As a buyer you need to be educated on all your options. Our focus is helping you with every step of the process and providing you with the most up-to-date mortgage information available.
Whether you’re shopping for cars, houses, or mortgages, it’s always nice to know your stuff before making any of the big decisions. This section is designed to answer your burning mortgage questions and address everything from basic mortgage definitions to more complex insurance options. If the information you are looking for is not here, you don’t need to know it! Please do not hesitate to give us a call and ask away. There really are no stupid questions but there are often people who claim “I wish I had done a little more research before signing on the dotted line”.
The Loan Process
Buying a new home will likely be one of the most expensive purchases you ever make. For this reason, it is wise to learn a little bit about how the mortgage qualifying process works. For your convenience, we have broken down the process into four simple steps.
Here are four easy steps to getting a new mortgage:
STEP 1: APPLY
Our online application will take approximately 5 minutes to complete. Please try to complete it as accurately as possible, as this will help us place your loan with the best lender and at an excellent rate.
STEP 2: PROCESSING
Your Mortgage Agent will then be in touch to review your application and discuss your specific needs before getting you approved for your mortgage financing.
STEP 3: ACCEPTANCE
When your loan is approved, your Mortgage Agent will send you your approval and a list of required documents. The approval must be signed and returned along with any other required documents.
STEP 4: FUNDING
Once your loan is complete you will need to meet with your lawyer to finalize and register your loan.
Mortgage 101 (The Basics)
Mortgage payments are made up of a principal sum (the amount borrowed) and interest (the cost to you of borrowing money).
The best plan for any type of mortgage is to minimize the amount of interest you pay, here are a few ways to accomplish this:
- A larger down payment means your home ultimately costs less because a smaller mortgage means less interest.
- A shorter amortization, the period over which a loan is repaid.
- A weekly or biweekly payment schedule, instead of monthly.
- Additional lump sum payments.
Remember you don’t have to get your mortgage from the same place you have your savings or chequing accounts. At the end of each term you will be able to change the options of your mortgage such as the payment schedule, the term, the rate, even the mortgage lender. Be sure to consult with your broker before renewing your mortgage term.
Ensure that you have some form of prepayment clause in your mortgage that will allow you to pay down your mortgage with a lump sum or an extra payment without any penalties.
This means you can transfer the terms and conditions of your mortgage to your next home. This may allow you to keep an existing low interest rate if you sell one house and buy another.
This allows you to assume (take over) the existing mortgage on a property. An existing mortgage may have a lower interest rate than the current market offers, so it could make sense to assume this mortgage. In turn, an assumable mortgage may be a selling feature for you when you decide to put your house on the market.
This lets you expand the principal on a first mortgage or increase your mortgage at the lenders agreed-upon rate of interest. This can be a cost-effective way to finance a home renovation or free up some of the equity in your property.
TYPES OF MORTGAGES
This mortgage is for an amount which does not exceed 80% of either the appraised value of the property or the purchase price, whichever is lower. Your down payment is a minimum 20% of the purchase price.
With this type of mortgage, you contribute less than 20% of the cost of the home as a down payment and as little as 5%. A high-ratio mortgage requires mortgage loan insurance. CMHC and Genworth (GE) offer mortgage loan insurance and base the premium on the total mortgage amount. This premium can be added to your mortgage payments or paid in-full on closing.
Second mortgages usually have a higher interest rate and shorter amortization than a first mortgage. Secondary financing is often used when one does not want to break the existing term on a first mortgage. Breaking an existing first mortgage often results in large payout penalties so a second mortgage may be the solution. Taking a second mortgage on your home is typically done to free up some cash for any number of reasons. Perhaps a home renovation or landscaping project to improve the value of the property
Assuming an Existing Mortgage
In assuming a mortgage you take over the vendor’s mortgage as part of the price you pay for the house. Assuming an existing mortgage is quick and saves you money on the usual mortgage arrangement fees, such as appraisals and legal fees.
When you assume a mortgage, you don’t have to arrange financing from another lender and the rate on an existing mortgage may be lower than the prevailing market rate.
Sometimes, if it is specified in the original mortgage agreement, a mortgage can be assumed automatically. If not, you may have to qualify with the lender who holds the mortgage.
Vendor Take Back (VTB) Mortgage
This means the vendor lends you the money to purchase the home. It’s basically a second mortgage.
For example, on a home that costs $150,000, if the vendor has an existing mortgage of $70,000 that you can assume and you have $40,000 for a down payment, the vendor may lend you the outstanding $40,000, to close the deal. This amount would be paid back on a monthly basis much like the mortgage.
Interest Rate Buy Down
A vendor — usually a new-home builder — pays the lender a lump sum to lower the mortgage interest rate by up to 3% over a fixed term, usually one to two years.
A lump sum payment often reduces the face rate of a mortgage by as much as 2%. In turn, this increases the mortgage amount for which you qualify.
New-home builders may offer buy downs or discounts on the mortgage rate to encourage sales. But vendor financing is usually not renewable, so you have to be prepared to pay the going market rate when the mortgage is renewed.
The builder may add the amount used to buy down a rate into the price of the home and as a result you may end up paying a more for the property.
Rate of Interest
Interest is the cost of borrowing money and is paid to the lender. Mortgage interest rates are affected by the prevailing market interest rates. Mortgage rates are either fixed or variable.
A fixed rate is locked-in so that it will not rise for the term of the mortgage.
A variable rate will fluctuate. The rate is set each month by the lender, based on the prevailing market rates. Your monthly payment is fixed to be the same each month for the term of the loan, but the percentage of each payment that goes toward the interest and principal changes.
