Types of Mortgages
1. What is a fixed rate mortgage?
2. What is a variable interest rate mortgage?
3. What is an open mortgage?
4. What is a closed mortgage?
5. What is a high ratio or insured mortgage?
6. Should I take a short-term mortgage or a long-term mortgage?
7. I have a 5 year term with my mortgage what does this mean?
Mortgage Options
1. When making a mortgage payment is it better to pay weekly, or monthly?
2. What is amortization? And what is the best amortization period to seek?
Locking In
1. If I see a dramatic change with a higher interest rate posted by banks should I
immediately lock in?
Mortgage Renewals
1. At the end of the term of my mortgage is the lender obligated to renew my mortgage?
2. Does a lender charge a renewal fee?
3. Does it make sense at my next mortgage renewal to increase my loan amount to buy RSPs?
Prepayment & Penalties
1. Is there ever a good time to break my closed mortgage and pay the prepayment penalties?
2. Are there always penalties when I switch my mortgage to another lender?
3. If I have extra cash should I pay off my mortgage or buy a RSP?
Why Use a Mortgage Expert?
1. It is possible to negotiate a mortgage rate?
2. So there are many reasons to work with an expert on our next mortgage, but what does
that cost?
3. Are there any other reasons to work with a Mortgage Expert?
Mortgage Insurance
1. Is it important to insure my mortgage with life insurance and disability insurance?
2. Well, would it not be easier to buy my insurance direct from the bank when I obtain my mortgage?
Types of Mortgages [back to top]
1. 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.
2. What is a variable interest 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!
3. What is an open mortgage?
An open mortgage gives you the most flexibility in making extra payments towards your mortgage principal and even lets you pay off your mortgage entirely whenever you wish to.
If you have uncertainty in your life such as a 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 any 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 can not pay off your mortgage without attracting penalties, called prepayment penalties, from the lender. Warning! Not all closed mortgages are created equal check with your expert as to how your prepayment penalties are calculated. The difference between one lender definition of penalty to another lender is enormous. Long term mortgages are great for those who don't want to think about their mortgage rate and don't mind paying more for that privilege
5. What is a high ratio or insured mortgage?
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!
6. Should I take a short-term mortgage or a long-term mortgage?
Historically it was said that when interest rates are low you should take as long of a term as you can afford. When the interest rates are high you should take the shortest term and renew every 6 months or 1-year. This theory has been outdated by the new variable rate products, which offer the lowest rates available, but offer some more risk. It comes down to your individual situation, whether you don't mind the risk, or would rather pay slightly more for the saftey and security of a longer term.
7. I have a 5 year term with my mortgage what does this mean?
Every mortgage has a start date and an end date. The end date is referred to the maturity date. The duration between the end date and start date is the term of your mortgage. You can choose terms of just 6 months, 1, 2, 3, 4, 5, 7, 10 or even a 25-year term. At the end of the term you can pay off your mortgage,accept the lender's invitation to renew it for another term period of your choice, or have Cory find the best product on the market and move your mortgage there.
Mortgage Options [back to top] 1. When making a mortgage payment is it better to pay weekly, or monthly?
Yes, but contact a professional life insurance broker who can properly advise you on the right amount of coverage for your total estate needs. Having enough insurance to cover your mortgage is just one of the expenses you will need to guard against. It is also extremely important to have a current last will and testament. Talk to your Mortgage Expert for a recomendation.
2. 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.
Locking In [back to top]
1. If I see a dramatic change with a higher interest rate posted by banks should I
immediately lock in?
No, if you switch from one lender to another at your renewal date there will not be any penalties whatsoever. If you switch before your maturity or renewal date there may be a penalty. If you have an open mortgage there probably will not be any charge. If you have a closed mortgage you will most likely have a cost. It is important to consult with an expert to determine whether or not a 'break and run' strategy will work for you. Often your penalties can be minimized when your expert finds a new lender anxious for your business. 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.
Mortgage Renewals [back to top] 1. At the end of the term of my mortgage is the lender obligated to renew my mortgage?
No,the lender is not under any obligation to renew your mortgage. It does not 'automatically' renew. In fact if you have 'missed' or been late with any payments the lender could use this as an excuse not to renew with you. A loss of a job or a divorce may be another reason. But, in truth, no excuse is necessary for the lender to call your loan. This can not be understated. For example, it is common for businesses to find their commercial mortgages NOT renewed for any reasonable reason at the end of term. And this may be no fault of the business that paid their mortgage payments on time. A bank could refuse to renew because they don't like the economic climate of a particular geographic area or even a type of industry a business operates in. Think about the hardships suffered. For this reason alone it is critical for businesses and homeowners to obtain a quote from a mortgage broker 60 to 90 days before their current mortgage matures. This way if your current lender does not offer you a renewal you have a backup lender in the wings. If you use a mortgage broker you will often benefit with a lower rate anyway.
