Choosing the Right Mortgage

Once you’ve found the property you want to purchase, it’s time to find the right mortgage to help you close the deal.

The following FAQ can help you make an informed mortgage decision when determining which mortgage plan is right for you.

Mortgage FAQ

Depending on the size of your down payment, whether or not you are a first-time homebuyer and your income level, there are a number of mortgage types available to you. The following are some of the most frequently asked mortgage questions.

What’s the difference between a conventional and high-ratio mortgage?

Conventional mortgage

If you make a down payment of at least 20% of the purchase price of a property, you will need a conventional mortgage to close the sale. Conventional mortgages are loans up to a maximum of 80% of the value of the property you are intending to purchase.

High-ratio mortgage

If your down payment is under 20% of the purchase price, you will need what is known as a high-ratio mortgage. Unlike a conventional mortgage, a high-ratio mortgage is one in which more than 80% of the purchase price is financed – up to a maximum of 95%. (Usually, high-ratio mortgages will require mortgage default insurance’ provided through CMHC, Genworth and Canada Guaranty in order to protect the lender.)

What are fixed, variable and adjustable mortgages?

You may have heard about fixed, variable and adjustable mortgages. While each have their benefits, some may be more suitable for your needs.

Fixed rate mortgage

If you are looking for a stable, fixed monthly payment, a fixed rate mortgage may be right for you. A fixed mortgage locks in your interest rate for a set number of years, meaning you pay the same rate each month.

Variable rate mortgage

If you are willing to expose yourself to fluctuations in the market, a variable rate mortgage may be the right choice. Variable may go up or down depending on market conditions, but offer a set monthly payment. All that may change is the amount of principal you will be paying each month.

Adjustable rate mortgage

Adjustable rate mortgages are mortgage loans where fluctuating market conditions impact the interest rate, which will increase or decrease your monthly payments.

Whichever mortgage type you choose, always talk to your broker to find out which option best suits your unique needs.

Which is better – an open or closed mortgage?

Open rate mortgage

If you think you may come into a large sum of money within the duration of your mortgage term, you may wish to go with an open rate mortgage. While open rate mortgages usually come with a higher interest rate, they allow you to make a lump sum payment at any time – without penalty.

Closed mortgage

If you are planning to stay in your new home for a long time and want a fixed payment schedule, a closed mortgage may be right for you. Generally offering lower rates than open rate mortgage options, going with a closed mortgage means you can expect to pay the same amount each month, for the duration of your mortgage term.

What is meant by term, amortization and payment schedule?

Term

This is the length of time your interest rate and associated conditions of your mortgage remain in place. (Typically 6 months to 10 years.)

Amortization

Mortgage amortization is the length of time it will take to repay your mortgage in full. (Usually 25-30 years.)

Payment schedule

This relates to the frequency with which you’ll make mortgage payments. (Usually monthly, weekly or biweekly.) When choosing a mortgage, ask your agent if you are eligible for accelerated payments, or extra monthly payments each year.

Why Choose a Mortgage Agent Over a Bank?

When saving even a percentage point can mean the difference between maxing out an RESP or retiring years earlier, you owe it to yourself and your family to get the best mortgage possible.

Here are the top 5 ways mortgage brokers consistently deliver better mortgage rates than banks:

1. Brokers compare rates from multiple lenders to find the best rate for you

• Because your broker has access to multiple lenders, they can compare rates from various banks, credit unions, trust companies and alternative lenders all at once.
• They may even have access to unadvertised rates that are significantly lower than traditional banks or credit unions.

2. Experienced brokers help you avoid the pitfalls

• Brokers can save you thousands in harsh penalty calculations by avoiding the bank’s restrictive products – especially if you decide to make a change before your mortgage matures.

3. No more inconvenient bank meetings during their business hours

• A good mortgage broker appreciates your business – they’ll come to you when and where it’s convenient for you.
• Many are even accessible “after hours” to answer questions.

4. Brokers look out for your best interests

• Unlike the bank, your broker will help with every aspect of your mortgage, including planning for closing costs, legal fees and making sure the mortgage product fits your needs – not the bank’s.
• Remember – they depend on referrals, so it’s in their best interests to provide better service than you may find elsewhere.

5. They’re incentivized to find you the lowest possible rates

• They don’t get paid unless they find the right mortgage plan for you, so they’ll always leverage their full buying power to aggressively negotiate the lowest possible rate.
• Best of all, you’re not the one that pays the mortgage broker (they get paid by the lender, except with alternative or private lending).