HELPFUL MORTGAGE INFORMATION
Here’s a smart, easy way to get the best product, service and best rate!
Shopping for a mortgage in Canada is changing. More lenders are competing for business and new mortgage products are being introduced every day. So what does a smart consumer do? With 18 years of banking experience and over 14 in the mortgage brokerage business Leann Scarlett, says “today’s consumers are more sophisticated than ever before. The financial market is flooded with new and innovative mortgage products. Chances are for many mortgage shoppers, a mortgage broker holds the knowledge and can offer the best solutions for their clients”. “Think of your local bank branch as a retail outlet, along with all its staff and overhead costs – then think of your mortgage broker as your entry into that same bank’s virtual wholesale store. Banks are realizing that it is not cost effective to have mortgage personnel sitting in-house waiting for mortgages to come to them. The savings the lender experiences by having a Mortgage Professional handle the deal are passed on to the customer. And those savings can be huge”, added Leann Scarlett.
“The choice, to pay market rate or use a broker to get a discount, should be easy - especially since our service is free.* And one application with us gives you access to hundreds of mortgage products.” Discounted rates are available through the brokerage channel with no game playing. Accepting the bank posted rate discounted by a small percentage (because you are valued customer) may not be the best mortgage rate or mortgage product for you.
Leann is a member of the Canadian Association of Accredited Mortgage Professionals (CAAMP), which is the National Association for Mortgage Brokers and Associates. Since the inception of the association their main focus is to bring integrity, professionalism and a code of ethics to the industry. Leann has earned her professional designation with CAAMP and is a proud member who has earned her “ AMP designation”. This designation has standards and annual educational requirements that is designed to raise the bar and increase the level of professionalism in Canada’s mortgage industry. That – combined with improved technology and support by many of Canada’s top lenders, is changing. “I will work on my client’s behalf, offering unbiased advice and credit solutions custom tailored to meet their individual needs. I shop, you save!”
The Mortgage Process
1. The Mortgage Experts at Universal Mortgage Solutions will discuss your mortgage financing needs.
2. Your Mortgage Specialist will request certain information from you i.e. Letters of employments, Paystubs, Revenue Canada Notice of Assessments, income tax returns, confirmation of down payment, divorce/separation agreements (if applicable) etc.
3. We will then prepare and send your mortgage application to the lenders that best suit your needs. The lenders will review the application and send their offer back to your Mortgage Specialist. Based on Your initial conversation Your Mortgage Specialist will select the Mortgage best suited mortgage for your financial circumstance and future goals.
4. That lender will then issue a “Mortgage Commitment” which must be accepted and signed by you the borrower.
5. Next, a Solicitor will work on your behalf to review
- The offer to purchase.
- Copies of the Mortgage Commitment.
- Any Potential encumbrances, liens, easements, restrictions, encroachments, or other claims registered on title.
- Contact the lending institution and arrange transfer of the funds.
6. You then meet with the Solicitor shortly before the closing date to review and sign closing documents (mortgages, declarations, undertakings etc.).
7. On the closing day, your Solicitor and the vendors’ Solicitor exchange documents, funds, keys and register all documents on title.
8. You are now moving your contents into your NEW HOME , Congratulations!
Understanding Your Credit Score
A credit score is a statistical formula that translates personal information from your credit report and other sources into a three-digit score. For example, when you fill out a loan application, pieces of information from the application along with information from your credit report will be used to compute a score that indicates to the lender the statistical probability that you will pay back the loan.
It is important to understand that a credit score is only one piece of your financial picture that a lender will use in making credit decisions. For example, in mortgage lending, the lender will take into account the property being purchased and the homeowner's equity. Each lender will have its own policies and your Mortgage Broker can help you understand these policies as they vary from lender to lender.
How do lenders use my score?
Your credit score is an important indicator of your creditworthiness. In general, the higher your score, the lower the probability that you will not pay back credit extended to you. And while many lenders use bureau scores to help them make lending decisions it is not the only factor.
Because your credit report is updated every day, your bureau score is recalculated continuously. So your credit score from a month ago is probably not the same score today.