A variable rate can be a good choice if rates are high when you arrange your mortgage and then fall afterward. But if rates rise, you may want to convert your variable mortgage to a fixed rate.
Also, some lenders offer a protected or capped variable rate. This means your interest rate will not rise above a predetermined limit. However, you usually pay a premium for this protection. See current mortgage interest rates.
The term of a mortgage is the number of years or months over which you pay a specified interest rate
Terms usually last anywhere from six months to 10 years. At the end of the term you either pay off your mortgage in full or renew it. Renegotiating terms and conditions is allowed and encouraged at the time of renewal.
Generally speaking, the longer the term the higher the interest rate. Many experts suggest you select a long term if interest rates are rising. If rates are falling, you may want to select a short term and then lock in the rate when you think rates won’t go any lower.
This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over a 25 year period. The longer the amortization, the lower your scheduled mortgage payments will be but the more interest you pay in the long run.
Schedule of Payments: A mortgage loan is repaid in regular payments set up as monthly, biweekly, or weekly. The more frequent payment schedules can save you money by increasing the amount paid toward the total mortgage each year.
The more frequently you make your payments, the more principal you repay in a year, and therefore, the lower the overall interest you pay on your mortgage.
Open Mortgage: This means you can repay the loan, in part or in full, at any time without penalty. Interest rates are usually higher on this type of loan. An open mortgage can be a good choice if you plan to sell your home in the near future.
Many experts suggest taking an open mortgage for a short term in times of high interest rates and converting to a longer term when rates fall.
A closed mortgage has a fixed interest rate that is locked for the duration of the term and usually offers the lowest interest rate available. It’s a good choice if you like the predictability of knowing your payment will not change from month to month.
Closed mortgages are not very flexible and there are often penalties or restrictions attached to prepayments or additional lump sum payments. It may not be the best choice if you might move before the end of the term. Closed mortgages have terms ranging from six months to twenty years with a five year term being the most common. Generally speaking, the longer the term, the higher the interest rate.
Split or Multiple-rate Mortgage
With this mortgage, you negotiate a portion of your total mortgage loan at one rate and term, and another portion at a different rate and term. In this way you can split your mortgage into two, three or more terms.
There are many more mortgage options available. Some offer a fixed portion and a line of credit portion. To find out more, talk to your mortgage agent as there are many options available.
Where to get a mortgage
Many institutions and individuals lend money for mortgages. These include insurance companies, banks, trust companies, credit unions, finance companies and pension funds. The best option is always to speak with a mortgage broker first. Mortgage brokers know where to find mortgage funds and at the lowest rates with the best conditions available.
What a lender wants from you
Lenders will want some financial information about you and/or your co-buyers to assess your ability to repay the loan. This ability is based on your Gross Debt Service (GDS) and Total Debt Service (TDS) ratios and also on your assets, liabilities, earnings, employment history and your past record of repaying loans. Specifically, your lender may want the following:
- personal information — age, marital status, dependents
- details of employment, including proof of income (T-4 slips, personal income tax returns or a letter from your employer stating your position)
- other sources of income, for instance, pensions or rental income
- current banking information
- verification of your down payment
- consent to run a credit investigation
- a list of assets, including property and vehicles
- a list of liabilities, for example, credit card balances, car loans — the total amount you owe and your monthly payment amounts
- fees for an appraisal or for a copy of a valid appraisal report if one was recently done
- mortgage insurance fees if a high-ratio mortgage is required
- a copy of the property listing
- a copy of the Agreement of Purchase and Sale on a resale home
- plans and cost estimates on a new home
- the condominium financial statements, if applicable
- a certificate for well and septic, if applicable
A mortgage approval should take only a few days, but it’s probably best to allow up to two weeks. During this process, the lender will do a credit check and spot check other information you have provided. In addition, an appraisal of the value of your home may be obtained.
Whether the lender approves your loan application will be determined by an evaluation of the following:
- Capacity: Do you have enough income to repay the debt?
- Credit history: Do you pay your bills on time and do you live within your means?
- Capital: What are your current assets?
- Collateral: What assets can you pledge as security against the mortgage?
If required, a request for mortgage loan insurance is submitted to CMHC, Genworth (GE), or a private insurer. The lender then approves or rejects your mortgage loan.
A pre-approved mortgage is very common. A pre-approval means your lender approves the amount of your mortgage and gives you a written confirmation or certificate for a fixed time period before you start looking for a home. A pre-approval usually lasts for 60 to 90 days and sets the mortgage rate the lender will offer to you. If rates go down in that period, the lender should offer you the new lower rate prior to closing your mortgage.
A pre-approval gives you a head start on house hunting, but your final approval is still subject to an appraisal of the home and a credit review of your finances.
Why use a Mortgage Broker?
Mortgage brokers are independent, trained professionals licensed to represent and provide you with the best advice for your mortgage needs. A mortgage broker’s primary expertise is locating funding for mortgage financing. They know where the best rates can be found. What’s more, they have the knowledge and experience required to present a proposal for financing to a lender in the best way possible ensuring optimal results.
WHY DEAL WITH A MORTGAGE BROKER?
Mortgage brokers represent you, the customer, not the lender. Because they are not employees of a lending institution, brokers are not limited in the product they can offer you. Brokers seek out the best lender package to suit your specific situation, whether it’s with a Chartered Bank, Trust or Insurance Company, or even from Private Funds.
