mortgage

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RATE ADVISOR

First Time buyer

The First-Time Home Buyer Incentive helps qualified first-time home buyers reduce their monthly mortgage payments without adding to their financial burdens. The First-Time Home Buyer Incentive is a shared-equity mortgage with the Government of Canada. It offers:

  • 5% or 10% for a first-time buyer’s purchase of a newly constructed home
  • 5% for a first-time buyer’s purchase of a resale (existing) home
  • 5% for a first-time buyer’s purchase of a new or resale mobile/manufactured home

The Incentive’s shared-equity mortgage is one where the government has a shared investment in the home. As a result, the government shares in both the upside and downside of the property value. By obtaining the Incentive, the borrower may not have to save as much of a down payment to be able to afford the payments associated with the mortgage. 

The effect of the larger down payment is a smaller mortgage, and, ultimately, lower monthly costs. The home buyer will have to repay the Incentive based on the property’s fair market value at the time of repayment. If a home buyer received a 5% Incentive, they would repay 5% of the home’s value at repayment. If a home buyer received a 10% Incentive, they would repay 10% of the home’s value at repayment. 

The home buyer must repay the Incentive after 25 years, or when the property is sold, whichever comes first. The home buyer can also repay the Incentive in full any time before, without a pre-payment penalty.

Purchase

There are many different types of mortgages available, so before you choose, here’s some information you will want to know.

  • Conventional / Low Ratio Mortgages

A mortgage where the down payment is equal to 20% or more of the property’s value/purchase price. A low-ratio mortgage does not normally require mortgage protection insurance.

  • High Ratio Mortgages

A High-Ratio Mortgage is one where the borrower is contributing less than 20% of the value/purchase price of the property as the down payment. These types of mortgages must have mortgage default insurance through Canada Mortgage and Housing Corporation (CMHC), Genworth Financial or Canada Guarantee; the three mortgage insurance companies in Canada.

  • Open Mortgages

An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgages usually have shorter terms, but can include some variable rate/longer terms as well.  Mortgage rates on Open Mortgages are typically higher than on Closed Mortgages with similar terms. 

  • Closed Mortgages

A closed mortgage is a mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms. 

  • Fixed Rate Mortgages

The interest rate of a fixed rate mortgage is determined and locked in for the term of the mortgage. Lenders often offer different prepayment options allowing for quicker repayment of the mortgage and for partial or full repayment of the mortgage.

  • Variable Rate Mortgages (VRM) / Adjustable Rate Mortgages (ARM)

These types of loans differ from a fixed rate mortgage in that the mortgage rate may be changed during the term of the mortgage. Generally, these mortgages are initially set up like a standard loan, based on the current interest rate. The mortgage is reviewed at specified intervals and if the market interest rate has changed, either changing the size of the payment or the length of the amortization period (or a combination of both), the lender then alters the mortgage repayment plan

Pre Aproval

A pre-approved mortgage tells you:

  • how much you can afford
  • what your interest rate will be
  • how your monthly mortgage payments will look

This isn’t a guarantee of final approval, but it can help you to narrow down your search. It will help you make decisions about affordability, neighbourhood and home type or size.

You do not have to spend your full pre-approved amount. Always consider possible changes such as loss of income, increased expenses or rising interest rates.

renewal

If your mortgage contract is with a federally regulated financial institution, such as a bank, the lender must provide you with a renewal statement at least 21 days before the end of the existing term.

A renewal statement must contain the same type of information that is in your current mortgage contract, such as:

  • the balance or remaining principal at the renewal date
  • the interest rate
  • the payment frequency
  • the term
  • any charges or fees that apply

The renewal statement must also specify that the interest rate offered in the renewal statement won’t increase until your scheduled renewal date.

The financial institution may provide the statement to you as a paper document, or electronically if you consent to receive required information in electronic format.

You may receive a mortgage renewal contract at the same time as a renewal statement.

If your lender decides not to renew your mortgage, it must notify you at least 21 days before the end of your term.

REFINANCE

Refinancing means renegotiating your existing mortgage loan agreement, usually to access the equity in your home, or to lower other borrowing costs by taking advantage of a lower interest rate. Refinancing can help you consolidate debt or pay for other large expenses like education or renovations. When you refinance, you select new terms for your mortgage loan agreement.

If you refinance at the end of your mortgage term, you’ll probably avoid prepayment charges. If you decide to refinance before your term is done, the prepayment charges might be relatively small compared to the savings offered by getting a new mortgage loan with a lower interest rate.

Once you evaluate your goals, you can decide whether refinancing makes sense.
  • Debt consolidation. Merge higher interest debts into one manageable payment with a lower interest rate.
  • Home renovations. Get the money you need to renovate or make repairs.
  • Tuition. Cover education costs for yourself or someone else.
  • Investing. Take advantage of an investing opportunity (speak to your tax advisor first).

HOME EQUITY

Home equity is the difference between the value of your home and the unpaid balance of your current mortgage.

For example, if your home is worth $250,000 and you owe $150,000 dollars on your mortgage, you’d have $100,000 in home equity.

Your home equity goes up in two ways:

  • as you pay down your mortgage
  • if the value of your home increases

You may be able to borrow money that will be secured by your home equity.

Interest rates on loans secured with home equity can be much lower than other types of loans. You must be approved before you can borrow from your home equity.

Be aware that you could lose your home if you’re unable to repay a home equity loan.

Not all financial institutions offer home equity financing options. Ask your financial institution which financing options they offer.

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