What type of mortgage should you choose?
Today, more than ever, there are numerous
mortgage options available.
Don't be confused
Here at the Gibbard Hoffart Financial Group, our Mortgage Consultants
can help you find the best product for your needs and negotiate
you the best rate. They do the research for you, enabling you to
avoid the frustration and confusion of having to do it yourself,
and explain the available options.
 Mortgage
Categories
Short-term
risk and variable
Long-term
Split-term
Prepayment
options
Payment
changes
Payment
frequency
Mortgage Categories
Conventional or high-ratio
A conventional mortgage is a loan for no more than
80% of the appraised value or purchase price of the property, whichever
is less. The remaining amount required for a purchase (20%) comes
from your resources and is referred to as the down payment. If
you have to borrow more than 80% of the money you need, you'll
be applying for what is called a high-ratio mortgage.
Here's how a high-ratio mortgage works:
Any purchase where the down payment is between
0% and 19% is considered a high-ratio mortgage, and the mortgage
must be insured by the Canada Mortgage and Housing Corporation
(CMHC) or Glenworth Financial. The insurer will charge a fee for
this insurance. The amount of the fee will depend on the amount
you are borrowing and the percentage of your own down payment.
Typical fees range from 1.75% to 3.10% of the principal amount
of your mortgage. This amount can be paid up front or added to
the principal portion of your mortgage. A Mortgage Consultant @
the Gibbard Hoffart Financial Group can help you determine the exact amount.
Fixed -rate:
6 month, 1, 2 & 3 year (open and fixed) 4, 5, 7 & 10 year
fixed. There is one lender that can even offer a 15, 18, and 25
year term. When you take out a fixed-rate mortgage, your interest
rate will not change throughout the entire term of your mortgage.
As a result, you’ll always know exactly how much your payments
will be and how much of your mortgage will be paid off at the end
of your term.
Variable -rate:
3, 4 and 5 year (open and closed) Most variable rate
mortgage can be locked into a fixed rate mortgage without penalty
providing you lock in for at least the remainder of the term.
With a Variable-rate mortgage, your rate will be set in relation
to the prime rate and may vary from month to month. Historically,
variable-rate mortgages have tended to cost less than fixed-rate
mortgages when interest rates are fairly stable. When the rates
change, your payment may or may not change depending on the lender.
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Open or Closed
Open mortgages can be paid off at any time without
penalty and are usually negotiated for very short terms. They are
suited to homeowners who are planning to sell in the near future
or those who want the flexibility to make large, lump-sum payments
before maturity.
Closed mortgages are commitments for specific
terms. If you want to pay off the mortgage balance, you will need
to wait until the maturity date or pay a penalty.
Generally speaking, the closed mortgages are usually
at a cheaper rate than the open mortgages.
What terms and payment options should
you choose?
It all depends on what you want. Kathie Scott
will assess your personal situation and needs to find the best
mortgage for you at the best rate. There are a number of payment
options to choose from such as weekly, bi weekly or monthly. Please
note that not all lenders offer these payment options with all
their products. Contact us to go through your options.
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Short-term risk and variable
If rates are low and stable, and/or you are
prepared to take a risk, you can generally pay a lower rate with
a short -term mortgage. You simply roll over your term every 6 months,
or float your rate against prime, with the option of locking in to
a longer term at a later date. This is not for everyone however,
as sudden upward rate movements can have a significant impact on
your payments. You may want to discuss this with your Gibbard Hoffart Financial Group
Mortgage Consultant.
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Long-term
Any term 3 years or longer is considered "long
term" in today's economy. Because long -term rates are usually
higher than short -term rates, you may not want to choose this
option. On the other hand, by locking in you will avoid exposure
to rate increases. You'll have the comfort of knowing exactly what
you payments will be and you'll be able to manage your budget accordingly.
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Prepayment Options
Many lenders allow you to make a lump sum payment — usually
10% to 25% of the original principal balance. In addition, many
mortgage products now include a "double -up and skip -a -payment" feature.
This lets you "bank" extra mortgage payments for a rainy
day, at which time you can "skip" them if you need to.
Ask your Gibbard Hoffart Financial Group Mortgage Consultant to advise you on your
options today!
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Payment Changes
Most mortgages now allow the amortization to be
adjusted by increasing the payment on closed terms by 10% — 20%
per year, once annually.
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Payment Frequency
Most mortgages now come with the option to pay
your mortgage at a frequency that matches your cash flow — weekly,
bi -weekly or semi -monthly. The added benefit of the "accelerated" weekly
and bi -weekly payments is that by dividing a regular monthly payment
into two or four respectively, and deducting it at the new interval,
an extra payment a year is made directly against principal. The
surprising effect of this one extra payment a year is to reduce
the amortization of the average mortgage by approximately 5 years,
with cash savings at the end of the mortgage term.
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