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Information regarding mortgages and how to leverage your equity to invest with intention
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Imprtant documents
Mortgages involve borrowing money to purchase real estate or access the equity in your home.
The terms of the loan, such as the interest rate, monthly payments, and timeline, are outlined in the mortgage document.
The lender places a claim on your property as collateral. If you are unable to repay the mortgage, the lender can foreclose on the property and sell it to recover the debt.
Working with a mortgage broker has several advantages...
A mortgage broker can save you time and money by shopping around for the best mortgage rates and terms from a variety of lenders, including banks, credit unions, and private lenders.
They can also help you navigate the mortgage application process, provide guidance and advice on different types of mortgages, and assist with understanding the home buying process, including closing costs and insurance.
Why is having a detailed discussion of your needs Important?
It is important to discuss your needs with your mortgage broker because it helps them understand your financial goals and tailor their services to best meet them, which includes providing advice and guidance on the best type of mortgage, negotiating rates and terms with lenders, and identifying and addressing any potential obstacles during the mortgage application process.
Mortgage? Whats that?
Mortgages involve borrowing money to purchase real estate or access the equity in your home. The terms of the loan, such as the interest rate, monthly payments, and timeline, are outlined in the mortgage document. The lender places a claim on your property as collateral. If you are unable to repay the mortgage, the lender can foreclose on the property and sell it to recover the debt.
What is a Closed Mortgage?
Why switch from my current accountant?
A closed mortgage is a type of mortgage where the borrower is not allowed to pay off the mortgage early without incurring penalties, known as prepayment penalties, from the lender.
However, it is important to note that not all closed mortgages are the same and it is crucial to check with your mortgage expert about how your prepayment penalties are calculated as the difference between one lender’s definition of penalty to another lender can be significant.
Long-term closed mortgages may not be suitable for those with unpredictable lives. It is recommended to avoid long-term closed mortgages.
What is an Open Mortgage
An open mortgage is a type of mortgage that allows the borrower to make extra payments towards the mortgage principal and even pay off the mortgage entirely at any time without incurring penalties. This type of mortgage is ideal for those with uncertain circumstances such as a serious illness, a looming separation, or a possible job transfer to another city. This is because an open mortgage allows the borrower to pay off the mortgage without penalty which can save thousands in prepayment penalties.
However, it is important to note that not all open mortgages are the same and it is crucial to check with a mortgage specialist to understand the terms and conditions of the open mortgage.
But then I will have to break my current Mortgage?
Breaking a mortgage refers to paying off a closed mortgage before its maturity date and incurring prepayment penalties. While it may not seem ideal, there may be certain circumstances where breaking a mortgage can be beneficial. A general rule of thumb is that breaking a mortgage may be worth it if it results in a 2% – 3% interest rate saving. This strategy is commonly referred to as the “break and run” strategy in the lending industry. The improved interest rate change will absorb any prepayment penalty over the next 5 years when the spread between the old rate and the new mortgage rate is significant. It is recommended to consult with a mortgage consultant to determine the best course of action and explore any additional incentives or deals that may reimburse some or all of the prepayment penalties. Additionally, if the mortgage loan amount remains the same, switching lenders usually involves no legal fees, just a simple “no fee” switch.
But aren't there penalties for breaking my Mortgage?
Switching your mortgage to another lender can be a complex process and it is important to understand the potential penalties that may be incurred. While there may be penalties for switching your mortgage before your renewal date or maturity date, it is not always the case. If you have an open mortgage, there is a chance that you will not incur any charges. However, if you have a closed mortgage, you may be subject to penalties.
Our team of mortgage consultants can help guide you through the process of switching your mortgage and determine whether or not a “break and run” strategy will be beneficial for you. We can work with you to minimize the penalties you may incur by finding new lenders eager for your business and willing to offer incentives such as cash back offers that can be used towards any prepayment penalties. We will be there to help you every step of the way.
What is a High-Ratio Mortgage?
A high ratio mortgage refers to a mortgage where the loan-to-value ratio exceeds 80%. This means that the borrower is putting down less than 20% as a down payment on their home. High ratio mortgages are typically insured by the Canada Mortgage and Housing Corporation (CMHC) to protect the lender in case of default. This insurance comes with an additional premium that is added to the loan. Borrowers who are considered high risk may be required to have this insurance even if they are putting down more than 20%. It’s important to note that rates for high ratio mortgages can vary greatly among lenders, so it’s wise to consult with a mortgage consultant to find the best option for you.
Is a Pre-approval benificial?
A pre-approved is a valuable tool that provides you with a written confirmation of the maximum amount of money you can borrow for your home purchase. When interest rates are fluctuating, it’s crucial to have a clear understanding of your borrowing limit before you start house hunting. With the help of a mortgage specialist, you can take advantage of a pre-approval that guarantees you a specific mortgage amount for a set period of time. The specialist will also help you navigate the market and secure the best rate possible. If the interest rate drops before the lender advances the funds for your mortgage, your mortgage specialist will ensure that you are given the lower rate. If rates rise, the specialist will ensure that you are given the rate that was agreed upon at the time of your pre-approval, giving you a peace of mind and a more secure home buying experience.
What is a Second Mortgage
A second mortgage is a loan that is taken out on a property that already has an existing mortgage. It is secured by the equity of the property, and it is registered as a secondary lien against the title of the property. This type of loan is also known as a “Home Equity Loan” or “Home Equity Line of Credit” and can be an effective way to access the equity in your home. A mortgage specialist can help you explore the options and determine if a second mortgage is the right fit for your financial needs.
Co-signer and Guarantor: Understanding the Differences.
When it comes to obtaining a mortgage, a Co-signer and a Guarantor are two options that may be available to you. A Co-signer is a person who is added to the mortgage and is registered on the title of the property. They share the responsibility of repaying the mortgage loan along with the primary borrower. On the other hand, a Guarantor is someone who signs a document stating that they will personally guarantee the mortgage. They are not registered on the title and do not have an ownership interest in the property. However, in the event that the primary borrower is unable to repay the loan, the Guarantor is responsible for fulfilling the terms of the mortgage. Some lenders may require both a Co-signer and a Guarantor, while others may prefer one over the other. It’s important to consult with a mortgage specialist to understand the specific requirements of the lender and the best option for your situation.
Why isn't my lender renewing my mortgage?
The lender is not obligated to renew your mortgage at the end of the term. Missed payments or personal circumstances like job loss or divorce can be used as reasons for not renewing. It is crucial for homeowners and businesses to obtain a quote from a mortgage consultant 60-90 days before the end of the term, to have a backup plan in case the current lender doesn’t renew. A mortgage consultant can also often secure a lower rate.
Fixed rate? or Variable rate?
The main distinction between a fixed-rate and a variable-rate mortgage is the stability of interest rate and payment. A fixed-rate mortgage has a set interest rate that remains constant throughout the loan term, providing predictability in monthly payments. On the other hand, a variable-rate mortgage has an interest rate that fluctuates based on an index, such as the CIBC Prime Rate. This can lead to changes in the monthly payments, as the percentage that goes towards the principal or interest can vary with changes in interest rates.