Question 1

What is a mortgage?

Accepted Answer

What really is a mortgage?A mortgage is a loan secured by a piece of property. A bank or lender will lend you the money to buy a home or property. Once your transaction has completed, you will start to repay that loan with a blended payment of interest and principal. Unlike paying rent, a mortgage is actually paid backwards. Example: January’s mortgage payment was for the month of December.

Question 2

What is the difference between the amortization and the term?

Accepted Answer

Mortgage Amortization and termA mortgage amortization is spread over a longer period i.e.: 25 or 30 years. This is the amount of time it would take to FULLY pay off your mortgage, including interest, assuming nothing changed. Your mortgage term is a length of time you commit to having the same interest rate. A mortgage term can be 1-10 years, but 5-year terms are most common.

Question 3

What is mortgage insurance?

Accepted Answer

Mortgage Insurance

Mortgage default insurance is a premium added onto mortgages if the buyer puts down less than 20% downpayment. In exchange for the premium, the bank is now covered if you ever default on your mortgage payments. Adding the mortgage insurance makes it a safer way for the bank to lend you money and you usually can get the cheapest rate because of it. The most common mortgage default insurance providers are, CMHC, Genworth and Canada Guaranty. Give us a call if you would like to learn how this is calculated.

Question 4

Do I have to renew with the same lender?

Accepted Answer

Renewing your mortgageNo. If your term is up, you should call your broker and see if the renewal rate you are being offered is the best deal out there. Banks and lenders know a lot of people don’t shop around at the time of renewal, and because of this they will offer you a higher renewal rate then their posted rate.

Question 5

How early can I renew my mortgage?

Accepted Answer

Renewing my mortgageWith most lenders you can renew your mortgage up to 120 days before your renewal rate and not pay a penalty.

Question 6

What is a fixed rate mortgage?

Accepted Answer

Fixed Rate MortgagesA fixed rate mortgage is when you sign up for the same interest rate over the entire term of the mortgage. The most common mortgage term is 5 years, but there are many different options.

Question 7

What is a variable rate mortgage?

Accepted Answer

Variable rate mortgagesA variable rate mortgage is when your interest rate increases or decreases because of the prime rate of interest increasing or decreasing. Some banks have an adjustable-rate mortgage which is where your payment stays the same but the interest rate can change.

Question 8

What does it mean to port your mortgage?

Accepted Answer

Porting your mortgagePorting you mortgage is when you take your current mortgage with you to a new home while selling your current one. There are rules around what is and isn’t allowed when you port your mortgage, this is where an experienced broker can help you navigate the sometimes-tricky process. If you need to borrow more funds for the purchase, your lender will do a blend of the two interest rates.

Question 9

How can I pay off my mortgage faster?

Accepted Answer

Become mortgage freeIf you’re looking to payoff your principal faster, depending on your lender, you have lots of options. Lots of the lenders we work with offer 20% prepayment privileges once per year. That means you can make a lumpsum payment of 20% of your mortgage balance once a year without penalty. In addition, you can increase your monthly payment by 20% each year. If those aren’t options for you, look at doing an accelerated bi-weekly payment schedule. Because you make payments every two weeks, you end up making one extra payment per year, decreasing your principal balance faster than if you repaid it monthly.

Question 10

What is a reverse mortgage?

Accepted Answer

Retire with freedomA reverse mortgage is a mortgage that pays you! Pretty sweat, eh? Reverse mortgages are designed to help retired people increase their monthly cashflow or just make things easier for them. By securing a loan against the equity you have in your home, this can allow you to draw monthly payments against the loan or take a bigger lumpsum payment. Lumpsum payments can be used to – help a family member enter the real estate market, do renovations to your home, go on a holiday – whatever you’d like! When it comes time to sell your home, the reverse mortgage is paid out with the sale proceeds. And don’t worry about owing more than your home is worth, reverse mortgage lenders have rules and regulations so they never lend you more than you could repay.

Question 11

What is a purchase plus improvements mortgage?

Accepted Answer

Buying and renovatingIf you find a home that requires a lot of work to be done (mostly cosmetic), ask your broker about a purchase plus improvements mortgage. Often if a home is in a state of disrepair, the lender might not agree with the value of the home to justify the purchase price. Or another reason would be, a lender may not want to lend on a home that is not in great condition because if they ended up in foreclosure, it would not be an easy house to sell. The way a purchase plus improvements works is the buyer will need to get detailed quotes of all the renovations that need to be done to the home. The lender will look over the renovation quotes and see if the buyer can qualify for the reno amounts and the initial mortgage amount. The buyer is required to pay for the renos upfront but once they are complete, the lender will send out an appraiser (at the buyer’s expense) and the appraiser will determine the new value of the home after the renovation has been done. If the lender is satisfied with the renovations and the updated value of the home, they will return the funds to the buyer for the renovations. This can be done in stages ie: after a kitchen reno, bathroom reno, new windows ect. It is important to know that you will be making mortgage payments based on the principal mortgage + improvement costs.

Question 12

How does construction financing work?

Accepted Answer

Construction MortgagesConstruction financing can look a bit different at each bank, but the process is nearly the same. To understand if you qualify for construction financing it is important to have documents in place like build budget, build plans and blueprints, lot price and financial documents. Initially, construction mortgages require you to put more of your own funds into the project than purchasing would. It can range from bank to bank but typically about 20% of the construction cost. Once your cash has been injected into the build, you can start taking draws from the lender to pay the contractors and sub-contractors for doing the work. Typically, the lender will lend up to 80% LTV (less buyers own money injected) for the purchase of the lot and first draw. The second draw is around 20% complete (framing), third draw at lockup between 50-80% complete, then finally at 100% complete. Before each draw is done, an appraiser will do a site visit and give the bank an updated progress inspection report. Each bank will have guidelines on loan to value and draw fees at the time of advancement. Once the house is completed and you have been issued your occupancy permit, you can payout your construction mortgage with take-out financing (traditional mortgage). Each bank will have their own set of requitements, rules and contingency reserve (your own money in case of overages) percentages. While the build is happening, it is common to make interest only payments at an agreed interest rate between you and the lender. Construction rates are usually higher than posted rates. Working with a broker can help you determine which construction financing will best suit your needs!

