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Frequently Asked Questions
2. How secure is it to apply online? 3. Why should I use an accredited mortgage professional and How much does it cost? 4. How do I negotiate for a lower mortgage rate? 5. When is it a good idea to consider breaking my closed mortgage and pay the penalty? 6. Do I have to pay a penalty if I break my mortgage term and what will it be? 7. Do I have to wait until my mortgage matures to start shopping for rates? 8. Can I still obtain a mortgage if I have been bankrupt? 9. What is the minimum down payment that I need to purchase a home? 10. What is a high ratio or insured mortgage by CMHC or GENWORTH? 11. Can I obtain a mortgage to purchase a home and do renovations at the same time? 12. What is the amortization? And how can I decrease this? 13. Does paying bi-weekly really cut years off my mortgage? 14. Should I take a short-term mortgage or a long-term mortgage? 15. What is the difference between a Fixed Rate Mortgage and a Variable Rate Mortgage? 16. What is the difference between an Open and Closed mortgage? 17. What are prepayment options? 18. What can I do if I have a variable interest rate and interest rates start to increase? 20. Should I pay off my mortgage or purchase an RRSP with any extra funds I have? 21. Can I take out Equity in my home to consolidate non mortgage debts? 1. Why do I need a pre-approval and how do I get one? A pre-approved mortgage provides you with a interest rate guarantee from the lender for a specific period of time (usually 90-120 days) and also gives you the maximum amount of mortgage that you qualify for. This is the first step in the Home Buying process. The pre-approval is a calculation based on the information that you provide to the lender and generally will be subject to certain standard conditions. The more information and documentation that you provide at this step the less conditions you will still have to meet once you find your home. The best way to obtain a pre-approval is to contact me so that I can review your situation and book rates for you now. 2. How secure is it to apply online? It is very secure. Your private and personal information is not sent anywhere without your permission and all the information that you provide on-line is encrypted for the greatest possible security. 3. Why should I use an accredited mortgage professional and How much does it cost? It is less stressful for and I will save you time and money. As an independent Accredited Mortgage Professional, I am here to work for you and not the bank. I work exclusively with mortgage customers; whether you are purchasing your first home, looking to transfer a mortgage, consolidating date, planning a renovation or searching for your dream home. I can help you choose the mortgage option that best suits your lifestyle and long-term financial goals. I work according to your needs. As a mortgage broker I can offer unbiased expert mortgage advice and help you choose the mortgage that is absolutely right for you. The good news is that there is no cost to you for our service. The lender that you choose pays the broker fee*. You will benefit from my market access, market knowledge, exceptional negotiation skills, along with my commitment to find the right mortgage that is for you. *On approved credit (O.A.C), E. &O.E. 4. How do I negotiate for a lower mortgage rate? This is one of the main reasons to have Mortgage Consultant handle your mortgage! All the bank rates that you see in newspapers and in branches are the posted rates. I deal with all the lender's head offices directly and receive the lowest discounted rates possible and because of our volume sometimes we receive rate specials that no one else has access to. When you shop around at various lenders they all do a credit bureau and this may affect your credit rating. I know where the deals are and the all the different policies of over 40 different lenders. The lenders know that when a Mortgage Consultant is involved the deal will get placed and so they will be as competitive as they can to get the deal. 5. When is it a good idea to consider breaking my closed mortgage and pay the penalty? If the improved rate change will absorb any prepayment penalty over the next 5 years then more than likely it will be worth it. Check with me to review your situation, sometimes I can find additional incentives or deals that will 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. 6. Do I have to pay a penalty if I break my mortgage term and what will it be? No, if you transfer from one lender to another at your renewal date there will not be any penalties. If you switch before your maturity or renewal date there may be an IRD or 3 month interest penalty. It is important to consult with me to determine whether or not this will work for you. A new lender will often assist with incentives to lure you over to them. Sometimes the incentive can be a cash back offer that can be used towards any prepayment penalties, or a variable rate that shows enough savings to make back the penalty in a very short time. 7. Do I have to wait until my mortgage matures to start shopping for rates? No, you should have me shopping around for an interest rate at least 120 days prior to your mortgage maturity. Most lenders will guarantee an interest rate for 120 days and as long as you are not increasing your mortgage amount they will cover the costs of transferring your mortgage. If the rates drop before the transfer they will adjust your rate down but if they increase you will have received the lowest possible interest rate. Most lenders send out renewal notices with posted rates?.always contact me so that I can ensure that you are indeed receiving the lowest interest rate and do not end up paying a higher rate then you need to. 8. Can I still obtain a mortgage if I have been bankrupt? Yes, but it depends on the circumstances surrounding your bankruptcy as to when you would be eligible and what products are available to you. All lenders have different policies so the best thing would to discuss your situation with me to determine which lenders will be the best for you. At the very least I can help you develop a plan to get you prepared for home ownership as soon as possible. 9. What is the minimum down payment that I need to purchase a home? Many programs allow no money down! Call me for specific details. 10. What is a high ratio or insured mortgage by CMHC or GENWORTH? A High-Ratio mortgage is one where the amount that is borrowed for the mortgage is greater than 80% of the purchase price or appraised value (whichever is less). High-Ratio mortgages require Mortgage Loan Insurance which is provided by CMHC, GENWORTH or a private insurer. The Mortgage Loan Insurance premium is paid to CMHC or GENWORTH and provides insurance to the lender in the even the mortgage is not repaid and the bank has to foreclose on the property. This benefits the borrower because it allows them to purchase a home with less than 20% down payment. The insurance premium is paid by the borrower and is normally added onto the mortgage. It is not the same as Mortgage Life Insurance. The premiums range from .50% - 4.75% depending on the loan to value and product chosen. 11. Can I obtain a mortgage to purchase a home and do renovations at the same time? Yes, even purchasers with 5%
