Mortgage Advice for You
Get pre-approved mortgage loan From Top Lenders
A mortgage is a charge that uses a property as security to ensure that the debt is repaid. The borrower is referred to as the mortgagor, the lender as the mortgagee. The actual loan amount is referred to as the principal, and the mortgagor is expected to repay that principal, along with interest, over the repayment period (amortization) of the mortgage.
Shopping for Best Mortgage Rates?
If you are shopping for great mortgage rates in Mississauga or elsewhere, a licensed mortgage professional can help. Amit can put you in touch with top mortgage professionals, you will have an option to shop around rates with some 20+ lenders, including some of the Top Canadian Banks.
- How much can I afford?
- What is pre-approved mortgage certificate?
- What is fixed vs. variable rate and closed vs. open mortgage?
- What is difference between term and amortization?
- What is conventional and high ratio mortgage?
- What mortgage term should one take?
- What is mortgage loan insurance and how much insurance premium is paid?
- How can I quickly pay down my mortgage and become debt free?
- Is mortgage interest tax deductible in Canada?
How much can I afford?
The shortest answer to that question depends on number of factors. Factors include your gross household income, your down payment the mortgage interest rate and amortization period. Lenders will also consider your assets and liabilities (debt). To help you estimate the maximum mortgage you can afford use a affordability calculator.
If rates go higher, your rate will not be affected, and if rates go lower, you get the lower rate. This protection is solely responsible for savings thousands of dollars for many people who obtained a pre-approval and the rates increased afterwards. With pre-approved loan you can confidently negotiate an offer on a home. A seller also prefers to negotiate an offer of a purchaser who has been pre-approved. With more lenders, lower rates, and no-cost, no-obligation, make us your choice for your pre-approval.
With a fixed-rate mortgage, the interest rate is set for the term of the mortgage so that the monthly payment of principal and interest remains the same throughout the term. Regardless of whether rates move up or down, you know exactly how much your payments will be and this simplifies your personal budgeting. In a low rate climate, it is a good idea to take a longer term, fixed-rate mortgage for protection from upward fluctuations in interest rates.
A variable-rate mortgage (also called adjustable-rate) provides a lot of flexibility, especially when interest rates are on their way down. The rate is based on prime and can be adjusted monthly to reflect current rates. Typically, the mortgage payment remains constant, but the ratio between principal and interest fluctuates. When interest rates are falling, you pay less interest and more principal. If rates are rising, you pay more interest and less principal. Make sure that your variable-rate mortgage is open or convertible to a fixed-rate mortgage at any time, so that when rates begin to rise, you can lock-in your rate for a specific term.
You may also opt to choose mortgages that are combination of both the fixed rate and the variable rate.
Closed vs. Open mortgage
An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgage interest rate is higher than closed mortgages by as much as 1%, or more. They are normally chosen if you are thinking of selling your home, or if expecting to pay off the whole mortgage from the sale of another property, or an inheritance. There is no penalty to break the mortgage at any time.
A closed mortgage offers the security of fixed payment for terms from 6 months to 10 years. The interest rates are considerably lower than open, and if you are not planning on any one of the above reasons, then choose a closed mortgage.
Nowadays, lenders offer as much as 20% prepayment of the original principal, and that is more than most of us can hope to prepay on a yearly basis. If one wanted to pay off the full mortgage prior to the maturity, a penalty would be charged to break that mortgage. The penalty is usually 3 months interest, or interest rate differential.
Term refers to the length of time which a specific mortgage agreement covers, generally between 6 months to 5 years. When the term matures, the balance of the mortgage is either paid off or re-negotiated for another term at the rates in effect at the time.
Amortization Period is the number of years it would take to repay the entire mortgage amount based on a set of fixed payments. The longer the amortization, the more interest is paid over the life of the mortgage. Therefore, when choosing the amortization period, careful planning should be done to meet your cash flows. Remember, the amortization can be easily shortened after the closing, by simply making arrangements to increase your payments. These days banks offer up to 30 year amortization period for conventional mortgages and 25 year amortization for high ratio mortgages.
A down payment of 20% or more is a conventional mortgage. If your down payment is less than 20%, you would qualify for a high ratio mortgage on which you would have to pay insurance premiums. Investment properties do not qualify for a high ratio mortgage, meaning, investors must put down 20% or more down payment in order to qualify for a mortgage loan.
When you're looking at term and interest rates, look also at what you can live with in terms of payment amounts, because trying to predict where interest rates are going is a tough job. There are many forces that affect Canadian interest rates - economic, political, domestic, and international. Even the best economists cannot pinpoint this. Predicting interest rates is very much a gamble and one should be prepared to keep a close eye on the market.