There is a wide assortment of options and features available to home buyers today. Shopping around takes a lot of time and effort. The mortgage application process in today’s very competitive marketplace intimidates many Canadian home buyers. It pays to work with a mortgage professional that will represent you and ensure the mortgage you get is the one best suited to your needs.
Choosing the wrong mortgage can cost you thousands of extra dollars. Mortgage brokers are trained professionals who can help you save thousands by choosing the right mortgage.
OTHER THAN RATES, WHY SHOULD I USE A MORTGAGE BROKER?
Mortgage brokers negotiate for a living and understand the mortgage market in fine detail. The interest rate alone makes up a very small part of the total contract and there are many other considerations to be mindful of when organizing your mortgage. A broker has the expertise to know which lender to place your mortgage with and how to ensure your terms and conditions are optimal. It has been said that in Canada there are two types of buyers. Educated buyers and victims.
Don’t be a victim; deal with a mortgage professional and get the right advice up front!
HOW DO MORTGAGE BROKERS FIND SUPERIOR RATES
Mortgage brokers are in daily contact with lenders and know which applicants and property types attract favourable interest rates from one institution, but higher rates at another. Some lending institutions, in fact, will only accept mortgage submissions from mortgage brokers directly.
Interest rates and lender appetites for certain types of loans can change daily depending on several economic factors. The size of an institution’s portfolio in a particular type of mortgage for example can change their willingness to lower rates and attract new business. Your mortgage broker keeps current and knows which lender to approach first. As a result, mortgage rates obtained by brokers are the best available at the time of placement.
WHY SHOULD I GO TO A MORTGAGE BROKER FIRST?
A professional presentation to a lender on the first application will get the best response and save you valuable time and money. Secondary applications with previous credit bureau inquiries may be more costly.
Often the success of obtaining a mortgage approval depends on the way a proposal is presented and to whom it is sent. Your mortgage broker represents you and is trained to present your mortgage proposal in the best possible light. A carpenter could likely fix your teeth but wouldn’t you rather have a dentist? The same is true of mortgage financing. There are people who may get the job done, but a mortgage broker will take the time and care to make sure it is done right.
DO BROKERS ONLY DO RESIDENTIAL MORTGAGES?
Brokers can place all types of loans. This includes small loans registered on residential property to million dollar commercial loans registered on commercial property. Brokers deal with business loans, leasing loans, even collateral or vehicle loans. Give your broker a call to discuss your plans as there may be many options available to you.
HOW DO BROKERS GET BETTER DEALS THAN MANY BANKS?
The lenders who work with mortgage brokers include traditional sources such as chartered banks, trust companies, corporate funds and private pension funds.
Brokers and banks actually work together and the broker channel can be a very useful source for banks to lend their money. In addition, banks understand that brokers are shopping the entire market and know where to get the best rates. As a result, banks often allow brokers to lend their money at a lower rate than the bank will offer directly. Lending high volumes of money at lower rates is still very profitable for the banks.
For best results always call your Broker first.
CAN I STILL GO THROUGH MY BANK WITH MY BROKER?
Yes, letting a mortgage broker represent you to your own financial institution can often result in a better rate than you could get on your own.
Buying a home involves many financial considerations. Some home buying expenses are one-time costs while others are ongoing commitments. In addition, there are other costs that you may not be aware of or that you may have forgotten to factor into your calculations.
Here is brief description of some of the costs you may need to consider:
LAWYER/TITLE INSURANCE FEES
Even a straightforward home purchase requires a lawyer to review the Offer to Purchase, search the title, draw up mortgage documents, register the loan with the land titles office and tend to the closing details. Lawyer’s fees for a mortgage range widely and will depend on the complexity of the deal.
Some lenders will also require you take out title insurance. Title Insurance is insurance that protects the insured against loss resulting from title and survey defects that would otherwise have been revealed by an up-to-date survey or real property report. Title Insurance also protects the insured against losses associated with fraud and forgery as it relates to the title of your property.
In today’s ever changing home market, it is an excellent idea to use the services of a real estate agent. A realtor has the ability to search thousands of potential listings and save you time and money by pin-pointing the properties you will want to consider. Real estate fees are standardized and all fees are paid from the seller of a property. If you are selling your property you should expect to pay 7% on the first $100,000 and 3.5% on the remaining balance of a sold property. When buying you will not pay your realtor anything as their commission is paid from the seller alone.
At Avenue Financial, our service is almost always free as we do not charge any fees to our clients for arranging mortgages. It should be noted, however, that in some situations mortgage brokers will charge a fee for more complex financing and typically do charge fees for second mortgages. Depending on your situation and the complexity of your financing needs, some fees could apply, but will always be disclosed and discussed in advance of placing your mortgage.
CMHC, GENWORTH, & CANADA GUARANTY – FINANCIAL INSURANCE (AKA MORTGAGE DEFAULT INSURANCE)
If you have a high-ratio mortgage (less than a 20% down payment) your lender will require mortgage default insurance.
This insurance is different from the home insurance that you would buy to protect against damage to your home or valuables. Canada’s three providers, CMHC, Canada Guaranty, and Genworth Financial, offer insurance to the lender to protect against default on payment of the mortgage loan. While this insurance protects the lender, the costs are paid by the homeowner.
The insurance will typically cost between 0.6% and 3.15% of the total amount of the mortgage, but can be higher in unique situations. There is also an application fee which will range from $75 to $235 (typically $165 for a new purchase).
If your loan is not CMHC/Canada Guaranty/Genworth insured, most lenders will require a property appraisal to be done. The appraisal itself is a report designed to determine the current market value of a property.
