Why use an Independent Mortgage Broker / Associate?
When you shop the mortgage market you will look at your newspaper for current mortgage rates or use internet to find complete summary of best-posted rates. Sometimes these rates have strings attached that you will not be aware of (it's located in the fine print). Using a mortgage professional they have already sifted through the many policies (and fine print) of the mortgages in the market place being able to advise you what the best mortgage product for your personal financial situation. When you use a mortgage broker there is typically only one credit report done. When you shop around at various lenders they all do one and this will affect your credit rating. Further, a mortgage broker knows where the best mortgage terms/rates are and the particular lending habits of the different lenders that would best suit your needs. We will find the best-posted rate and then negotiate to better your rate even further. The lenders know that when a mortgage broker is involved the deal will get placed and so they will actively bid to get it before a competitor does.
What is the key difference between walking into the Bank Branch and using a Mortgage Broker:
The main difference between using a Mortgage Broker and walking into a bank branch is that the Mortgage Broker is looking out for your best interest. The employee of the bank is there to price products for the bank to make the best profit off their products. The Mortgage Broker is looking to get you the best mortgage product that works for you. Searching various financial institutions until the right mortgage is found for your personal circumstances.
Is there a Fee I have to pay?
For most residential mortgages there is NO fee associated with using a mortgage broker. The only time you will experience a fee is if we would have to search out a private lender (due to your financial circumstances). If we search out a commercial mortgage for you there will be a fee required in some situations we will request that up front.
Is it important to get pre-approved for a mortgage?
The Short Answer:
- You will know your price range when you start shopping for a home.
- Being approved allows you to act quickly if you find a home you’d like to make an offer on.
- Save time during the negotiation process as your realtor is able to make a realistic offer.
- We are able to hold the interest rate for up to 120 days (dependant on mortgage product), guarding you against interest rate increases.
- Getting pre-approved for a mortgage is FREE and puts you under no obligation. Best of all, when you start looking at properties you'll know what you can afford.
What will happen when you pre-approve our Mortgage?
When We Pre-Approve your mortgage, you will:
- Know exactly how much you can reasonably borrow to buy a home.
- Know what your mortgage payments will be.
- Have the confidence to negotiate your purchase and be taken seriously by prospective sellers and their agents.
- Understand the closing costs associated with purchasing a home, including legal fees and other expenses.
- Be able to lock in an interest rate for a specific length of time to protect against an increase in interest rates. If rates go down before that time period lapses, you will automatically get the lower rate for the term you selected.
- After we receive your final offer to purchase, your mortgage can be quickly processed to the approval stage.
What documents are needed for the pre approval process?
- Income Confirmation, which will be used to determine the amount of mortgage you qualify for. Documents can include: a letter from your employer, Current paystubs, T4 slips, personal tax returns, financial statements and Revenue Canada notice of assessments for the past two years.
- Down Payment Confirmation, which can include: savings at your Financial Institution, RRSP’s, a gift from an immediate family member and equity from the sale of another property.
- A Credit Application this provides your lender with information in assessing your mortgage request , net worth statement and credit history.
- Divorce/Seperation Agreements if applicable.
What is a mortgage down payment?
Your mortgage down payment is the portion of your home purchase price that you pay up front yourself. The amount of your down payment (which represents your financial stake or the equity in your new home) should be determined before you start house-hunting.
- To secure a conventional mortgage, you'll need a down payment of 20% or more of the purchase price of the home. Conventional mortgages have the lowest carrying costs because they do not have to be insured against default.
- Or, you can apply for a low down payment insured mortgage with as little as 5% down. Due to Government legislation, low down payment mortgages must be insured to cover potential default of payment; as a result, their carrying costs are higher than a conventional mortgage because they include an insurance premium.
- The larger your down payment, the less your home will cost you in the long run. With a smaller mortgage, your interest costs will be lower and over time this will add up to significant savings.
Where can I find money for my mortgage down payment?
Here are some common strategies for raising money towards a down payment:
- Set up an automatic savings plan and save as much of your pay cheque as you can afford. The lender will request a 90 day history for the account your monies are in.
- Use your RRSP as a down payment. With the federal government's Home Buyer's Plan, you can use up to $25,000 in RRSP savings ($50,000 for a couple) to help make the down payment on your first home. You then have 15 years to repay your RRSP. To qualify, the RRSP funds you are using must be on deposit for at least 90 days. You must not have been a home owner within the past 5 years.
- Get a cash gift from a parent or immediate family member.
- Borrow funds from the bank under a loan.
I have no Down payment - Can I still purchase a house?
There is no longer a lender that will allow cash back mortgages to used as down payments. Call for assistance and advise on how we can help you achieve a down payment.
What will I need for closing costs?
You will also need money for closing costs, which are costs that are payable when you finalize your home purchase. Below are some of the closing costs you may need to pay:
- Default (or High Ratio) Mortgage Insurance Premium and PST (where applicable). This coverage is required if your down payment is less than 20% of the purchase price. This premium, minus the Provincial Sales Tax (PST), can be added to your mortgage balance. The PST/HST must be paid at closing.
