Understanding the details of Mortgages

General Craig Barton 17 Jul

When it comes to mortgages, it can be easy to get overwhelmed by the sheer number of options! Fortunately, we are here to help! Below are some of the mortgage details that you should understand to ensure that you are getting the best mortgage for you:

INTEREST RATE TYPE Interest rate is one of the major components to your mortgage and it is important to decide whether you want a fixed-rate, variable-rate or protected (capped) variable-rate mortgage.

A fixed-rate mortgage is ideal for new home owners or those on a fixed income who are more comfortable with a stable monthly payment.

A variable-rate mortgage is ideal for individuals who have room in their budget and want to take advantage of potential interest rate drops – keep in mind, with this mortgage you pay more if the rates go up! Lastly, the protected (capped) variable-rate mortgage operates similarly to variable-rate, except with a maximum (or capped) rate allowing you to take advantage of interest rate decreases while never paying above a set amount should the rates rise.

AMORTIZATION This is the life of your mortgage and is typically a 25-years period whereby you would pay off the entirety of the loan. You can choose a shorter term, which would result in higher payments but allow you to pay less interest over the lifetime of your mortgage and be mortgage-free faster!

PAYMENT SCHEDULE This is the frequency that you make mortgage payments and ranges from monthly to bi-monthly, bi-weekly, accelerated bi-weekly or even weekly payments. There are many great calculators on My Mortgage Toolbox app (available through Google Play and the iStore) that can help you calculate and compare these payment schedules to see what works best for you.

MORTGAGE TERM The standard mortgage term is 5-years and refers to the length of time for which options are chosen and agreed upon, such as the interest rate. When the term is up, you have the ability to renegotiate your mortgage at the interest rate of that time and choose the same or different options.

OPEN VS. CLOSED Open mortgages give you the option to increase mortgage payments or make lump sum deposits on your loan. A closed mortgage does not allow additional payments without penalties.

HIGH RATIO VS. CONVENTIONAL A conventional mortgage is where you put the standard 20% down on your home. However, as not everyone is able to do this, many buyers will end up with a high-ratio mortgage product. High-ratio mortgages need to be insured due to financial institutions only being allowed to lend up to 80 percent of the homes purchase price WITHOUT mortgage default insurance. Therefore, if you choose a high-ratio mortgages over a conventional one, you will pay a monthly insurance premium.

Mortgage Portability

Mortgage Tips Craig Barton 15 Jul

When it comes to getting a mortgage, one of the more overlooked elements is the option to be able to port the loan down the line.

Porting your mortgage is an option within your mortgage agreement, which enables you to move to another property without having to lose your existing interest rate, mortgage balance and term. Thereby allowing you to move or ‘port’ your mortgage over to the new home. Plus, the ability to port also saves you money by avoiding early discharge penalties should you move partway through your term.

Typically, portability options are offered on fixed-rate mortgages. Lenders often use a “blended”system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current interest rate. When it comes to variable-rate mortgages, you may not have the same option. However, when breaking a variable rate mortgage, you would only be faced with a three-month interest penalty charge. While this can range up to $4,000-$6000, it is much lower than the average penalty to break a fixed mortgage. In addition, there are cases where you can be reimbursed the fee with your new mortgage.

If you already have the existing option to port your mortgage, or are considering it for your next mortgage cycle, there are a few considerations to keep in mind:

1. Timeframe: Some portability options require the sale and purchase to occur on the same day. Other lenders offer a week to do this, some a month, and others up to three months.

2. Terms: Keep in mind, some lenders don’t allow a changed term or might force you into a longer term as part of agreeing to port you mortgage.

3. Penalty Reimbursements: Some lenders may reimburse your entire penalty, whether you are a fixed or variable borrower, if you simply get a new mortgage with the same lender –replacing the one being discharged. Additionally, some lenders will even allow you to move into a brand-new term of your choice and start fresh. Keep in mind, there can be cases where it’s better to pay a penalty at the time of selling and get into a new term at a brand-new rate that could save back your penalty over the course of the new term.

Understanding Reverse Mortgages

Reverse Mortgages Craig Barton 13 Jul

Did you know? Reverse mortgages are continuing to gain popularity for older homeowners in Canada! For many Canadians who are looking to retire but currently facing high debt load and ongoing expenses, as well as reduced income, it can be a challenge. This is where the reverse mortgage can help!

This product is also a great option for anyone wanting to assist their elderly parents. Instead of selling the home and moving them to a care home or assisted living, a reverse mortgage is a terrific way to access the equity in the home.

The goal of the reverse mortgage is to allow Canadians over 55 years to tap into the equity of their home, which assists in comfortable financial living. With a reverse mortgage, borrowers are not required to make regular payments. This allows them a considerable inflow of cash, without having to pay off what they owe! The only time payment will be required is when you sell or move out of your home. Reverse mortgages are designed to allow you to access up to 55% of your home’s equity, thereby allowing you to convert your home equity into cash. This can be done as either a one-time lump sum payment, or you can choose to structure it to receive monthly payouts.

Beyond being able to cash in on your home’s equity, a reverse mortgage also has:

• No monthly mortgage payments

• No income or credit qualifications

• Very little paperwork required

• Title and ownership of property remain in homeowner’s name

• Flexible options to break term early if needed

• Penalty waived in the event of death or care home placement to preserve the estate

If you are struggling financially, or want to have a little extra equity on hand to pay off existing debts, gift money to family, expand your quality of life or simply increase your investment portfolio, contact me today! I would be happy to discuss the possibility of a reverse mortgage in further detail with you and ensure it is the best product to suit your needs.

Understanding Mortgage Rates

Mortgage Tips Craig Barton 12 Jul

While not the only factor to look at when choosing a mortgage, interest rates continue to be one of the more prominent decision criteria with any mortgage product. Understanding how mortgage rates are determined and the differences between your typical fixed-rate and variable-rate options can help you make the best decision to suit your needs.

FIXED-RATE VS. VARIABLE-RATE

Fixed-Rate Mortgage

First-time homebuyers and experienced homebuyers typically love the stability of a fixed rate when just entering the mortgage space. The pros of this type of mortgage are that your payments don’t change throughout the life of the term. However, should the Prime Rate drop, you won’t be able to take advantage of potential interest savings.

Variable-Rate Mortgage

As mentioned, variable-rate mortgages are based on the Prime Rate in Canada. This means that the amount of interest you pay on your mortgage could go up or down, depending on the Prime. When considering a variable-rate mortgage, some individuals will set standard payments (based on the same mortgage at a fixed-rate). This means that, should Prime drop and interest rates lower, they would end up paying more to the principal as opposed to paying interest. If the rates go up, they simply pay more interest instead of direct to the principal loan. Other variable-rate mortgage holders will simply allow their payments to drop with Prime Rate decreases, or increase should the rate go up. Depending on your income and financial stability, this could be a great option to take advantage of market fluctuations.