Some lenders will pick up the cost of an appraisal, while others require the borrower to pay. A basic appraisal for mortgage purposes will fall in the $300–$500 range. Actual cost should be confirmed as it will vary based on the location and size of the property.
HOME INSPECTION COST
A home inspection is different from an appraisal. A home inspection analyses the structural integrity of a home (foundation, electrical, heating etc.) rather than determining a current market value.
Inspectors are unregulated in many provinces, and fees can range widely. You can expect an approximate cost of $250 – $450 for a home priced under $400,000. Larger, more expensive homes cost more to inspect. A thorough two-hour inspection carried out by an engineer will cost closer to the upper limit. Municipalities can also supply any available inspection reports on the property for a fee.
You know what they say; there are only two certainties in life, death and taxes. Property Taxes are always a certainty! If you have a high-ratio mortgage, some lenders may require that you have your property tax paid monthly in installments which are added to your mortgage. You can also have a monthly installment paid through the city using the Tax Installment Payment Plan (TIPP) depending on the province you live in.
A good estimate of the annual property taxes due is roughly 1% of the total value of your home.
Condominium associations charge monthly fees for common-area maintenance such as grounds keeping and carpet cleaning. Some Condo fees include your heat, electricity, cable etc. Fees range widely depending on the type of structure but will generally average between $200 – $600 per month.
An Estoppel Certificate is a document that outlines a condominium corporation’s financial and legal state. The certificate and supporting documents will cost you about $50. Your lawyer will usually handle the acquisition of these documents. (Does not apply in Quebec.)
Your lender will require an up-to-date survey often called a Real Property Report (RPR). Ask the vendor (seller) to provide one as a condition in your Offer to Purchase, otherwise you will have to pay to have one done. The cost of a new survey can be upwards of $500.
In some cases, Title Insurance may be used rather than providing an up-to-date survey, but this may mean getting a survey done at your cost down the line.
There are a lot of factors to consider when deciding how to pay off your mortgage debt, but the extra leg work is well worth the effort. By establishing an effective mortgage strategy, you can save tens of thousands of dollars during the course of your loan and become mortgage free years sooner.
One of the most instrumental and perhaps most overlooked money saving tools is payment frequency. Most lenders will allow you to make your mortgage payments at intervals that suit your needs and preferences. Typically, you have the following options:
- Monthly Payments
- Semi – Monthly Payment
- Bi-Weekly Payments
- Bi-Weekly Accelerated
- Weekly Payments
- Weekly Accelerated
Choosing which type of payment to make will be a matter of convenience, but there are many advantages to paying more frequently than monthly. When you increase the payment frequency you reduce the principal faster, pay less interest and pay off your mortgage sooner. To understand the benefits and drawbacks of the different payment frequencies, let’s look at them in a bit more detail:
The most common way of paying a mortgage is with monthly payments typically on the 1st of every month. This is easy to remember if you are used to paying rent. Most lending institutions will let you make payments on a different date if that is more convenient for you for example the 15th day of every month. The drawback with monthly payments is simply that they still only occur once a month. This means there is more time in between payments for interest to accrue.
Semi-monthly payments are also pretty straight forward. They’re taken twice a month, usually on the 1st and the 15th and each payment is one half of the monthly amount.
Therefore, whether you pay $1,000 in monthly payments or $500 in semi-monthly payments, you’re still paying $12,000 per year. As a result, this option saves you very little money because you are paying the same annual amount just a smaller portion more frequently. See the comparison below for an example of the savings.
Again, we’re not looking at much of a money savings here. Bi-weekly payments are determined by multiplying the monthly payment by 12 and then dividing by 26. So in our $1,000/month example, the biweekly payment ends up being $461.54 – totaling $12,000 per year.
A very small amount of savings are gained due to half of your payment being made early each month. The main reason for choosing this option would be the convenience of matching your payment to your pay days, with lower payments than the accelerated version.
BI-WEEKLY ACCELERATED PAYMENTS
If you’re hoping to pay your principle off faster, this is the way to go. Payments are exactly half of a monthly payment amount and collected every two weeks – meaning exactly every 14 days. For example, if the monthly payment is $1,000 then the bi-weekly payment will be $500. This saves you money because you pay an extra $1,000 over a twelve month period.
How? Well, payments are made on the same day every second week or exactly every 14 days. For example if your payments are Fridays, then your payments would fall on say the 4th and 18th. The next month they might fall on the 1st, 15th and 29th. At least twice a year you will have three payments in the month. This results in an extra two payments per year and, in our $1,000/month example, that results in $13,000 per year, rather than $12,000. You will also make an extra small deduction from the mortgage balance because you’re making small payments faster than if they were larger, monthly payments.
This is a very easy payment plan to keep up with if you receive a pay cheque every two weeks. If you are paid monthly, or semi-monthly (the 1st and 15th of every month), bi-weekly payments can be very difficult because of the extra payments twice a year. This is because your income does not change, but your mortgage payment will be 1 1/2 times the normal size (e.g.$1,500 rather than $1,000). See the comparison below for an example of the savings.
Regular weekly payments don’t make much of a difference in terms of cost savings. The $1,000 monthly payment is multiplied by 12, and then divided by 52. This equals a weekly payment of $230.77 and no surprise at the end of the year you will have ended up paying $12,000. Again, using our example, this is exactly the same amount as monthly.