- Appraisal Fee (if applicable). Your lender will have hired an independent appraiser to determine the value of the property and whether it meets its lending criteria. This may or may not be required depending on the type of property you are purchasing.
- Bridge Financing (if applicable). If your home purchase closes before the sale of your current home, you'll need to finance the cost of the home purchase for a short period of time.
- Estoppel Certificate (for condominium/strata units). This certificate provides documentation of the condominium corporation's financial well-being and legal state.
- Interest Adjustment Costs. Most lenders expect the first mortgage payment one month after closing the purchase. If you close mid-month, however, some lenders expect the first payment, or at least the interest accrued during that time period, at the beginning of the next month, two weeks before you would normally expect. When arranging your mortgage, ask how interest is collected to the interest adjustment date.
- Legal/Notarial Fees and Disbursements. You will be required to retain a lawyer or notary to act for you in the purchase and mortgaging of the property, and you will be responsible for payment of all related fees and disbursements. Fees for these services can vary significantly, so you may wish to shop around before making your decision.
- Title Insurance. Title insurance is an insurance policy that protects you, the homeowner, against challenges to the ownership of your home or from problems related to the title to your home. Talk to your lawyer or notary to see if a title insurance policy is right for you.
- Land Transfer Tax (Land Registry Tax). Most provinces levy a one-time tax (sometimes called the “Welcome Tax”) based on a percentage of the purchase price of the property. This tax is not applicable in Alberta.
- Township/Municipality Levies (applicable to new homes within subdivisions). For such items as tree planting, school taxes and other items until they are assumed by the town/municipality.
- Property Tax/Utility Bill Adjustments. The purchase price of a resale home is always payable "subject to the usual adjustments" at closing. This means that any amount that the seller has already prepaid will be adjusted so that you pay the excess amount back to the seller, and vice versa. The most common adjustments occur on property taxes and utility bills that have been paid ahead of time.
- Real Property Report/Survey Certificate. Required by the financial institution for mortgage approval, and by your lawyer or notary for transfer of ownership. Ensure that this certificate reflects improvements such as decks, patios or pools. If outdated, your offer to purchase should indicate whether the seller or you will incur the necessary expense to obtain the appropriate certificate.
- Property Insurance. All homes must have adequate insurance coverage against fire, loss, theft and liability. Your mortgage lender will require you to provide your lawyer or notary with proof that your insurance is in place by the closing date.
- Home Inspection. If you want to have the home inspected by a professional building inspector you will need to pay an inspection fee. The inspection may bring to light areas where repairs or maintenance are required.
- Moving Costs. Remember to factor in the costs of moving from your current home to your new place.
- Miscellaneous Costs. Finally, there will be all kinds of things you'll have to purchase early on—appliances, garden tools, cleaning materials, etc. Be sure to also factor these expenses into your initial costs.
What are the monthly costs of owning a home?
Below is a list of common monthly expenses you can expect as a home owner. Some of them, like taxes, may not be billed monthly, so you may wish to do the calculations to break them down into monthly costs.
- Mortgage Payment. This will probably be your largest monthly expense. Several factors the amount you financed, term and rate, amortization and payment schedule—affect the amount of your payment.
- Property Taxes. Depending on your location, you'll get a property tax bill two, three or four times a year. You can usually pay your tax bill by a variety of methods: add into your mortgage payment, a cheque to your municipality, through online banking, or (if your municipality allows) automatic debit from your chequing account.
- Property Insurance. Your lender will require that you have property insurance in place at closing, but it's also an ongoing expense for as long as you own your home.
- Utilities. You'll be responsible for all utility bills including heating, gas, electricity, water, telephone and cable.
- Maintenance and Up-keep. You will also have to cover the cost of painting, roof repairs, electrical and plumbing, walks and driveway, lawn care, etc.
What is a fixed rate mortgage?
It simply means that for the term of your mortgage the interest rate charged is a fixed amount and does not change during the term of your mortgage.
What is a variable interest rate mortgage?
Compared to a fixed rate mortgage a variable interest rate 'floats'. Although the mortgage payment amount may stay the same the actual interest charged may change on a monthly basis. A drop in interest rates is great news for you and it will mean that more of your mortgage payment will go towards reducing your mortgage principle. If interest rates rise then less money will be used for reducing your principle and will instead be used for paying higher interest costs. If you think interest rates will fall over the next 3 to 5 years then purchasing a variable mortgage makes a lot of sense. With mortgages you pay a price for certainty. You generally pay more for a fixed rate mortgage because the lender is taking the risk as to what the rates will do by fixing the rate for you. You generally pay less for a variable rate mortgage because it is you that is taking the risk of uncertainty as to how interest rates will move - up or down. With low interest rates variable interest rate mortgages have become popular. Often it is possible to get a rate under the bank prime rate.
What can I do if I have variable interest rate mortgage and interest rates start to rise?