2. Does a lender charge a renewal fee?
Often a lender will attempt to charge a renewal fee or tempt you to renew without a fee if you sign within a certain 'time offer' at their posted rates. Please keep it mind that if you use a mortgage broker it is very, very rare for you to ever pay a renewal fee. For all conventional residential mortgages there will not be a fee because the mortgage broker will shop the market for you and find a lender that doesn't charge a fee AND will beat your current lender's mortgage renewal rate!
3. Does it make sense at my next mortgage renewal to increase my loan amount to buy RSPs?
Possibly, If you are in a high tax bracket and have not taken advantage of your RSP room it is an excellent opportunity for you to buy a large amount of RSPs and obtain a large tax refund. Your new RSP portfolio could even be used as an income splitting tool to transfer wealth to your spouse with a spousal RSP. You would get the deduction and your spouse would get investments accruing in his or her name. At retirement, you and your spouse would both draw out pension income that would taxed at a lower rate than if being claimed by only one pensioner. Finally, you could use the tax refund to pay down your mortgage even further. Speak to a Financial Planner to look over your investment plan in detail (see links section).
Prepayment & Penalties [back to top] 1. Is there ever a good time to break my closed mortgage and pay the prepayment penalties?
NA
2. Are there always penalties when I switch my mortgage to another lender?
Often a lender will attempt to charge a renewal fee or tempt you to renew without a fee if you sign within a certain 'time offer' at their posted rates. Please keep it mind that if you use a mortgage broker it is very, very rare for you to ever pay a renewal fee. For all conventional residential mortgages there will not be a fee because the mortgage broker will shop the market for you and find a lender that doesn't charge a fee AND will beat your current lender's mortgage renewal rate!
3. If I have extra cash should I pay off my mortgage or buy a RSP?
Possibly, If you are in a high tax bracket and have not taken advantage of your RSP room it is an excellent opportunity for you to buy a large amount of RSPs and obtain a large tax refund. Your new RSP portfolio could even be used as an income splitting tool to transfer wealth to your spouse with a spousal RSP. You would get the deduction and your spouse would get investments accruing in his or her name. At retirement, you and your spouse would both draw out pension income that would taxed at a lower rate than if being claimed by only one pensioner. Finally, you could use the tax refund to pay down your mortgage even further. Speak to a Financial Planner to look over your investment plan in detail (see links section).
Why Use a Mortgage Expert? [back to top]
1. It is possible to negotiate a mortgage rate?
Absolutely not. Do not chase newspaper headlines but do ask yourself why a change is occurring and whether or not it appears to be a long-term trend or a short term 'blip'. For example, it is not uncommon to see a dramatic interest rate jump due to a constitutional referendum or a fear of a heated economy. But it is short lived. Check with this website and others for updates on economic indicators that affect the rates.
2. So there are many reasons to work with an expert on our next mortgage, but what does that cost?
For conventional residential mortgages there is no fee paid by you. Instead the lenders pay a finders fee to the mortgage broker for bringing them business. For commercial properties a mortgage broker will charge fees but will always put this in writing before any work is commenced. In any case, ethics and laws bind a mortgage broker to state to you whether or not any fees will be charged and to put it in writing before any work is commenced. The mortgage experts will never charge fees for any conventional residential mortgage.
3. Are there any other reasons to work with a Mortgage Expert?
Whenever you need a mortgage loan that is greater than 76% of the current market appraised value of your home it is considered a high ratio or insured mortgage. You can borrow up to 95% value and only need to come up with a 5 percent minimum down payment. 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. CMHC fees are as follows: for 5-9% down 3.25% of the mortgage balance, for 10-14% down 2.00%, for 15-19% down 1.75%, and for 21-24% down it is 1.00%. Rates for high ratio mortgages should be the same as a conventional mortgage, check with your expert for your situation.
Mortgage Insurance [back to top] 1. Is it important to insure my mortgage with life insurance and disability insurance?
Yes, but contact a professional life insurance broker who can properly advise you on the right amount of coverage for your total estate needs. Having enough insurance to cover your mortgage is just one of the expenses you will need to guard against. It is also extremely important to have a current last will and testament. Talk to your Mortgage Expert for a recomendation.
2. Well, would it not be easier to buy my insurance direct from the bank when I obtain my mortgage?
Instead of purchasing creditor insurance from the bank it is better to purchase private insurance from a licensed 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 you are unhealthy you may not qualify for another insurance plan elsewhere! This means you may be stuck staying with a lousy interest rate with the old lender just because you need to keep your insurance. This is poor planning that could cost you thousands of dollars. Keep the mortgage lender and your insurance separate from each other. Also, with creditor insurance once your mortgage is paid off it ceases to exist. 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 certified financial planner or professional insurance agent for advice (see Links section).
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