Mortgage

Mortgage Professionals

There are generally two ways to get a mortgage in Canada: From a bank or from a licensed mortgage professional. While a bank only offers the products from their particular institution, licensed mortgage professionals send millions of dollars in mortgage business each year to Canada's largest banks, credit unions, trust companies, and financial institutions; offering their clients more choice, and access to hundreds of mortgage products! As a result, clients benefit from the trust, confidence, and security of knowing they are getting the best mortgage for their needs.Whether you're purchasing a home for the first time, taking out equity from your home for investment or pleasure, or your current mortgage is simply up for renewal, it's important that you are making an educated buying decision with professional unbiased advice.

Mortgage Types

Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment of the purchase price, with the mortgage exceeding 75% of the appraised value.
If your down payment is less that 25%, then you qualify for a high-ratio mortgage.  This type of mortgage requires loan insurance, which can cost an additional 0.5% to 3.75% of the mortgage amount.  With this type of mortgage you could also be limited to a maximum house price.

Second Mortgage
Of course, if you cannot add on to your mortgage, you may consider a second mortgage.  Each mortgage uses your home as security and gives the mortgage the right take your home if you default on your loan.  The first mortgage gets paid first in cases of default on your loan.  The first mortgage gets paid first in cases of default and has the best chance of recovering all of its money.  So it only goes to figure that subsequent mortgages usually come with a higher interest rate.

Mortgage Features
Here are some mortgage options you should know about:

Every lending institution is different, and each will have their own customizable mortgage options.  When you're hunting for a lender and a home, see how the following features could be beneficial to you.
Prepayment

This is a wonderful option if you receive regular bonuses or if your income fluctuates throughout the year.  With a prepayment privilege, you have the right to make payments toward the principal portion of your mortgage over and above the monthly payments.  A mortgage with a pre-payment option is closed.  An open mortgage means you can pay the entire principal sum without notice of bonus.

Portability
If you still have time remaining on that fantastic loan you negotiated, portability is on option you'll want to discuss with your lender.  Quite simply, it means transferring the balance of your current mortgage at the existing rates and with the existing terms and conditions, to your new home.

Assumability
Let's say that the vendor has negotiated a dynamite mortgage.  With an assumable mortgage you, the purchases, simply assume the obligations of the mortgage.  This is a wonderful feature especially if the terms are more favourable than the existing market conditions would allow.  Remember, when it is time for you to sell, you may still be liable for any mortgage you allow the buyer to assume.  This means if the buyer stops making payments, you could be accountable for the payments.  By sure to have the subsequent buyer approved for the assumption of the payments, thereby avoiding this potential land mine.

Expandability
If you need additional finds down the road, will your mortgage terms allow you to increase the principal amount?  Usually, your new rate will be a blended amount of the initial mortgage rate and the prevailing rates.  It's a great option to discuss with your lender if you foresee large expenses in your future like renovation or education costs.

Mortgage Term
Over the course of your amortization period, you may have many different mortgages.  The term if simply the length of time that interest rates, payment schedules and obligations to the lender exist.  When the term comes to a close, you will have the option to renew your mortgage (taking into account current market conditions) at your current or new lending institution. You can also put a lump sum toward the principal without restriction, or pay off your entire mortgage without penalty.  If you wish to chance the structure of your agreement during the term you may have to pay a substantial fee to the lender.

Choosing Security or Flexibility
Mortgages are available with closed, open and convertible options, with fixed or variable rates.  The options you choose will reflect your beliefs about the market -  is it going up or down?  - and your short-term goals and desire for long term security.

Amortization
This is the amount of time over which the entire debt will be repaid.  Most mortgages are amortized over 15-, 20-, or 25-year periods.  The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.

For payment comparison over various amortization periods, refer to the schedule of payments.

Schedule of Payments
There Are Ways to Reduce Your Interest Payments

1.    Negotiate a shorter amortization period. (That's the number of years over which you'll pay off the total amount of the mortgage.  Don't confuse this with the term of the mortgage, which can run from 6 months to 10 years and must be renegotiated.)  A shorter amortization period will mean higher monthly payments, but you'll be paying more principal with each payment.  Consider this:

Let's say you borrowed $100,000 at 10% interest.  (I'm using round numbers for ease of illustration and assuming a constant bank rate.  You know that today, you'll certainly be able to get a lower rate.)

2.    Accelerating your payments.  Opt for a weekly or biweekly payment schedule.  More payments per month mean less overall interest.

Let's go back to our $100,000 loan at 10% for 25 years

3.    Put lump sum payments toward your principal.

When negotiating your mortgage, ask how frequently you can make a lump sum contribution.  Most financial institutions allow a percentage of your overall mortgage to be contributed on your annual mortgage anniversary date.  Depending on the type of mortgage you select, you may be able to negotiate additional monthly, or even weekly, payments.  These payments will rocket you toward mortgage freedom.