What is used to calculate my score?
- Payment history - Indicates whether you have made your credit card and other payments on time.
- Amounts owed - Compares how much you owe to your credit limits with various lenders.
- Length of time in file - Indicates how long you have had credit accounts.
- New credit - Shows how often you are looking for new credit and how you handle accounts.
- Type of credit - Considers the type of loans you have - car loans, lines of credit, credit card balances.
*Note: Any Mortgage information that may appear in your credit report is not used to calculate your credit score.
Will inaccurate information in my credit report affect my credit score?
This will depend upon what information is wrong. If the inaccurate information is from Credit Information, Public Record and Collections sections of your credit report, your score will definitely be affected.
We encourage all consumers to request and review their credit report on a regular basis. By doing this, you can ensure that your report contains information that accurately reflects your credit history. You have the right to dispute any discrepancies by immediately notifying the credit reporting agency.
What can I do to improve my credit score?
- Pay all of your bills on time – even if it’s just the minimum payment. Paying late, or having your account sent to a collection agency has a negative impact on your credit score.
- Try not to run your balances up to your credit limit. Keeping your account Balances below 75% of your available credit may also help your score.
- Avoid applying for credit unless you have a genuine need for a new account. Too many inquiries in a short period of time can sometimes be interpreted as a sign that you are getting into difficulty.
- Have a credit balance on at least one revolving credit line.
How can I get a credit file started if I don't have one?
In order for the Beacon score to be calculated on a credit file, the file must contain at least one account that has been opened for three months or greater as well as one account that has been updated in the past six months. This ensures that there is enough recent information a consumer's credit file on which to base a score. A credit report can be started with a department store card, or a secured (with a deposit) Visa card.
Different types of Mortgages
There are many financial institutions and many mortgage options available from each of these mortgage lenders. Below is a brief overview of the main categories of Canadian mortgages to help you consider what might best suit your needs. There are many more mortgage options available than are listed here as well as hybrids of some of these categories, so talk to the mortgage experts at "The Mortgage Writers" to help determine what would be right for your specific situation.
If you are planning on paying off your mortgage within 6 months to 1 year, an open mortgage makes sense for you. Open mortgages will often come at a higher interest rate than a closed mortgage because the open mortgage allows prepayment without penalty. For example, if you intend to sell your home, or are expecting a large amount of cash in the near future, an open mortgage will allow you to pay down all or part of your mortgage without penalty.
A closed mortgage means that you have to pay a penalty if you wish to payout your mortgage completely during the contractual term of your mortgage. Many closed mortgages allow some prepayment, such as 10% to 20% per year on the anniversary date. These partial prepayment terms vary and need to be understood. The benefit of a closed mortgage is that they are often available at the most favourable interest rates. This may suit your needs if you do not anticipate wanting to pay down your mortgage before the term expires.
A fixed rate mortgage is a mortgage where the rate of interest is fixed for a specific period of time. Generally known as the mortgage term, these terms can range from 6 months up to 10 years. Whether you should lock in for a long term or stay short depends on the interest rate trend in the market, as well as your financial situation and degree of risk tolerance.
Most fixed-term mortgages allow you to make partial prepayments towards the principal balance during the term; however these privileges vary from lender to lender. We will assist you in making the best decision and can set you up on an accelerated payment plan that can save you thousands of dollars in interest. See current Fixed Mortgage Rates.
A variable-rate mortgage allows you to take advantage of the lowest rates available. The variable rate is usually tied to a mortgage lender's prime rate and are generally the same as the Bank of Canada prime rate. These rates are often quoted as prime or prime plus . 50% (depending on the market conditions).
Variable-rate mortgages have been attractive when market experts feel that rates will drop or stay level for a period of time. Variable rate mortgages have the downside of offering little security in a rising-rate environment and payments and interest expense can rise when the Prime Rate rises.
Cash back mortgages are becoming very popular among Canadian borrowers, particularly borrowers with limited funds for closing costs. Various mortgage lenders offer cash back programs allowing a percentage of the property's value to be rebated to the borrower upon closing. The cash back can definitely be helpful with closing costs or paying out an unwanted credit line. Cash back mortgages do come with a higher interest rate than non-cash back options, so borrowers should be aware of the higher interest cost of using these options.