down can buy a home and make improvements to it. For high-ratio financing CMHC
and GENWORTH insured mortgages are available to cover the purchase price as
well a renovations the purchaser would like to make to the property. 12. What is the amortization? And how can I decrease this? 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 35 years. 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 charged, the loan amount, payment amount and payment frequency. You should first qualify for a 25-35 year amortization and then decrease the amortization down by increasing your payment and changing your payment frequency. Take advantage of your prepayment options and try to pay at least 1% of your original mortgage amount each year. Make your normal payment and add in this "top up" amount. It is the amount of 'extra' payments that you make that reduces your principal, which will save you interest charges. 13. Does paying bi-weekly really cut years off my mortgage? Payment frequency is not the major factor in decreasing your amortization period but principal reduction is. So the faster you pay down your mortgage the less interest you will pay over the life of the mortgage. Paying weekly or biweekly gets more money onto your mortgage over the year and this will help you to pay down your mortgage faster over the long term. Taking an accelerated weekly or bi-weekly payment will decrease your amortization even more. If your mortgage payment was a $1000 a month, and you paid it weekly at $250/week, at the end of the year you would have paid $13,000 towards your mortgage as opposed to $12,000 paying monthly. If this does not work for you then try to put a lump sum on your mortgage at the end of each year and this will get you almost the same benefit! 14. Should I take a short-term mortgage or a long-term mortgage? Mortgages are repaid in a series of terms which typically range from six months to 10 years. A short mortgage is usually for 2 years or less. A long-term mortgage is usually 3 years or more. Short term mortgages are appropriate for people who want to minimize their interest rate and are willing to accept more risk of rate fluctuations at renewal. Long term mortgages are chosen by people who want to lock in their rate and not have to worry about rate fluctuations for several years. It comes down to your own personal situation? are you willing to take a little risk or would you rather pay a slightly higher rate for the more security of the longer term. 15. What is the difference between a Fixed Rate Mortgage and a Variable Rate Mortgage? 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. When you take out a fixed rate mortgage, your interest rate will never change throughout the term. As a result, you will always know exactly how much your payment will be. With the Variable rate mortgage, your interest rate may vary from month to month. Historically, variable rate mortgages have tended to cost less than the fixed rate mortgage. When rates change, your payment remains the same, but the amount that is applied toward interest and principal will change. If interest rates drop, more of your mortgage payment is applied to the principal balance owing. This can help you pay off your mortgage faster. 16. What is the difference between an Open and Closed mortgage? Open mortgages can generally be paid off at any time without penalty. They are suited to homeowners who have some uncertainty in your lives, are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before the end of the term. 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 prepayment penalties, from the lender. In exchange for reduced flexibility, you will generally receive a lower interest rate when you choose a closed mortgage. Please note that OPEN mortgages or CLOSED mortgages are not created equal. All lenders have different definitions so it is important to be aware of how this may affect your own personal situation. 17. What are prepayment options? Many lenders allow you to make a limp sum payment, usually 15-20% of the original principal balance each year. In addition, many lenders also include a ?double up your payment option or allow you to increase your payment up to 15% each year of the term. Some even offer a Skip-a-Payment option that allows you to skip a payment if you are having a tough time getting by. Each lender is different so we will go over these options when you are making your mortgage choice. 18. What can I do if I have a variable interest rate and interest rates start to increase? Most variable mortgages give you the right to convert 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 you may want to consider locking into a fixed rate. There is usually no charge for this but you should consult me to ensure that you are getting the best rate possible. 19. Is it important to insure my mortgage with life and disability insurance and should I obtain this from the bank that I receive the mortgage? Yes, this is the time to
review your insurance needs. 20. Should I pay off my mortgage or purchase an RRSP with any extra funds I have? Assuming that you are already making a mortgage payment 10% greater than necessary and you still have extra cash then I would suggest that if interest rates are high , if your investment returns are 2% lower than your mortgage rate or if you are in a low tax bracket then pay off your mortgage. Otherwise, add to your RRSP. 21. Can I take out Equity in my home to consolidate non mortgage debts? Yes! Most unsecured debt is charged a much higher interest rate than your mortgage. For many people it makes sense to use available home equity to pay out car loans, personal loans or line of credits and credit cards etc. It will reduce interest costs and overall total monthly payments.
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