Frequently Asked Questions
Mortgage terms refers to the span of time that you and the bank agree you will pay a certain rate or in the case of variable mortgage, how long the rate will fluctuate. Usually at the end of a term, you sit down to refinance your mortgage – at which point you can also change from a fixed to a variable rate or vice-a-versa.
The amortization period is the number of years it takes to repay your mortgage in full. Often when you first get a mortgage it is amortized over 25 years. This means that if you maintained those terms and payment periods, your mortgage would be paid off in 25 years. However, in most cases the amortization period changes because different borrowing terms, interest rates and payments against the principal amount at each renewal vary the length of time required to pay off the mortgage. For example, going with a shorter amortization period – say 15 years for example – will result in higher payments per period, but save you money in interest by enabling you to retire your mortgage sooner.
An open mortgage gives you the most flexibility in making extra payment on your mortgage principal. It even lets you pay off your mortgage entirely whenever you wish to. The closed mortgage however offers little to no privileges in paying off your mortgage early. Lenders charge you a prepayment penalties if you do so. But take note, not all closed mortgages are created equal. Check with your mortgage consultant as to how your prepayment penalties are calculated.
A mortgage for more than 75% of the property value. Whenever you need a mortgage loan that is greater than 76% to 90% of the current market appraised value of your home it is considered a high ratio or insured mortgage. If you are a first time home buyer then you can borrow up to 95% value and only need to come up with a 5 percent minimum down payment. The Canada Mortgage and Housing Corporation (CMHC) insures the lender in case you default on your loan. You must pay for this insurance premium which is usually tacked on top of your loan. If the mortgage lender feels that you are still a risk for default even though you have paid more than 25% down the lender can insist that you insure the mortgage anyway. However, in this situation a mortgage consultant would probably shop this mortgage to a lender that didn’t insist on insuring. The fees for CMHC can be as high as 2.5% of the mortgage principal but is often not noticed by a borrower because of being added to your mortgage principal. Rates for a high ratio loan vary widely between lenders so it is best to use a mortgage consultant to explore the best options for you.
A Co-signer is placed on the mortgage and is registered on the title. A Guarantor signs a document that personally guarantees the mortgage. Most banks will do both. Some banks prefer that co-signer live on the property.
A second mortgage is simply an additional mortgage resgistered against the title of you home. Some lenders call it a “Home Equity Loan” or “Home Equity Line of Credit” and since these types of loans are registered against the title of your home as a second charge – they are all second mortgages.
The purpose of a pre-approval is to confirm in writing the maximum amount of money that you can rely on for mortgage purposes. When interest rates are fluctuating, it’s an advantage to know what your borrowing limit is before you start house hunting. With a pre-approval, a lender will guarantee you for a specific mortgage amount for a period of time. If the mortgage interest rate drops before the lender advances the funds for a mortgage, you are given the lower mortgage rate. If the rates rise, you are given the rate at the time you had the mortgage pre-approved.
No. The lender is not under any obligation to mortgage renewal. It does not ‘automatically’ renew. In fact if you have ‘missed’ or been late with any payments the lender could use this as an excuse not to renew with you. A loss of a job or a divorce may be another reason. But, in truth, no excuse is necessary for the lender to call your loan. This can not be understated. For example, it is common for businesses to find their commercial mortgages NOT renewed for any reasonable reason at the end of term. And this may be no fault of the business that paid their mortgage payments on time. A bank could refuse to renew because they don’t like the economic climate of a particular geographic area or even a type of industry a business operates in. Think about the hardships suffered. For this reason alone it is critical for businesses and homeowners to obtain a quote from a mortgage consultant 60 to 90 days before their current mortgage matures. This way if your current lender does not offer you a renewal you have a backup lender in the wings. If you use a mortgage consultant you will often benefit with a lower rate anyway.
Often a lender will attempt to charge a renewal fee or tempt you to renew without a fee if you sign within a certain ‘time offer’ at their posted rates. Please keep it mind that if you use a mortgage consultant it is very, very rare for you to ever pay a renewal fee. For all conventional residential mortgages there will not be a fee because the mortgage consultant will shop the market for you and find a lender that doesn’t charge a fee AND will beat your current lender’s mortgage renewal rate!
Yes! A decent general guideline is whenever making a change will bring about a 2% – 3% interest rate saving. This is popular to the point that it even has a name -the ‘break and run’ technique in the lending business. The enhanced rate change will assimilate any prepayment charge throughout the following 5 years in any switch when the spread between the old rate and the new mortgage rate is great enough. Check with a mortgage consultant as frequently he or she can discover extra motivating or arrangements that repay a few or the majority 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.
No. If you switch from one lender to another at your renewal date there will not be any penalties whatsoever. If you switch before your maturity date or renewal time there may be a penalty. If you have an open mortgage there probably will not be any charge. If you have a closed mortgage you will most likely have a cost. It is important to consult with a mortgage consultant so that you can determine whether or not a ‘break and run’ strategy will work for you. Often your penalties can be minimized when a mortgage consultant finds a new lender anxious for your business. A new lender will often assist with incentives to lure you over to them. Sometimes the incentive can be as high as a 3% cash back offer that can be used towards any prepayment penalties.
The usual thinking is that you should take a longer-term to lock in low interest rates; when interest rates are higher, you should look to a shorter term – 6 mos. or 1 year. Whenever the interest rate spread between short term and a long-term mortgage rates are significant it is always better to take the shortest term possible. Currently, rates are historically very low, so most people are locking in for terms of 5 or even 10 years.
Fixed mortgage interest rate charges a set rate of interest that does not change throughout the life of the loan. While the Variable Mortgage interest rate changes based on the market condition but the mortgage payment remains unchanged.
Reverse Mortgage FAQs
A reverse mortgage is a way for people age 55 and older to turn up to 50% of the equity in their home into tax-free cash. It’s a loan secured against the value of your home that does not require monthly payments for as long as you live in your home.
There are one time fees to arrange a reverse mortgage such as an appraisal fee, fee for independent legal advice as well as our fee for administration, title insurance and registration. With the exception of the appraisal fee, these fees are paid for with funding dollars.
CHIP Reverse Mortgage is exclusively designed for Canadian homeowners 55 years old and above. To qualify you and your spouse must be 55+. Your home is your principal residence. Any loans secured by your home must be less than funds available from CHIP.
The amount you are entitled will depend on your age, your spouse’s age, your home value, type of property and location of your home.
No, because you do not make monthly payments. Cashin Reverse Mortgage does not require income verification or credit checks.
No. There are no payments required unless you move or sell your home.
No. You will remain the owner of your home. You and/or your spouse can stay in your home as long as you wish. We only require you to pay your property taxes, home insurance and keep your property well maintained.
We will first pay off your existing mortgage and then give you the remaining proceeds.
Yes, but a prepayment charge may apply. 10% of the amount owing can be paid once per year provided the payment is made within 30 days of your anniversary date without a prepayment charge.