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Learning Centre -
Mortgages
Mortgages: The Features and Benefits
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Selecting
the right mortgage is about as important as selecting the right home.
In considering what type of mortgage you would like, review the benefits
adjacent to the mortgage features. Typically mortgage lenders in Canada
provide most of the following mortgage features, additional options
and/or special features. |
|
Fixed Rate Mortgage
|
Features
|
Benefits
|
Considerations/Suitability
|
Open.
6 Months up to 5 years |
You can prepay all or part of the mortgage
at any time without any interest rate penalty. |
Keeps your options open.
When you feel rates are low, it allows you to lock-in for a longer
term or mortgage option.
Short term mortgages offer flexibility if rates are in decline.
|
You think interest rate variations
are NOT a concern.
If rates do rise, your normal living costs will not suffer. You believe
rates will stay the same or go lower.
Mortgage amount is less than 50% of home's value. You are expecting
to pay down large sum(s) against the principle within a short period. |
Convertible.
6 Months up to 1 year |
Can be converted at any time a closed
term without penalty.
|
Keeps your options open.
Allows you to lock-in to a longer term mortgage when rates are
low.
|
You think rates are on the way down.
You wish to minimize the risk of varying payment amounts, while keeping
your options open. Mortgage amount is 50% - 75% of home's value. |
Closed.
6 months, 1 to 5 years 7 and 10 years. |
You have a fixed interest rate for
the length of the term you choose. |
The mortgage rate and payment remain
the same throughout the term, making budgeting easier.
Provides peace of mind over a long period of time knowing that
if rates go up, your payments stay the same.
|
You feel you must have an exact mortgage
payment.
You believe interest rates are going to rise over the years to come.
Mortgage amount is 75% of value of home.
|
|
Variable Rate Mortgage
|
Features
|
Benefits
|
Considerations/Suitability
|
| Variable Open |
Interest rate changes with the fluctuations
in the money market.
You can prepay your mortgage at any time without any interest rate
penalty. |
When you feel rates are low, it allows
you to lock-in for a longer term or mortgage option.
Each time rates go down, more of your monthly payment is applied against
the principal outstanding.
|
You think interest rate variations
are NOT a concern.
If rates do go higher, your normal living costs will not suffer. You
believe rates will stay the same or go lower.
Mortgage amount is less than 50% of home's value.
You are expecting to pay down large sum(s) against the principle within
a short period. |
| Variable Convertible |
Interest rate changes with the fluctuations
in the money market. |
Can be converted at any time to another
mortgage option throughout the term.
Keeps some options open.
Allows you to lock-in any time to more favorable terms.
|
Mortgage amount 95% of home's value
3 years - 5 yrs. |
| Variable Protected |
Interest rate changes with the fluctuations
in the money market.
Rate is capped for term of the mortgage. |
As Interest rates go down, more of
your monthly payment is applied against the principal outstanding.
Also, if rates go up, the interest will not rise above a predetermined
limit. |
You feel you must have an exact mortgage
payment.
You believe it is to your advantage to have the flexibility of a variable
rate. If rates go down, more of the principal is paid, but your rate
is capped if rates increase.
Mortgage amount 75% of home's value. |
| High
Ratio Insured Mortgage |
Low minimum down payment |
Allows down payment as low as 10%. First time buyers can borrow
up to 95% of the maximum allowed by CMHC and GECapital
|
|
| Other Features |
Benefits
|
| Pre-approved Mortgages |
Secure mortgage financing prior to
the home purchase.
You will know how much you can spend |
| Up to 90 day rate guarantee |
Fix the mortgage rate up to 90 days before closing.
If rates go down you get the lower rates, if they rise, your rate
is fixed. (90 days on new construction - Builder secured financing).
|
| Automatic renewal on 6 month mortgages |
Takes away the need to make a new application.
|
| Waver of mortgage switch fee |
Some Institutions charge to switch
mortgage from one home to another |
| Buydown of Mortgage rate |
Making your mortgage a sales feature by buying down the mortgage
rate to a lower percentage point
|
| Assumability |
Have a new buyer take over
the existing mortgage |
| Prepayment amount up 100% |
Increase your mortgage payment up to 100% per year and/or prepay
as much as 10% of your mortgage every calendar year
|
| Additional options/features |
Benefits
|
| Accelerated payments
|
Make weekly payments or 13
payments per year |
| Mortgage life insurance
|
If you die, the insurance
pays off the debt |
| Skip a mortgage payment
|
If you are short of cash
one month, you can miss a payment |
| Extend and blend |
If your rate is high and new rates are lower, you can blend the
old rate with a new rate over an extended term.
|
| Portable mortgage |
Having a great rate and moving it to a new home
|
Things worth remembering...
Pay down your mortgage faster by choosing a shorter
amortization period, or by paying an extra $50 per month and/or rounding
up your mortgage payment. For example, pay $900 instead of $824 each month
for your mortgage period. You will find that instead of paying a mortgage
payment for 25 years, it could be 22 years. You could be mortgage free
3 years earlier.
The type of payment option that you choose can
save you lots of interest over time. The following chart will illustrate
how the payment option chosen and the length of time that the mortgage
(years) is to last can affect the interest.
|
Payments
per year
|
Payment option
|
Payment
amount
|
Amortization
period (years)
|
Potential
savings
|
|
12
|
Monthly
|
$662.38
|
25
|
None
|
|
12
|
Accelerated - Monthly
|
$717.58
|
19.5
|
$30,500.67
|
|
24
|
Semi-monthly
|
$330.58
|
25
|
$360.
|
|
24
|
Accelerated Semimonthly
|
$358.58
|
19.46
|
$30,955.43
|
|
26
|
Bi-weekly
|
$304.50
|
25
|
$785.
|
|
26
|
Accelerated Biweekly
|
$331.19
|
19.3
|
$32,127
|
|
52
|
Weekly
|
$152.12
|
25
|
$946
|
|
52
|
Accelerated - Weekly
|
$165.59
|
19.3
|
$32,497
|
Table note: We have used an $80,000 mortgage at
9% per annum, compounded semi-annually, assuming no pre-payments. Pre-payment
would further increase the savings illustrated.
Applying for a Mortgage...
Independent Mortgage brokers and Accredited
Mortgage Professional (AMP) are
in the business of securing mortgage funds/applications for you the consumer.
They do that by shopping your mortgage application across a broad base of
financial institutions, having those financial institutions bid on your
business.
We do that in two ways, firstly by polling the institutions for their
offering rates and then using a Accredited
Mortgage Professional or broker.
You ask, why a Broker?
A competent mortgage broker provides a broader range of choice and product
for residential real estate loans than any single lender is willing to
provide. As you have just seen from the above tables and mortgage variables,
you need somebody to find the way through the maze of options features.
A Accredited Mortgage Professional
can help you find the perfect mortgage that provides the flexibility and
security your family needs.
When you reach the point where you are ready to apply for your mortgage,
consider using an independent mortgage broker or If you are the type of
person that knows exactly what you need, then all you need to do is to...
[ Make
a Mortgage Application ]
Looking for the perfect mortgage also includes obtaining this special
report on being prepared: "7 Things You Absolutely Need To Know
Before You Apply For A Mortgage Or Loan". It's free - you can
request a copy to be delivered to your e-mail address by completing the
form at right. Please note that FiscalAgents.com will under no circumstances
share your e-mail address with any third party companies.
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