A very small amount of savings are gained due to three quarters of your payment being made early each month. The main reason for choosing this option would be the convenience of matching your payment to your pay days, with lower payments than the accelerated version.
WEEKLY ACCELERATED PAYMENTS
Similar to bi-weekly accelerated payments, weekly accelerated payments allow you to pay off your mortgage faster by sneaking in a few extra payments. They are one quarter of your normal monthly payment, but they’re made exactly every seven days so you end up making four extra payments per year. In our example, that results in an extra $1,000.
COMPARISON AT A GLANCE:
The table below shows a comparison of interest saved and the length of time this takes.
For this example, we have used a mortgage of $142,772.35 at 7% for an original amortization of 25 years.
What are Pre-payment privileges? Pre-payment privileges are simply the right to pre-pay a specified amount of the principal balance of your mortgage without incurring any penalties.
Most fixed term or closed mortgages will contain a clause allowing for full or partial payment of the principal, separate from the regular payments called for under a mortgage agreement.
The pre-payment amount allowed with most lenders will vary from 10% to 25% of the total mortgage amount annually.
In addition, some lenders will allow you to increase your mortgage payment amounts. This may or may not contribute to your annual pre-payment allowance.
Let’s look at these options in a little more detail:
Most lending institutions will allow you to increase the amount of your mortgage payment. Some allow an increase only once per year, others only once per term, and some as often as you wish. The amount of this increase varies from lender to lender but is typically 10% to 25% of your current monthly payment.
For example: If your present mortgage payment is $1,000 per month you may be able to increase it to $1,200 per month ($1,000 X 20% = $1,200). The extra payment amount reduces a greater amount of your mortgage principal and therefore pays your mortgage off faster.
We would be happy to discuss the current policies of the different lending institutions with you. Feel free to give us a call.
Most lending institutions will allow you to make additional payments. This can mean a one-time lump sum payment, or several lump-sum payments throughout the year. Often this can be done in conjunction with increasing your regular payments. You may have heard of “Double-Up” payments. This simply means doubling the amount of your payment for as long as you wish ($2000 instead of the usual $1000). The total amount you can pay additionally in a year will vary, but usually cannot exceed the pre-payment privilege amount for that year. The pre-payment privilege amount is always pre-set and ranges from 10% to 25% of the original principle balance.
Most lending institutions will allow you to make large lump-sum payments against your mortgage principal. These amounts are principal only and reduce the balance owing rapidly.
The amounts vary by institution; some are up to 25% of the original mortgage amount. So, if you borrowed $120,000 originally, they will allow you to pay up to $30,000 in a lump-sum payment. This is usually allowed only once per year.
Each institution has different rules on the amount and frequency in which you can pay down your mortgage. Some lenders combine the totals from ‘additional mortgage payments’ with ‘lump-sum payments’. We would be happy to discuss the current policies of the different institutions with you.
When you acquire a mortgage, you must decide on a term (typically 1, 3, 5 or 10 years) and an amortization (usually 25 years). Once your term is complete, you must renew your mortgage and can renegotiate your interest rate and amortization period.
Depending on your current financial status and the going interest rates, you may wish to lower your amortization. This typically works best if interest rates are the same or less than what you were previously paying, or if your financial status is a little bit better than when you first signed the original term.
For example, imagine you signed a 5 year term with a 25 year amortization. After your first 5 year term was complete you would have 20 years left on your mortgage. If you could afford a slightly higher payment, you could renew this mortgage and sign another 5 year term but this time with only a 15 year amortization. This would shave 5 years off your total repayment time. In this way, a reduction in your amortization will result in your mortgage being paid off sooner and saving you thousands.
All the amortization period really does is determine your monthly payments. The bigger you choose to make your payment amount, effectively the smaller the length of time (amortization) it will take to pay off your total debt.
Renewal time is always the best time to consider adjusting your term and amortization. Your mortgage specialist will analyze your particular situation and make recommendation on how to pay off your mortgage faster and save you money, lots of it!
The TIPPS Program
TIPPS is the Tax Installment Payment Plan that allows property owners to pay their Property Tax in 12 monthly installments, rather than a single annual payment.
Many of our lenders will also offer this service directly and include the tax portion as part of your monthly payment. Please note, the TIPPS program is not available in all provinces.
HOW DOES TIPPS WORK?
Payments are made on the first of each month by automatic withdrawal from a bank account.
A monthly payment is calculated by dividing your annual tax levy by 12. The program begins January 1st; however you may join at any time during the year. Your payment amount will be adjusted on June 1st to compensate for changes in taxes as a result of the annual tax levy in May. You will be notified of the total amount of installments paid to date and the new installment amount for the remainder of the year.
IS THERE A CHARGE TO JOIN?
Not all cities offer the TIPPS program, but those that do participate do not charge for this service if you start the program January 1. If you join after January 1 there is a 2% filing fee based on the missed installments. An initial payment of the missed installments plus the filing fee must be paid at the time of application.
If you are purchasing a home that is currently on TIPP, you may continue the program by contacting the TIPP Customer Service Centre. We are always happy to help you get set up so just ask!
WHAT IF AN ADJUSTMENT IS MADE TO MY TAX ACCOUNT?
Adjustments to your tax account may be made during the year due to a decrease or increase in your assessed value. You will be given 30 days notice unless other arrangements have been made. They work as follows:
Tax Decrease The monthly installment will continue until your account is paid in full. The final installment will bring your account to a zero balance.
Tax Increase The monthly installment will automatically be adjusted for increases received prior to November. After November 1, increases are due and payable by the due date or you may contact the TIPP Customer Service Centre for alternate arrangements.
