1. Why is a mortgage pre-approval important?
Mortgage pre-approval is important for a number of reasons:
- It determines the maximum mortgage loan for which you qualify.
- It allows your realtor to show you a range of properties in your price range.
- It allows your realtor to make a realistic offer on your purchase, and saves time in the negotiation process.
- It holds the interest rate for a period of up to 120 days, guarding you against rate fluctuations.
- It provides peace of mind during the home-buying process.
2. May I use my RRSP for a downpayment?
A federal government plan allows first-time homebuyers to use their RRSP's to help finance their home purchase. This money can be used as a downpayment, or to help with other closing costs. The RRSP home ownership withdrawal forms are available from your RRSP holder. The criteria are as follows:
- Each applicant can withdraw up to $25,000.
- Applicants cannot have owned a principle residence within past years.
- You must reside in the home for at least one year.
- The RRSP funds must have been invested for more than 90 days before withdrawal to qualify.
- The withdrawn amount must be repaid, over an interest-free repayment period that can be as long as 15 years.
3. What is an open mortgage?
An open mortgage gives you the most flexibility in making extra payments towards your mortgage principle and even lets you pay off your mortgage entirely whenever you wish to. If you have uncertainty in your life such as serious illness, a looming separation or a possible job transfer to another city, it is better to have an open mortgage. This way if you have to move, you can pay off your mortgage without penalty. This could save you thousands in prepayment penalties.
Warning! Not all open mortgages are created equal. Check to see just how ‘open' your mortgage is!
4. What is a closed mortgage?
Compared to open a closed mortgage offers little to no privileges in paying off your mortgage early. You cannot pay off your mortgage without attracting penalties, called prepayment penalties, from the lender. Often though, you do have the ability to prepay up to 15-20% of the original mortgage balance, each year.
Warning! Not all closed mortgages are created equal check with your mortgage specialist as to how your prepayment penalties are calculated. The difference between one lender's definition of penalty to another lender is enormous.
5. What is a fixed rate mortgage?
It simply means that for the term of your mortgage the interest rate charged is a fixed amount and does not change during the term of your mortgage. If you look at our rate comparisons you will see this distinction between fixed and variable rates.
6. What is a Variable Rate mortgage?
Compared to a fixed rate mortgage a variable interest rate 'floats'. Although the mortgage payment amount may stay the same the actual interest charged may change on a monthly basis. A drop in interest rates is great news for you and it will mean that more of your mortgage payment will go towards reducing your mortgage principle. If interest rates rise then less money will be used for reducing your principle and will instead be used for paying higher interest costs. If you think interest rates will fall over the next 3 to 5 years then purchasing a variable mortgage makes a lot of sense.
With mortgages you pay a price for certainty. You generally pay more for a fixed rate mortgage because the lender is taking the risk as to what the rates will do by fixing the rate for you. You generally pay less for a variable rate mortgage because it is you that is taking the risk of uncertainty as to how interest rates will move - up or down.
With low interest rates variable interest rate mortgages have become popular. Often it is possible to get a rate just over or under the bank prime rate!
7. Should I pay my mortgage payment weekly, bi-weekly, or monthly?
Paying weekly or biweekly gets more money onto your mortgage over the year. This will add up to paying your mortgage down faster over the long term.
If your mortgage payment was a $1000 a month, and you paid it weekly at $250/week, at the end of the year you would have paid $13,000 towards your mortgage as opposed to $12,000 paying monthly.
If it fits your paydays, then take a weekly or biweekly payment. If it doesn't, pay monthly, and put an extra payment on once a year...you will get almost the same benefit!
8. What is amortization? And what is the best amortization period to seek?
Your amortization is the total length of time it will take you to pay off your mortgage. Often when you first get a mortgage it is amortized over 25 years. If you make your mortgage payments over 25 years your mortgage will be paid off. However, your amortization period will not stay constant because different borrowing terms at each renewal vary the amount of interest charged over your amortization period. The length of time to pay off your mortgage will be determined by the interest charge, the loan amount and the amount of payment you make. You should first qualify for a 25-year amortization and then change the amortization down to 15 years by making a larger monthly payment. A 15-year amortization is a great goal for everyone. A good rule of thumb is to pay down your mortgage by at least 1% each year from the original amount. Make your monthly payment and add in this "top up" amount. It is the amount of 'extra' payments that you make that reduces your principal, which saves you, interest charges. Another rule of thumb, when interest rates are low, is to make your mortgage payments as large as possible in your monthly budget. If interest rates rise by next renewal keep your mortgage payments the same and ride out the high rates by taking shorter renewal terms. This way you will get in the habit of making the same larger mortgage payment over time and by doing so will save thousands in interest charges.
