WHERE TO GET A MORTGAGE?
MORTGAGE BROKERS VS THE BIG FIVE BANKS
Mortgage brokers contact many financial institutes, big banks, mortgage companies and even private lenders to find their clients the best rates. They also have more flexibility then banks and can often get mortgages for people who are having trouble getting a mortgage through their bank.
The banks offer competitively priced mortgages as well. The big five banks are RBC, TD, BMO, CIBC and Bank of Nova Scotia. Going to the bank to get a preapproval on a mortgage is a common first step for most buyers as they are comfortable dealing with the same institution they do their day to day banking with.
It is wise go into the bank you deal with as well as contacting a mortgage broker, mortgage brokers can often find the most competitive rates, the more knowledge you have the more satisfied you will be with your mortgage rate and choices. In the end it will be what works best for you and what you are most comfortable with.
TYPES OF MORTGAGES
There are two basic types of mortgages, fixed rate mortgages and adjustable rate mortgages (also called floating rated or variable rate mortgages).
FIXED-RATE MORTGAGES have a fixed interest rate for the specific amortization period. Like 5% for five years. Fixed rate mortgages are
often thought of as safer because they remain at the agreed upon rate despite fluctuations in market rates. They often have higher initial interest rates then adjustable rate mortgages because they are guaranteed to remain the same for the interest term
ADJUSTABLE-RATE or VARIABLE MORTGAGES are based on two values the prime interest rate set by the bank of Canada combined
with the lender’s rate, often expressed as plus or minus. An adjustable rate of prime plus one would be the prime interest rate plus 1%. If the prime interest rate is 3.5% and the lender’s is plus 1% the mortgagee (borrower) pays 4.5%. These mortgages often have very competitive rates but are subject to go up or down depending on interest rate fluctuations.
Most mortgages are made up of an amortization period and a term. The term is the interest period, the initial set length of scheduled payments with an agreed upon interest rate such, as 5% for five years.
The amortization period is the total length of time it will take to pay off the mortgage and fulfill the contract. The amortization period normally includes several terms over the life of the mortgage. A mortgage with a 30 year amortization with an initial interest term of 5% for 5 years will be renegotiated after the first term of five years and a new interest rate term will start.
HOW MUCH WILL YOU HAVE TO PAY?
Mortgage Calculators are one of the most valuable tools for those looking to buy a home. Buyers can input various house prices, interest rates, terms and amortization periods of any property to see what is realistic for them. We have included a mortgage calculator on our website so that you can determine the ideal type of mortgage for yourself.
The Canadian Mortgage and Housing Corporation is a government of Canada Corporation. It manages and assists in many aspects of housing in Canada including controlling mortgage lending rules. For residential homeowners, one of the most important function it does is to manage the mortgage insurance fund (IMF). All mortgages with less than a 20% down payment must get CMHC insurance, which is included in the mortgage. CHMC insurance rises as the down payment decreases; a 5% down mortgage pays a higher insurance rate then a 15% down mortgage. Any mortgages with more than 20% down payment are not required to pay CMHC insurance.
WHAT EXACTLY IS A MORTGAGE?
Mortgages have been around for hundreds of years. The word mortgage comes from French Law which literally means “death contract,” meaning death of the contract not the borrower.
A mortgage gives the lender a financial interest in a property. The loan is secured by an interest in the property. This is why mortgage companies and banks require proof of insurance before closing on a property; they have a financial interest in making sure your home retains its value so their investment is secure. A mortgage is closed in only two ways, through fulfillment of the obligation (paying off the mortgage) or the seizure of the property through foreclosure.
In most mortgages there are two parties; the mortgagee, the home owner or buyer who is borrowing money secured against a property and the mortgagor, the lender or financial institute who is lending money for an interest in that property until the loan is fulfilled (death of the contract).