In December all accounts are reviewed. If an adjustment is made to your account you will be notified.
SUPPLEMENTARY TAXES AND TIPP
A supplementary tax bill is issued when a building or residence is completed or has had additional construction in the current tax year. If you receive a supplementary tax bill your TIPPS payment will automatically be recalculated and your monthly installment adjusted to account for this bill.
TWO WEEKS WRITTEN NOTIFICATION IS REQUIRED
Non-Payment If any payment is missed, The City has the option to cancel the agreement and request payment of the total outstanding taxes.
TO JOIN TIPP YOU NEED TO…
NOTE: Line of Credit and credit card accounts CANNOT be used for the TIPP program. If you pay Principal Interest and Taxes (PIT) to a mortgage company you must contact them prior to joining TIPP otherwise you will overpay your tax account (two monthly payments would be made in this case).
Rate Holds / Rate Lock
You have probably heard lenders and brokers alike refer to rate holds and rate locks. What exactly does this mean?
A Rate Hold is simply the amount of time that a lender will guarantee a loan’s interest rate. If you get pre-qualified for a mortgage today at a certain rate, then a lender will hold that rate for a given period of time, usually between 60 and 120 days.
This means that even if rates go up, you are safe with the rate at which you were pre-qualified. In a way it is sort of like putting your rate on lay-away.
What happens if rates go down once you have had a rate held? No problem! If rates go down then we will automatically have you re-approved at the new lowest rate. The interest on your mortgage will reflect the lowest rate reached within the duration of your rate hold. This is why it is always a good idea to get pre-approved for your mortgage well in advance of purchasing a property.
A Rate Lock is a written agreement in which the lender guarantees the borrower a specified interest rate for a set period of time. Rate locks refer to closed terms. If you decide, for example, to get a five year term then your rate will be locked or guaranteed for the life of that 5 year term.
Home Buyers Plan (HBP)
WHAT IS THE HBP?
The HBP is a program that allows you to withdraw up to $25,000 from your registered retirement savings plans (RRSPs) to buy or build a qualifying home.
Withdrawals that meet all applicable HBP conditions do not have to be included in your income, and your RRSP issuer will not withhold tax on these amounts. If you buy the qualifying home together with your spouse or common-law partner, or other individuals, each of you can withdraw up to $25,000 tax free.
Under the HBP, you have to repay all withdrawals to your RRSPs within a period of not more than 15 years. Generally, you will have to repay an amount to your RRSPs each year until you have repaid the entire amount you withdrew. If you do not repay the amount due for a year, it will be included in your income for that year.
Following is a complete guide that contains all the information you will need. Also included is the application form.
Mortgage Default Insurance
CMHC / GENWORTH FINANCIAL INSURANCE
For most people the hardest part of buying a home, especially a first home, is saving the necessary down payment. If you have less than 20% of the purchase price to put down, you will be required to purchase mortgage insurance through your lender. Mortgage insurance protects your lender against payment default.
By providing Mortgage Default Insurance to lenders, CMHC and Genworth enable you to finance up to 95% of the purchase price of a home. This means you can buy a property with as little as 5% down. So if the cost is $250,000, you would need a down payment of just $15,000! While you may have to pay an extra premium for their services, these mortgage default insurers have made home ownership possible for millions of Canadians who would otherwise have had to wait much longer in order to save a significant down payment.
HOW DO YOU QUALIFY?
Once the following conditions are satisfied, you are eligible for CMHC / Genworth Financial insurance:
The amount of the premium you will pay varies based on the amount of your down payment.
The more you put down, the lower the premium.
Mortgage Life Insurance
For most of us, buying a home is a major financial commitment. It’s also the one decision that has the greatest effect on the security of our family. When a loved one passes away, the last thing family members should have to worry about is whether or not they can keep their home.
Our Mortgage Life Insurance plans are specifically designed to fit your mortgage and will help ensure your family’s security if something were to happen to you. The Plan will cover the amount owing on your mortgage and provide your family with a mortgage-free home in the event of a tragedy. You’ll have peace of mind knowing your family won’t have to give up their home if something were to happen to you.
Our mortgage customers enjoy the benefit of affordable premiums because our premiums are calculated based on low group rates. Your premium is set at the time you apply for insurance and does not increase as you get older.
No matter which mortgage payment frequency you choose, your premiums will be conveniently collected from your bank account along with your mortgage payment.
IT’S EASY TO APPLY
If you are a resident of Canada, you can apply for coverage of your full mortgage balance. If need be, the mortgage co-borrower and/or guarantor are also eligible to apply at the time you arrange your mortgage.
If you would like to learn more or would like to apply for a mortgage with mortgage life insurance included:
Home Insurance (Fire Insurance)
For most people, their home is their single most valuable possession and their biggest investment. Homeowners’ insurance protects your investment as well as your family and your household possessions.
This insurance is separate from CMHC/Genworth insurance, also known as mortgage default insurance. CMHC/Genworth insurance protects the lender from default on mortgage payments.
Home owner insurance is quite different. If you suddenly lose your home due to fire or natural disaster, or the contents are damaged or stolen, you probably couldn’t afford to replace everything all at once. If you are sued because of injury or damage caused by you on your property, the cost of defending that suit could run into thousands of dollars in legal fees regardless of the outcome of the suit. For this reason, you must have home owner insurance.
Almost all insurance companies offer some form of home owner insurance. If you purchase your home insurance from the same provider as your vehicle insurance you will likely qualify for a multiple policy discount of 15-25%.