9. What is a high ratio or insured mortgage?
Whenever you need a mortgage loan that is greater than 80% of the current market appraised value of your home it is considered a high ratio or insured mortgage. The Canada Mortgage and Housing Corporation (CMHC), insures the lender in case you default on your loan. You must pay for this insurance premium, which is usually included on top of your loan.
10. What is the best term to consider?
Usually the shorter the term, the lower the rate. However many people prefer the comfort of a longer-term mortgage for it's stability. I always recommend a longer term for First Time Buyers. Variable rate mortgages are also a very attractive product that may be right for you!
11. Can I have my property taxes included with my mortgage payment?
Yes, most institutions will allow the option of paying your own taxes, or having them included with your mortgage payments. However, some lenders may insist that they be included with the mortgage due to the loan to value ratio!
12. What is the penalty if I sell my house before the term expires
All lenders will charge a penalty if you pay your mortgage out prior to the end of the term. Usually the penalty is the greater of three months interest, or the interest rate differential, however, this does vary from lender to lender, so be sure to ask your mortgage specialist for more information
13. Why should I use an accredited mortgage professional and How much does it cost?
It is less stressful for and I will save you time and money. As an independent Accredited Mortgage Professional, I am here to work for you and not the bank. I work exclusively with mortgage customers; whether you are purchasing your first home, looking to transfer a mortgage, consolidating date, planning a renovation or searching for your dream home. I can help you choose the mortgage option that best suits your lifestyle and long-term financial goals. I work according to your needs. As a mortgage broker I can offer unbiased expert mortgage advice and help you choose the mortgage that is absolutely right for you.
The good news is that there is no cost to you for our service. The lender that you choose pays the broker fee*. You will benefit from my market access, market knowledge, exceptional negotiation skills, along with my commitment to find the right mortgage that is for you.
*On approved credit (O.A.C), E. &O.E.
14. How do I negotiate for a lower mortgage rate?
This is one of the main reasons to have Mortgage Consultant handle your mortgage! All the bank rates that you see in newspapers and in branches are the posted rates. I deal with all the lender's head offices directly and receive the lowest discounted rates possible and because of our volume sometimes we receive rate specials that no one else has access to. When you shop around at various lenders they all do a credit bureau and this may affect your credit rating. I know where the deals are and the all the different policies of over 40 different lenders. The lenders know that when a Mortgage Consultant is involved the deal will get placed and so they will be as competitive as they can to get the deal.
15. When is it a good idea to consider breaking my closed mortgage and pay the penalty?
If the improved rate change will absorb any prepayment penalty over the next 5 years then more than likely it will be worth it. Check with me to review your situation, sometimes I can find additional incentives or deals that will reimburse some or all of your prepayment penalties. If you switch and keep your mortgage loan amount the same there are usually no legal fees involved - just a simple 'no fee' switch with the new lender.
16. Do I have to pay a penalty if I break my mortgage term and what will it be?
No, if you transfer from one lender to another at your renewal date there will not be any penalties. If you switch before your maturity or renewal date there may be an IRD or 3 month interest penalty. It is important to consult with me to determine whether or not this will work for you. A new lender will often assist with incentives to lure you over to them. Sometimes the incentive can be a cash back offer that can be used towards any prepayment penalties, or a variable rate that shows enough savings to make back the penalty in a very short time.
17. Do I have to wait until my mortgage matures to start shopping for rates?
No, you should have me shopping around for an interest rate at least 120 days prior to your mortgage maturity. Most lenders will guarantee an interest rate for 120 days and as long as you are not increasing your mortgage amount they will cover the costs of transferring your mortgage. If the rates drop before the transfer they will adjust your rate down but if they increase you will have received the lowest possible interest rate.
Most lenders send out renewal notices with posted rates?.always contact me so that I can ensure that you are indeed receiving the lowest interest rate and do not end up paying a higher rate then you need to.