If you are building a home here in Alberta, we can arrange a construction mortgage for you. Typically, there are three or more disbursements (or more commonly referred to as Draws) made by the mortgage lender as construction of the building progresses. The mortgage lender will conduct appraisals during the course of construction and will advance funds in accordance with the appraised value of the partially completed building. Construction Mortgages are often at a slightly higher rate than a standard mortgage, but the advantage is that the borrower is not paying interest on the whole amount of the mortgage at the beginning of construction. Instead, the advancing of funds as the project moves along saves interest costs, particularly where construction takes an extended period of time.
This is temporary financing that can be arranged for situations where a new home has been purchased and the closing dates of the existing home and the New purchase are not on the same date. Borrowers must still be able to service the debt as required by the mortgage lender.
Second mortgage financing is arranging for additional mortgage funds beyond the 1st mortgage. The second mortgage also is registered on title. Borrowers will often use a second mortgage to supplement their down payment so that they may arrange their 1st mortgage on more favourable terms. For example, most mortgage lenders will give preferred rates on loans of 80% or less of the home's value. Borrowing additional money as a second mortgage may be at a higher interest rate, but can save a borrower money if more favourable terms can be negotiated on the 1st mortgage as a result.
Equity Lines of Credit
An Equity Line of Credit gives you access to the equity in your home, usually up to a maximum of 80% of its appraised value. The advantages are that if you need to renovate, travel, pay down other debt, etc., the rate of interest on home equity loans is generally much less than other types of personal loans and credit cards. Lines of Credit are generally tied to the prime rate.
Qualifying interest rate
Direct from CMHC:
On March 5, 2010, CMHC communicated to Broker organizations and CMHC-approved Lenders how the “five-year fixed rate” requirement would be implemented by CMHC.
Effective April 19, 2010, the qualifying interest rate used to assess borrower eligibility will change only for loans with a loan to value ratio (LTV) greater than 80 per cent as follows:
Fixed Rate Mortgages and Variable Rate Mortgages: For loans with a fixed rate term of less than 5 years and for all variable rate mortgages, regardless of the term, the qualifying interest rate is the greater of the benchmark rate, and the contract interest rate. For loans with a fixed rate term of 5 years or more, the qualifying interest rate is the contract interest rate.
Mortgages with Multiple Interest Rates (e.g. Multi-Component Mortgages): Each component must be qualified using the applicable criteria defined above.
The “Benchmark rate” is the typical 5-year fixed posted rate of the Big 5 Banks.
PLEASE NOTE: These regulations are required for financing greater than 80% of the value/purchase price. For clients borrowing less than 80% LVR, each lender has their own set of policies for qualification. Some lenders will use what the current real rate is (usually lower than the qualifying rate) and some will stick with the above policies. Please contact us with any questions on your specific situation and we’ll walk you through which policy/lender you’re dealing with.
Mortgage Closing Costs
When property is purchased in Canada, there are other costs related to the transaction beyond the purchase price. Not all costs may apply in all circumstances, but are listed here for information and to help you plan for these cost. The mortgage experts at The Mortgage Writers and your solicitor can help you figure out which apply to your situation.
Most lenders will require an appraisal of the property to support the lending value of the property. Fees are higher for revenue properties or more complex purchases. Commercial appraisals are significantly more expensive and more time consuming to prepare given the complexity of the appraisal required.
An inspection is a thorough evaluation of the structure, systems and components of a home. The inspection report is usually multi-paged, and comments on the condition of, but not limited to: foundations, electrical, plumbing, heating, water heaters, appliances, fireplaces, drainage, roof, walls, floors, attic, crawl spaces, patios, etc. The inspection is usually performed a day or two before the market value is determined by the property appraisal. An inspection can cost anywhere between $300-$500 but the cost is well worth identifying any major cost repairs required.
To protect the lender's interest in the mortgaged property in the event there is some discrepancy on title that would create a legal problem, many lenders require title insurance. Title insurance is often a less expensive and acceptable alternative to getting a survey prepared for the property.