Question 13

What is APR?

Accepted Answer

APR or the Annual Percentage Rate is the total cost of the mortgage spread over the amortization period, expressed on an annual basis.

Question 14

Do Mortgage Brokers get better rates?

Accepted Answer

Lower rates

When working with a Mortgage Broker we have access to dozens of lenders which means we can compare rates at each lender and find the best option for our clients. We have access to the big 5 banks, credit unions and monoline lenders. A monoline is a bank that only specializes in providing mortgages and they do not have a storefront to walk into. By not having a storefront and hundreds of staff on payroll, they are able to streamline their products and offer their products at lower rates. Instead of paying a bank employee’s salary to originate mortgages, monolines pay mortgage brokers a finder’s fee for bringing them the business. For these reasons we can often secure a lower interest rate than you would be able to at your bank.

Question 15

What is the disadvantage of using a Mortgage Broker?

Accepted Answer

You don’t like saving money, having a direct contact and a personalized experience?

Disadvantages to using a mortgage broker? We don’t think there are any. We offer a FREE, personalized mortgage experience for our clients. We will work with a client over a number of years to guide them along the path to obtaining a mortgage. Not everyone is able to get a mortgage right away, but that doesn’t mean they wont ever get a mortgage. We like to explain the process and give tips and tricks on how to get our client to where they want to be. Maybe that is mortgage free sooner than your amortization. We help current clients make lumpsum payments onto their mortgage or switch around their payment schedule to better suit them. We work for you, not the  bank!!

Question 16

Is it better to use a bank or a Mortgage Broker?

Accepted Answer

Bank vs Mortgage Broker

In our eyes, it’s a simple answer. Clients want someone who is working for their best interests, looking out for them, guiding them and ready and available when you need to ask a question. Working with a Mortgage Broker gives you all of that. Mortgage specialists at a bank are also trying to sell other bank products besides a mortgage and well…they work for the bank, not you.

Question 17

How long is the average mortgage in Canada?

Accepted Answer

Canadian Homeowners

On average, it takes a Canadian about 20-25 years to payoff their full mortgage balance. Looking for ways to pay off your mortgage sooner? We’ve answered that question too! Head back to our question page for more mortgage related topics.

Question 18

What types of mortgages are there available to me?

Accepted Answer

choose the right fit

There are many different of mortgage available in Canada and it’s important to consider all your options. The most common type of mortgage for first-time homebuyers is a “high-ratio insured mortgage”. A mortgage is considered “high-ratio” when the minimum down payment of 5% is utilized for a purchase or provide under 20% down payment. When buyers utilize the 5 - 20%down payment, they are charged a mortgage default insurance premium. The insurance premium gets added into the mortgage balance and most times warrants the lowest interest available.

Another type of mortgage is the Insurable mortgage. This product is offered with monolines and some banks. Having an insurable mortgage means you have over 20% down payment and the lender now pays the mortgage default insurance for you, the purchase price does not exceed 1 million dollars. Interest rates on insurable mortgages fluctuate on a sliding scale based on your loan-to-value.

The last main type of mortgage is the Conventional or Uninsured Mortgage.  Having a down payment of over 20% and a purchase price of over 1 million, could classify you for a conventional mortgage at some banks. Refinances are also considered uninsurable. Ask your mortgage broker if it makes sense to go insured or uninsured.

Question 19

What is a Bridge Loan?

Accepted Answer

Lets bridge the gap

A Bridge Loan can also be known as Interim Financing . A bridge loan is typically used when the sale of the buyer’s current home closes after the purchase of their new home, typically for a 90-day period.  Most lenders require the buyer to have a fully signed purchase contract for the sale of their home before they will register a bridge loan for the new home. A bridge loan is considered a second loan and each lender will adjust for risk according to their regulations and investors along with options for interest accrual or interest only payments.

Question 20

Should I take a long term or a shorter term?

Accepted Answer

Time Flies

When deciding on your mortgage term length, it is important to consider these factors.

• How long do I plan on living in this house for?

• What benefits come to knowing exactly how much my mortgage payment will be for the next five years (assuming fixed rate)?

• How much of a cheaper rate will I get signing on for five year loan, compared to a two or three year mortgage term?

• What is the current trend on interest rates?

• What is the current trend on bond yields?

• What do I feel the most comfortable with?

Question 21

Is a line of credit and a mortgage the same thing?

Accepted Answer

One is not like the other

Lines of credit and mortgages have similarities and big difference’s but hey are not the same.

Line of Credit
  • Lines of Credit are secured by your home (HELOC), and you can access money when you need it.

• Lines of credit often allow you the option to just pay the interest or make balloon payments, there is no set payment amount.

• Interest rates on line of credit are variable rates and often higher than a fixed mortgage rate.

• There are no term lengths associated with lines of credits.

• Lines of credit are registered on the title of your home.

Mortgage
  • A mortgage is generally as set amount of money you borrow at one time.

• There is a monthly payment associated with it.

• Borrowers can choose a fixed rate or a variable rate.

• You will have a monthly payment

• You can borrow up to 95% of the property’s value

• Mortgages have terms and amortizations

• Mortgages have penalties if you break your term.

• Mortgages are registered on title of the property.

MORTGAGES