FREQUENTLY ASKED QUESTIONS
Why is a mortgage pre-approval important?
May I use my RRSP to make a downpayment?
What is an open mortgage?
What is a closed mortgage?
What is a fixed rate mortgage?
What is a Variable Rate mortgage?
Should I pay my mortgage payment weekly, bi-weekly, or monthly?
What is amortization? And what is the best amortization period to seek?
What is a high ratio or insured mortgage?
What is the best term to consider?
Can I have my property taxes included with my mortgage payment?
What is the penalty if I sell my house before the term expires?
Are there fees for using a mortgage broker?
What are my closing costs?
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 to make 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 $20,000.
- Applicants cannot have owned a principle residence within the past 5 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- The withdrawn amount must be repaid, over an interest-free repayment period that can be as long as 15 years.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 76% of the current market appraised value of your home it is considered a high ratio or insured mortgage. In certain situations, and depending on the property and your credit, you
can borrow up to 100% of the value of your home. 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 0% down 2.90% of the mortgage balance, 5-9% down 2.75%, 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 me for your situation.
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. We 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 me for more information!
13. Are there fees for using a mortgage broker?
There are no fees on most mortgages as financial institutions usually pay a referral fee to the broker for doing the job of a loans officer - credit research, qualifying the client, collecting documents etc, However, in some rare circumstances lender/broker fees may apply as a client's financial requirements, credit, or job situation are more complicated.
14. What are my closing costs?
Here are some of the costs that you will have to take into account when buying a home. Banks do not lend you the closing costs. So you will need to make sure that you have enough money to cover everything. Please remove the underlining and make it look like the others.
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Phone: 604.929.5295 Fax: 604.960.0710
Subject to change without notice. Please contact us for up-to-date information.