Lenders may require a survey to support the transaction. A survey is a drawing by a certified surveyor of the property lines and where the building sits on the property. This is done so that the lender can verify exactly what and where they are lending on, and to provide some assurances that the buildings are not illegally encroaching on neighbouring properties, etc. The cost of the survey varies for size/complexity of the property.
The term Mortgage Insurance is used in two different ways, and each have different and specific purposes:
This insurance is often recommended by lenders to ensure that you are able to meet the mortgage payments should you or your co-borrower become disabled or die during the term of your mortgage. Rates and Coverage vary widely, so let us help you make sure you are getting the most coverage for your money.
Default insurance is required on loans where the borrower is borrowing more than 80% of the value of the property. Genworth, CMHC and Canada Guaranty provide this insurance and the cost varies with the amount borrowed relative to the property value. There may be an application fee for these programs.
If you are purchasing and use a Realtor to help you, the seller will pay for their Realtor and yours. If you are selling, fees vary, but are often 6 or 7% on the 1st $100,000 and 3 or 4% thereafter. There are a number of lower commission Realtors, and their fees will vary. GST at 5% of the commission payable is also charged to the seller.
If you are selling a property, you will be responsible for legal fees regarding clearing the title for the purchaser. If you are the purchaser, you are responsible for conveyance fees, preparation of statements of adjustment, and mortgage registration.
This is the interest that you will pay for receiving the mortgage funds for periods outside of standard payment periods. For example, if your completion date was on the 23rd of a 30 day month, you owe 8 days interest for those days before normal payment cycles commence.
Property Tax Adjustments
Generally, property taxes for the calendar year are paid at the beginning of July. If you purchase a property before July 1st, the seller will be paying you for the days they owned the home from January 1st to completion day. You then are responsible for the entire amount to be paid to the municipality on July 1st. If you purchase a property after July 1st, you will pay the seller for the days you own the property from completion day to December 31st, as they will already have paid the entire amount to the municipality on July 1st.
Rental Deposit Adjustments
If the property has a rental suite the vendor must transfer the tenant’s security deposit to the purchaser. If completion takes place mid-month, adjustments must also be made for rent collected by the vendor and pro-rated payment made to the purchaser.
If you have a mortgage on a property, almost every lender will want to make certain that you have adequately insured the property for loss from fire, flood etc. Note that the insurance must be for the full property value rather than just the mortgage amount. In the event of a loss, it is standard practice mortgaged property generally notes the financial institution as the payee. There is a fee of about $35 for the insurance company to confirm coverage in this manner and is often referred to as a “binder.”
Manage your mortgage renewal - and save thousands!
Each year Canadians miss out on thousands of dollars in savings by not planning for their mortgage renewal. CMHC studies show that 80% of consumers intend to shop for a better deal at renewal time; however, only 30% of all consumers actually do. In fact, over half simply sign their renewal, accepting the lenders first offer without question. Most lenders will not send a renewal notice until 30 days prior to renewal. This is done for two reasons: 1) it allows the lender to avoid costs by only protecting you from rising rates for 30 days; and 2) your lender can significantly limit your ability to shop around for a better deal.
A Mortgage Broker will help you take control of your renewal and get you the best possible interest rate for which you are eligible. They can arrange for a rate hold 120 days prior to your renewal. If interest rates increase during that period, you will still get the lower rate. If rates decline, you will get the lowest rate available during the period. Renewal time is also an excellent time to consider refinancing your high interest debt like credit cards and finance company loans into your mortgage. A mortgage refinance can save you thousands in interest charges and significantly increase your monthly cash flow.
How much can you save?
It is possible to save thousands of dollars over the course of a typical five-year term.
Do you want to know if you’ve been offered the best deal on your mortgage renewal? Talk to a Mortgage Professional at Universal Mortgage Solutions We represent Canada’s top lenders, including major banks, credit unions, life and trust companies. We have access to discounted mortgage rates and hundreds of innovative mortgage products. You can’t lose! Best of all, our services are FREE (O.A.C.)