Most variable mortgages give you the right to change to a fixed rate at any time. If you think the interest rise is not just a short-term fluctuation but will be a long-term trend then 'lock into' a fixed rate immediately. There is usually no charge for this great benefit.
What is an open mortgage?
An open mortgage gives you the most flexibility in making extra payments towards your mortgage principal and even lets you pay off your mortgage entirely whenever you wish to. If you have uncertainty in your life such as a serious illness, a looming separation or a possible job transfer to another city it is better to have an open mortgage. This way if you 'have to move' you can pay off your mortgage without any penalty. This could save you thousands in prepayment penalties. Warning! Not all-open mortgages are created equal. Check with us to see just how 'open' your mortgage is!
What is a closed mortgage?
Compared to open a closed mortgage offers little to no privileges in paying off your mortgage early. You can not pay off your mortgage without attracting penalties, called prepayment penalties, from the lender. Warning! 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 definition of penalty to another lender is enormous.
Is there ever a good time to break my closed mortgage and pay the prepayment penalties?
Yes! A good rule of thumb is whenever making a change will result in a 1.5% (or greater) interest rate saving. This is so popular that it is even has a name - the 'break and run' strategy in the lending industry. 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 us often as we may be able to 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.
Is a longer or shorter mortgage term better for me?
Mortgage terms vary widely—from six months right up to 25 years. As a rule, the shorter the term, the lower the interest rate, and the longer the term, the higher the rate.
- A longer-term mortgage is worth considering if you don't want to keep an eye on mortgage rates. Our 4–, 5– and 7–year mortgages let you take advantage of today's rates, while enjoying long-term security knowing the rate you sign up for is a sure thing.
- While 4– or 5–year mortgages are what home buyers typically choose, you may want to consider a short-term mortgage if you may be selling your home in the near future, if you believe interest rates may decrease in the future, or if you want flexibility in your mortgage and are not prepared to make a long-term commitment right now.
Before selecting your mortgage term, we suggest you answer the following questions:
- Do you plan to sell your house in the short-term without buying another? If so, a short mortgage term may be the best option.
- Do you believe that interest rates have bottomed out and are not likely to drop more? If that's the case, a long mortgage term may be the right choice for you. Similarly, if you think rates are currently high, you may want to opt for a short to medium length mortgage term hoping that rates drop by the time your term expires.
- Are you looking for security as a first-time home buyer? Then you may prefer a longer mortgage term, so that you can budget for and manage your monthly expenses.
- Are you willing to follow interest rates closely and risk there being increased mortgage payments following a renewal? If that's the case, a short mortgage term may best suit your needs.
What is amortization? And what is the best amortization period to seek?
Your amortization is the total length of time it will take you to pay off your mortgage. Often when you first get a mortgage it is amortized over 25 years (We do have the option to amortize a mortgage over 30 years). If you make your mortgage payments over 25 years your mortgage will be paid off. However, your amortization period will not stay constant because different borrowing terms at each renewal vary the amount of interest charged over your amortization period. The length of time to pay off your mortgage will be determined by the interest charge, the loan amount and the amount of payment you make. You should first qualify for a 25-year amortization and then change the amortization down to 15 years by making a larger monthly payment. A 15-year amortization is a great goal for everyone. A good rule of thumb is to pay down your mortgage by at least 1% each year from the original amount. Make your monthly payment and add in this "top up" amount. It is the amount of 'extra' payments that you make that reduces your principal, which saves you, interest charges. Another rule of thumb, when interest rates are low, is to make your mortgage payments as large as possible in your monthly budget. If interest rates rise by next renewal keep your mortgage payments the same and ride out the high rates by taking shorter renewal terms. This way you will get in the habit of making the same larger mortgage payment over time and by doing so will save thousands in interest charges.
When making a mortgage payment is it better to pay weekly or monthly?
It is not really the frequency that makes a real difference but how much you pay. An actuary could do the math and say that by paying weekly you are 'slightly' better off when comparing 12 monthly payments versus 52-week payments. There is a lot of advertising out there that promotes weekly but the difference is really not that significant. What is important is whether or not you are making an extra payment towards your principal with whatever frequency that you choose. Any extra payment towards your principal dramatically improves your amortization period. In fact a 10% increase in your payment amount may knock off almost 8 years in your mortgage. That is nearly 100 less monthly mortgage payments! Think of the vacations you could go on! Think payment amount not frequency of payment.
How can I pay off my mortgage sooner?
Many Mortgages come with features that can help you reduce the number of years it takes to pay down your loan. Some lender will allow you to pay down more that 20% per year should you use all of their mortgage prepayment features to the fullest. Many of the common prepayment features are below. They will help you pay off your mortgage quicker which will save you money over the life of the mortgage.
- Increasing Your Monthly Payments
- Increasing Your Monthly Payments
- Making Double–Up Payments
- Accelerating Your Payment Schedule
- Selecting a Shorter Amortization
- Making Principal lump sum Prepayments
- Placing extra funds on at renewal