18. Can I still obtain a mortgage if I have been bankrupt?
Yes, but it depends on the circumstances surrounding your bankruptcy as to when you would be eligible and what products are available to you. All lenders have different policies so the best thing would to discuss your situation with me to determine which lenders will be the best for you. At the very least I can help you develop a plan to get you prepared for home ownership as soon as possible.
19. Can I obtain a mortgage to purchase a home and do renovations at the same time?
Yes, even purchasers with 5% down can buy a home and make improvements to it. For high-ratio financing CMHC and GENWORTH insured mortgages are available to cover the purchase price as well a renovations the purchaser would like to make to the property.
Clients want to purchase a home for $350,000
THEY ALSO WANT TO:
Replace carpetsCost = $5,000
Finish BasementCost = $15,000
BASED ON IMPROVEMENTS, THE TOTAL PURCHASE PRICE IS $375,000
You only need 5% of $375,000 ($18,750) for your down payment COMPARED to 5% of $350,000 ($17,500) for the down payment that you would have needed without doing any improvements.
BASED ON THE EXAMPLE ABOVE, YOU ARE ABLE TO DO $20,000 OF IMPROVEMENTS TO THEIR HOME AND IT ONLY INCREASED THEIR DOWN PAYMENT BY $1,250.
20. Should I take a short-term mortgage or a long-term mortgage?
Mortgages are repaid in a series of terms which typically range from six months to 10 years. A short mortgage is usually for 2 years or less. A long-term mortgage is usually 3 years or more. Short term mortgages are appropriate for people who want to minimize their interest rate and are willing to accept more risk of rate fluctuations at renewal. Long term mortgages are chosen by people who want to lock in their rate and not have to worry about rate fluctuations for several years. It comes down to your own personal situation? are you willing to take a little risk or would you rather pay a slightly higher rate for the more security of the longer term.
21. What are prepayment options?
Many lenders allow you to make a limp sum payment, usually 15-20% of the original principal balance each year. In addition, many lenders also include a ?double up your payment option or allow you to increase your payment up to 15% each year of the term. Some even offer a Skip-a-Payment option that allows you to skip a payment if you are having a tough time getting by. Each lender is different so we will go over these options when you are making your mortgage choice.
22. What can I do if I have a variable interest rate and interest rates start to increase?
Most variable mortgages give you the right to convert to a fixed rate at any time. If you think the interest rise is not just a short-term fluctuation but will be a long-term trend then you may want to consider locking into a fixed rate. There is usually no charge for this but you should consult me to ensure that you are getting the best rate possible.
23. Is it important to insure my mortgage with life and disability insurance and should I obtain this from the bank that I receive the mortgage?
Yes, this is the time to review your insurance needs.
Instead of purchasing creditor insurance from the bank it is sometimes better to purchase private insurance from a financial planner or insurance agent. Creditor insurance has many restrictions and limitations. From a mortgage consultant's point of view, we are very concerned when your insurance is tied to your mortgage lender. What do you do if you want to switch to a more competitive lender at your next mortgage renewal? When you switch you will lose your creditor insurance. If your health changes you may not qualify for another insurance plan elsewhere! Keep the mortgage lender and your insurance separate from each other. Creditor insurance (with the bank) also ends once you pay your mortgage off. There are many reasons why you may wish insurance coverage to continue for estate purposes and with private insurance you will have that option. Ask your financial planner or insurance agent for advice.
24. Can I take out Equity in my home to consolidate non mortgage debts?
Yes! Most unsecured debt is charged a much higher interest rate than your mortgage. For many people it makes sense to use available home equity to pay out car loans, personal loans or line of credits and credit cards etc. It will reduce interest costs and overall total monthly payments.
Mortgage Insurance is insurance which protects the lenders in case there is a default in the mortgage from the mortgagor. In Canada, lenders are willing to make mortgage loans with down payments smaller than 20% of the property value (greater than 80% of the property value).
Click on the link below to view details of the companies that offer this type of insurance:
Unique products for those self employed.
26. What exactly is an Interest Only Home Loan?
An interest-only loan is one that gives you the option of paying just the interest or the interest and as much principal as you want in any given month during an initial period of time. Interest only loans can be 30-year fixed-rate mortgages or adjustable-rate mortgages.
If you choose to make the interest-only payment, your monthly payment will be lower than it would be with an interest and principal payment. Your interest rate may or may not be lower than a traditional mortgage, but you will have the option of flexible payments. Interest-only loans allow you to control your payment amount and your cash flow in any given month during the interest only period.