WHAT IS A CREDIT REPORT?
A credit report is a history of how consistently you pay your financial obligations. Your credit report is created when you first borrow money or apply for credit. Once established and on a regular basis, the companies that lend money or issue credit cards to you (banks, finance companies, credit unions, retailers, etc.) send the credit reporting agencies specific and factual information about their financial relationship with you, This would include things like when you first opened up your account, if you make your payments on time, if you miss a payment, or if you have gone over your credit limit, etc.
The credit bureaus receive this information directly from the financial and retail institutions and retain it to help other lenders make decisions about granting you credit. Your credit report contains all the information received from those who have lent you money in the past and provides a picture of your financial health. For this reason, other lenders will request your report when they are determining whether or not to grant you a loan. Your credit report is a history that will help them determine what kind of lending risk you are; if you are likely to repay your financial obligations on time or not.
In addition to monitoring your activity on a regular basis, the credit also assign you a numerical ‘credit score’. This number ranges from 300 to 900 and anything in the 700s is considered to be good. To qualify for credit, you typically don’t want to be lower than 620, and definitely not lower than 600.
In general, the higher your score, the lower the probability that you will become delinquent on credit extended to you. While it is true many lenders use bureau scores to help them make lending decisions, understand that each lender will base it’s decision on more than just the score alone.
WHAT IS USED TO CALCULATE MY SCORE?
While each credit bureau is different, both rely on similar algorithms to determine an individual score. Below is a breakdown of the factors used to calculate your score and the approximate weight each holds represented as a percentage:
Payment History (35%): Your credit score will be higher if you pay your bills on time, as opposed to making payments late or not making payments at all. If you have a poor payment history due to missed payments, declaring a bankruptcy or had a debt that went into collection then your credit score will certainly be lower. The more time that passes since you have paid any outstanding debts the less heavily these delinquencies will be weighed.
Current Debt (30%): Just because you’ve been approved for a $10,000 credit limit doesn’t mean you should use it all! The more credit you use in relation to the total you have available; the lower your score will drop. TransUnion recommends keeping your credit card balance below 50% of your allotted limit and ideally around 30%.
Length of Credit History (15%): The longer you’ve been proving yourself as a reliable borrower, the higher your score will be. Someone with a lengthy track record of paying back debts is likely to have a higher credit score.
New Credit (10%): If you have a lot of companies viewing your credit report in a short period of time a red flag may go up at and consequently lower your score. Regardless of the reasons, the bureaus see this activity as a sign of desperation indicating you may be in financial trouble and looking for a way out. Try to avoid applying for every credit card application that comes your way.
Types of Credit (10%): Your credit score is partly calculated based on the types of credit and loans you hold. These may include credit cards, retail accounts, installment loans, mortgages, and consumer finance accounts. A healthy mix of all of these types will boost your score higher.
The period of time required to repay a debt when making regular payments. In the case of a mortgage loan, an amortization is most often 15, 20, or 25 years.
A process for estimating the market value of a particular property.
A lending institution authorized by the Government of Canada through CMHC to make loans under the terms of the National Housing Act. Only Approved Lenders can negotiate mortgages which require mortgage loan insurance.
A legal document signed by a home buyer that requires the buyer to assume responsibility for the obligations of a mortgage by the builder or the original owner.
A mortgage payment that includes principal and interest. It is paid regularly during the term of the mortgage. The payment total remains the same, although the principal portion increases over time and the interest portion decreases.
A certificate that must be obtained from the municipality by the property owner or contractor before a building can be erected or repaired. It must be posted in a conspicuous place until the job is completed and passed as satisfactory by a municipal building inspector.
Costs, in addition to the purchase price of the home, such as legal fees, transfer fees and disbursements, that are payable on the closing date. Closing costs typically range from 1.5%-4% of a home’s selling price.
The date on which the sale of a property becomes final and the new owner takes possession.
Canada Mortgage and Housing Corporation. A Crown Corporation that administers the National Housing Act for the federal government and encourages the improvement of housing and living conditions for all Canadians. CMHC also creates and sells mortgage loan insurance products.
A mortgage which secures a loan by way of a promissory note. The money which is borrowed can be used to buy a property or for another purpose such as home renovation or for a vacation.
COMMITMENT LETTER/ MORTGAGE APPROVAL
Written notification from the mortgage lender to the borrower that approves the advancement of a specified amount of mortgage funds under specified conditions.
CONDITIONAL OFFER/ CONDITIONS OF SALE
An Offer to Purchase that is subject to specified conditions; for example, the arranging of a mortgage. There is usually a stipulated time limit within which the specified conditions must be met.
CONVENTIONAL MORTGAGE LOAN
A mortgage loan up to a maximum of 80% of the lending value of the property. Mortgage loan insurance is not required for this type of mortgage.
A clause in a legal document which, in the case of a mortgage, gives the parties to the mortgage a right or an obligation. For example, a covenant can impose the obligation on a borrower to make mortgage payments in certain amounts on certain dates. A mortgage document consists of covenants agreed to by the borrower and the lender.
A legal document which is signed by both the vendor and purchaser, transferring ownership. This document is registered as evidence of ownership.
Failure to abide by the terms of a mortgage loan agreement. A failure to make mortgage payments (defaulting on the loan) may give cause to the mortgage holder to take legal action to possess (foreclose) the mortgaged property.
Money placed in trust by the purchaser when an Offer to Purchase is made. The sum is held by the real estate representative or lawyer until the sale is closed, and then paid to the vendor.
