A mortgage for more than 75 percent of the home's value. A mortgage for more than 76% to 90% of the current market appraised value of your home is considered a high ratio or insured mortgage. If you're a first-time home buyer, then you can borrow up to 95% value and only need to come up with a 5% minimum deposit. The Canada Mortgage and Housing Corporation (CMHC) insures the lender in case you default on your loan, requiring you to pay the insurance premiums that are normally tacked onto your loan. The financial institution can demand this if they feel you are at risk of default even though you’ve paid more than 25% downpayment. However, in this case the mortgage consultant would shop this mortgage to a lender that didn't insist on insuring. The fees for CMHC can be as high as 2.5% of the mortgage principal but often goes unnoticed to the borrower as it is added to the mortgage principal. High ratio loans can have significantly different rates among lenders. Because of this, it is prudent to explore mortgage options with the assistance of a mortgage consultant.
Despite popular belief and a lot of vendor marketing, the difference between making weekly versus monthly payments is minimal. When it comes down to paying off a mortgage, frequency of payment has much less of an impact on the mortgage amount than the size of individual payments. Larger payment amounts towards your principal shortens your amortization period as a larger percentage of individual payments go towards the total amount, further reducing it and thus reducing the amount of interest being paid every month.
A mortgage lender will determine a borrowing limit to confirm how much you're able to afford for mortgage purposes. With varying interest rates, a pre-approval will make it easier to figure out what your borrowing limit is before you search for a new home. With a pre-approval, your lender will guarantee a specific borrowing limit for you for an extended period of time.
A secondary mortgage is an additional mortgage registered against the name of the dwelling. Some lenders call it a "Home Equity Loan" or "Home Equity Line of Credit" and since these types of loans are registered against the name of the dwelling as a second charge, they are all secondary mortgages.
A co-signer is put onto the mortgage and is registered onto the title whereas a guarantor signs a document certifying that they personally guarantee the loan. Most banks will do both and some will prefer that the co-signer live in the property.
No. The lender is not under any obligation to mortgage renewal. It does not 'automatically' renew. In fact if you have 'missed' or been late with any payments the lender could use this as an excuse not to renew with you. A loss of a job or a divorce may be another reason. But, in truth, no excuse is necessary for the lender to call your loan. This can not be understated. For example, it is common for businesses to find their commercial mortgages NOT renewed for any reasonable reason at the end of term. And this may be no fault of the business that paid their mortgage payments on time. A bank could refuse to renew because they don't like the economic climate of a particular geographic area or even a type of industry a business operates in. Think about the hardships suffered. For this reason alone it is critical for businesses and homeowners to obtain a quote from a mortgage consultant 60 to 90 days before their current mortgage matures. This way if your current lender does not offer you a renewal you have a backup lender in the wings. If you use a mortgage consultant you will often benefit with a lower rate anyway.
Often a lender will attempt to charge a renewal fee or tempt you to renew without a fee if you sign within a certain 'time offer' at their posted rates. Keep in mind that you will very rarely pay a renewal fee if you use a mortgage consultant. There is no fee for all conventional residential mortgages because the mortgage consultant will find you a lender that doesn't charge a fee and offers a better mortgage renewal rate than your current lender.
An open mortgage gives you the most flexibility in making extra payments towards your mortgage principal so you can pay it down faster and even lets you pay off your mortgage in full. If you encounter unforeseen circumstances such as a looming separation, serious illness, or relocation to another city for employment, it is better to have an open mortgage because of the flexibility it offers. This type of mortgage allows you to pay it off in full without prepayment penalties which could otherwise cost you thousands of dollars. Be mindful though as not all open mortgages are created equal. Check with a mortgage consultant to see just how flexible and open your mortgage really is!
Compared to open mortgage, a closed mortgage offers little to no flexibility in paying off your mortgage early, and by doing so (if possible) you will incur prepayment penalties from the lender. As with open mortgages, not all closed mortgages are created equal. Check with your mortgage consultant as to how your prepayment penalties are calculated. The difference between one lender's definition of a prepayment penalty to another lender is significant. Closed mortgages are long term and are mainly suitable for those with very steady and predictable incomes and lifestyles, which are not quite as common in today's economy.
Yes! A good rule of thumb is whenever making a change will result in an interest rate savings of 2-3%. This strategy is so popular that it is even has a name in the lending industry - the 'break and run' strategy. The improved rate change will absorb any prepayment penalty over the next 5 years in any switch when the spread between the old rate and the new mortgage rate is great enough. Check with a mortgage consultant as often as they can find additional incentives or deals that reimburse some or all of your prepayment penalties. If you switch and keep your mortgage loan amount the same there are usually no legal fees involved - just a simple 'no fee' switch with the new lender.
No. If you switch from one lender to another at your renewal date you will not incur any penalties whatsoever. If you switch before your maturity date or renewal time there could be a penalty. If you have an open mortgage there likely won't be a charge while the opposite is true for a closed mortgage. It is important to speak with a mortgage consultant so that you can determine whether or not a 'break and run' strategy will work for you. Often your penalties can be minimized when a mortgage consultant finds a new lender eager for your business. A new lender will often assist with incentives to encourage you to switch over. Sometimes the incentive can be as high as a 3% cash back offer that can be used towards any prepayment penalties.
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