Here's a suggestion: If you feel that rates are at a point you can live with and you want to guarantee that rate as long as possible, go with a long term (5 years, 7 years, and 10 years). If interest rates appear to be rising, take advantage of the lower rate for as long as possible, and remember, if you sell your property, you can take the mortgage with you to the new property or have someone assume the mortgage. It could prove to be a great selling feature if you have an assumable mortgage at very low rate. If rates appear to be falling, you can choose a shorter term (6-month convertible or variable-rate mortgage) that offers the flexibility to lock-in to longer term at any time, just in case the rates start going the other way.
For most people, the hardest part of buying a home — especially a first home — if buyers can put down at least 20 per cent of the cost of home, they don't have to buy mortgage insurance. Mortgage insurance protects lender against payment default. The mortgage loan insurance premium is calculated as a percentage of the loan and is based on the size of the down payment in relation to the total purchase price. For example, a down payment of 5% would incur an insurance premium of 3.15% of loan value plus PST. You can either pay this premium in cash or have your lender add it to your mortgage amount. Calculate Mortgage Insurance Premium.
Here are some ways to help you become mortgage-free faster
- Reduce amortization period: One way to pay off your mortgage faster is to opt-in for a shorter amortization period, that is the number of years it would take to repay the entire mortgage based on a set of fixed payments. The longer the amortization, the more interest is paid over the life of the mortgage. Therefore instead of paying off your loan in 30 years; you can choose shorter amortization period of 25 year, 15 year or even lesser. Make sure that the mortgage payment (principal + interest) does not hurt your monthly cash flow. Don't forget to add property taxes and utility charges to your monthly home expenses.
- Pay bi-weekly or weekly mortgage payments: Once you have the mortgage amount, rate and amortization period, your monthly payment can be calculated. Now is the time to decide how often you want to make your payments, because by selecting the right payment frequency could literally mean thousands of dollars in long term savings. You can save more by paying weekly or bi-weekly in comparison to paying monthly. If you have other payments throughout the month, bi-weekly may be less stressful and easier to budget. If you are self-employed or commissioned, and your income varies greatly from week to week, it may be easier to pay monthly and use your prepayment privileges to knock the amortization period.
- Pre-payments-pay extra payments against principal: This is one of the most important features to look for. Having the prepayment privilege that works for you could mean a difference of thousands of dollars over the life of your mortgage. Although all financial institutions offer some form of prepayment privilege, the amount and how it can be applied varies from one to another. Some Banks offer as high as 20% per year. Ideally, you should work your prepayment privilege as often as possible throughout the year.
- Increase your regular payment: The secret to borrowing is borrow early in your life. The reason is that the future value of the dollar decreases. When you borrow early, your payments are set. As time goes, your incomes increase, but your mortgage payments stay the same, provided you locked-in to a long term, fixed mortgage. Therefore, in the future you may be in a position to increase our payment on your mortgage, regardless if you are paying weekly, bi-weekly, or monthly. Any increase in payment is directly going to pay down the mortgage, thus saving you thousands down the road due to the effect of interest not compounding on that amount for the life of the mortgage. Again, this feature varies from bank to bank.
- Double-up on your payments: A few lenders will allow you to double-up on your payments, and the extra payment goes directly towards the principal. This is a neat feature for someone who prefers monthly payments but wants the results of weekly and bi-weekly payments.
- Early renewal mortgage option: This is a great feature to have when interest rates are on a rise. If you are locked-in to a term and the mortgage will be maturing in months or years down the road, and the mortgage rates are on a rise, you can renew your mortgage before the maturity and lock-in the low rates for a new term.
- Port your lower rate mortgage and avoid mortgage penalty: If you want to take your mortgage with you when you move, you can, if your mortgage has a clause that allows you to do that. This option allows you to continue your savings on your lower rate if the going rates are higher, as well as avoid any penalties if you were to break that mortgage. If you need a larger mortgage for the new property, your existing mortgage amount might also be increased. As for the associated costs, since a new mortgage document must be registered on title, legal fees and normal appraisal fees would be applicable.
- Let sellers assume mortgage: If you are moving and don't want to take your mortgage with you, or you are selling and not buying, an assumable feature can allow the buyers of your property to take over the mortgage, provided they meet the lender's qualifying criteria. By doing so, you will not pay any penalties as you are not breaking the mortgage contract. In fact, if your interest rate is lower than those available at the time, your assumable mortgage suddenly became a great selling feature for your property. A word of caution here: Just because someone assumes your mortgage does not necessarily mean you are off the hook for the responsibility. You must get a release from the lender to ensure that you are no longer liable for it. Some mortgage lenders automatically offer a release, but with others, you must make the request, and do it through your lawyer.
No, mortgage interest is not tax deductible (on your principal residence) in Canada, like in the US. Mortgage interest can be deductible on your investment property. Speak with your accountant/ tax consultant for detailed information about interest deductible mortgages.
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