional debts directly reduce your borrowing power. Because of this 44% threshold, every dollar of monthly debt requires about $2.27 in additional monthly income to offset it. Since most people can't quickly increase their income, let's look at how debts reduce your borrowing power. Key Math Every $100 in monthly debt payments reduces your mortgage borrowing power by approximately $13,500. (Calculation based on a 4.5% interest rate with a 6.5% stress test qualification and 25-year amortization) That means: A $500/month car loan = about $67,000 less borrowing power A $200/month line of credit = about $27,000 less borrowing power Note: Credit cards that are paid off in full each month do not impact your borrowing power. However, carrying a balance will work against you. Key Benefits of Managing Debt Wisely • Maximize home options – Less debt means more borrowing room for your mortgage. • Lower stress during approval – Fewer debts make qualification smoother. • Flexibility in budgeting – Reduces the risk of stretching yourself too thin financially. Important Considerations • Not all debt is bad — car loans, student loans, or lines of credit can make sense at the right time. • The danger comes when new debts are added while you’re actively shopping for or closing on a home — this can jeopardize approval. • Always talk with your mortgage broker before taking on new credit if you plan to buy soon. Real-World Example Scenario: Couple with household income of $100,000 20% down payment Already carrying a $400/month car loan Impact: Without the loan, they could qualify for around $480,000 mortgage. With the loan, that drops by about $61,000 , reducing their maximum approval to $419,000 . That $61,000 difference could determine whether you qualify for your preferred home or have to settle for a less expensive option. Next Steps If you’re planning to buy a home soon, review your current debts and see how they may affect your approval. Even small payments can make a big difference in how much you qualify for. If you’d like a personalized analysis of how your debts might impact your mortgage options, I’d be happy to help. Book a consultation or call 778-988-8409 Mortgage Term Glossary Borrowing Power: The maximum mortgage amount a lender will approve based on your income, debts, and other factors. Equity: The portion of your home you truly own, calculated as home value minus mortgage balance. Gross Debt Service (GDS) Ratio: A measure of how much of your gross income can go toward housing costs (mortgage payment, property taxes, heating, and sometimes condo fees). Lenders typically cap this at 39%, though exceptions may apply if you have more than 20% down. Gross Income: How much you make before taxes. Stress Test: A requirement that you qualify at a higher interest rate than your actual rate, to ensure affordability. Total Debt Service (TDS) Ratio: A measure of how much of your gross income can go toward all debt obligations (housing costs plus other monthly debt payments). Lenders typically cap this at around 44%, though exceptions may apply if you have more than 20% down. Need help with your mortgage?