DISCHARGE OF MORTGAGE
A document signed by the lender and given to the borrower when a mortgage loan has been repaid in full.
The portion of the house price the buyer must pay up front from personal resources, before securing a mortgage. It generally ranges from 5%-25% of the purchase price.
A right acquired for access to or over, or for use of, another person’s land for a specific purpose, such as a driveway or public utilities.
A registered claim for debt against a property, such as a mortgage.
The difference between the price for which a home could be sold and the total debts registered against it. Equity usually increases as the outstanding principal of the mortgage is reduced through regular payments. Market values and improvements to the property also affect equity.
A legal procedure in which the lender gets ownership of the property if the borrower defaults on the mortgage loan.
An alphabetical list of terms or words found in or relating to a specific subject, text, or dialect, with explanations; a brief dictionary.
GROSS DEBT SERVICE RATIO (GDS)
The percentage of the borrower’s gross monthly income that will be used for monthly payments of principal, interest, taxes, heating costs and half of any condominium maintenance fees.
A mortgage loan in excess of 80% of the lending value of the property. This type of mortgage must be insured -for example, by CMHC-against payment default.
An amount of money withheld by the lender during the progress of construction of a house to ensure that construction is satisfactory at every stage. A standard holdback amount is 10% of the total cost of the building project.
The cost of borrowing money. Interest is usually paid to the lender in installments along with repayment of the principal loan amount.
INTEREST ADJUSTMENT DATE (IAD)
A date from which interest on the mortgage advanced is calculated for your regular payments. This date is usually one payment period before regular mortgage payments begin. Interest due from the date your mortgage is advanced to the IAD is due on closing.
The purchase price or market value of a property, whichever is less.
A claim against a property for money owing. A lien may be filed by a supplier or a subcontractor who has provided labour or materials but has not been paid. A lien must be properly filed by a claimant. It has a limited life, prescribed by statute that varies from province to province. If the lienholder takes action within the prescribed time, the homeowner may be obliged to pay the amount claimed by the lienholder. Alternatively, the lienholder may force a sale of the property to pay off the debt.
The ratio of the loan to the lending value of a property expressed as a percentage. For example, the loan- to-value ratio of a loan for $90,000 on a home which costs $100,000 is 90%.
The last day of the term of the mortgage agreement. On this day the mortgage loan must be either paid in full or the agreement renewed.
A mortgage is security for a loan on the property that you own. It is your personal guarantee to repay the loan as well as a pledge of the property as security for the loan.
MORTGAGE LIFE INSURANCE
This insurance guarantees that if you die your mortgage will be paid in full. This insurance can be conveniently purchased through your lender and the premium added to your mortgage payments. However, you may want to compare rates for equivalent products from an insurance broker.
MORTGAGE LOAN INSURANCE
If you have a high-ratio mortgage (more than 80% of the purchase price), your lender will require mortgage loan insurance- available from CMHC or a private insurer. The insurance premium will cost between 0.5% and 3.75% of the amount of the mortgage (additional charges may apply).
A regularly scheduled payment that is blended to include both principal and interest.
The lender who provides the mortgage loan.
The borrower who pledges the property as security for the loan.
Your total financial worth, calculated by subtracting your total liabilities from your total assets.
OFFER TO PURCHASE
A written contract setting out the terms under which the buyer agrees to buy. If accepted by the seller, it forms a legally binding contract subject to the terms and conditions stated in the document.
A document stipulating that, in exchange for a deposit, a specified individual is to be given the first chance of buying a property at or within a specified period of time. An option holder who does not buy at or within the specified period loses the deposit and the agreement is cancelled.
Principal, Interest and Taxes – payments due on a regular basis under the terms of the mortgage agreement. Generally, payments are made monthly and include one-twelfth of the estimated annual municipal and school taxes. Since these taxes change from year to year, this section of the mortgage will change accordingly.
Principal, Interest, Taxes and Heating-costs used to calculate the Gross Debt Service ratio (GDS).
he amount of money actually borrowed.
A real estate representative who is a member of an organization of persons engaged in the business of buying and selling real estate, such as the Canadian Real Estate Association.
To pay off a mortgage or other registered encumbrance and arrange for a new mortgage, sometimes with a different lender.
An additional mortgage on a property that already has a mortgage.
STATEMENT OF ADJUSTMENT
A balance sheet statement that indicates credits to the vendor, such as the purchase price and any prepaid taxes, and credits to the buyer, such as the deposit and the balance due on closing.
A document that illustrates the property boundaries and measurements, specifies the location of buildings on the property, and indicates any easements or encroachments.
The length of time during which a mortgagor pays a specific interest rate on the mortgage loan. The entire mortgage principal is usually not paid off at the end of the term because the amortization period is normally longer than the term.
A freehold title gives the holder full and exclusive ownership of land and buildings for an indefinite period of time. In condominium ownership, land and common elements of buildings are owned collectively by all unit owners, while the residential units belong exclusively to the individual owners. A leasehold title gives the holder a right to use and occupy land and buildings for a defined period of time.
TOTAL DEBT SERVICE RATIO (TDS)
The percentage of gross monthly income required to cover all monthly payments for housing and all other debts, such as car payments.
VENDOR TAKE BACK MORTGAGE
Mortgage financing arranged between the seller of the property and the buyer. The title is transferred to the buyer. Often this type of loan is a second mortgage which the seller is willing to arrange at below market rates to ensure the buyer can purchase the house. Most of these arrangements are not renewable or transferable to the next owner of the house.
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