Why Hire a Realtor? MORTGAGE RATES | CLOSED TERM | BEST RATES* | | 6 Month | 4.45% | | 1 Year | 3.20% | | 2 Year | 3.69% | | 3 Year | 3.64% | | 4 Year | 3.94% | | 5 Year | 3.79% | | 7 Year | 4.95% | | 10 Year | 5.25% | | Variable Rate | 3.15% |
WHAT IS AN ONTARIO MORTGAGE? TORONTO MORTGAGE, ONTARIO MORTGAGE, TORONTO MORTGAGE, ONTARIO MORTGAGE, SIMPLE GLOSSARY OF MORTGAGE TERMS:
Agreement of Purchase and Sale: The legal contract a purchaser and a seller go into. We recommend that you have your offer prepared by a professional realtor that has the knowledge and experience to satisfactorily protect you with the most suitable clauses and conditions. Amortization: Paying off a debt, such as a mortgage, by installments. The conventional amortization period for a mortgage is anywhere between 15 and 25 years. The shorter the amortization period, the less interest you have to pay.
Amortization Period: The number of years it takes to repay the entire amount of the financing based on a set of fixed payments. Appraisal: The process of determining the value of a property. Assets: What you own or can call upon. Often used in determining net worth or in securing financing. Assumption Agreement: A legal document signed by a buyer that requires the buyer assume responsibility for the obligations of an existing mortgage. If someone assumes your mortgage, make sure that you get a release from the mortgage company to ensure that you are no longer liable for the debt. Blended Payments: Equal payments consisting of both an interest and a principal component. Typically, while the payment amount does not change, the principal portion increases, while the interest portion decreases.
Canada Mortgage and Housing Corporation (CMHC): CMHC is a federal Crown corporation that administers the National Housing Act (NHA). Among other services, they also insure mortgages for lenders that are greater than 75% of the purchase price or value of the home. The cost of that insurance is paid for by the borrower and is generally added to the mortgage amount. These mortgages are often referred to as "Hi-Ratio" mortgages. Closed Mortgage: A mortgage that cannot be prepaid or renegotiated. Closing Date: The date on which the new owner takes possession of the property and the sale becomes final. Conventional Mortgage: A mortgage up to 75% of the purchase price or the value of the property. A mortgage exceeding 75% is referred to as a "Hi-Ratio" mortgage and the lender will require insurance for that mortgage. Collateral: An asset, such as term deposit, Canada Savings Bond, or automobile, that you offer as security for a loan.
Credit Scoring: A system that assesses a borrower on a number of items, assigning points that are used to determine the borrower's credit worthiness.
Debt-Service Ratio: The measurement of debt payments to gross household income which may include, in addition to the main wage earner's salary, salaries of other wage earners, commissions, bonuses, overtime, etc. Gross Debt Service: The amount of money needed to pay principal, interest, taxes and sometimes, energy costs. If the dwelling unit is a condominium, all or a portion of common fees are included, depending on what expenses are covered. Gross Debt Service Ratio: Gross debt service divided by household income. A rule of thumb is that GDS should not exceed 30%. It is also referred to as PIT (Principal, Interest and Taxes) over income. Sometimes energy costs are added to the formula, producing PITE, which moves the rule of thumb GDS to 32%. Demand Loan: A loan where the balance must be repaid upon request.
Deposit: A sum of money deposited in trust by the purchaser on making an offer to purchase. When the offer is accepted by the vendor (seller), the deposit is held in trust by the listing broker, until the closing of the sale, at which point it is given to the vendor. If a house does not close because of the purchaser's failure to comply with the terms set out in the offer, the purchaser forgoes the deposit, and it is given to the vendor as compensation for the breaking of the contract (the offer).
Equity: The difference between the market value of the property and any outstanding mortgages registered against the property. This difference belongs to the owner of that property.
Financial Institutions: Banks, credit unions, insurance or trust companies. First Mortgage: A debt registered against a property that has first call on that property. Fixed-Rate Mortgage: A mortgage for which the interest is set for the term of the mortgage.
Gross Debt Service (GDS.) Ratio: It is one of the mathematical calculations used by lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and this sum is then divided by the gross income of the applicants. Ratios up to 32 % are acceptable. Guarantor: A person with an established credit rating and sufficient earnings who guarantees to repay the loan for the borrower if the borrower does not. Hi-Ratio Mortgage: A mortgage that exceeds 75% of the purchase price or appraised value of the property. This type of mortgage must be insured. To avoid the cost of the insurance, a 1'st mortgage up to 75% is arranged and a 2'nd mortgage for the balance (up to 90% of the purchase price).
Home Equity Line of Credit: A personal line of credit secured against the borrower's property. Generally, up to 75% of the purchase price or appraised value of the property is allowed to be borrowed with this product. Interest Adjustment Date (IAD): The date on which the mortgage term will begin. This date is usually the first day of the month following the closing. The interest cost for those days from the closing date to the first of the month are usually paid at closing. That is why it is always better to close your deal towards the end of the month.
Interest-Only Mortgage: A mortgage on which only the monthly interest cost is paid each month. The full principal remains outstanding. The payment is lower than an amortized mortgage since once is not paying any principal.
Mortgage: A contract providing security for the repayment of a loan, registered against the property, with stated rights and remedies in the event of default. Lenders consider both the property (security) and the financial worth of the borrower (covenant) in deciding on a mortgage loan.
Mortgage Broker: A person or company having contacts with financial institutions or individuals wishing to invest in mortgages. The mortgagor pays the broker a fee for arranging the mortgage. Appraisal and legal services may or may not be included in the fee. Mortgagee: The financial institution or person (lender) who is lending the money using a mortgage.
Mortgagor: The person who borrows the money using a mortgage.
Open Mortgage: A mortgage that can be repaid at any time during the term without any penalty. For this convenience, the interest rate is between 0.75-1.00% higher than a closed mortgage. A good option if you are planning to sell your property or pay-off the mortgage entirely.
P.I.T.: Principal, interest, and property tax due on a mortgage. If your down payment is greater than 25% of the purchase price or appraised value, the lender will allow you to make your own property tax payments. Portable Mortgage: An existing mortgage that can be transferred to a new property. One would want to port their mortgage in order to avoid any penalties, or if the interest rate is much lower than the current rates.
Prime: The lowest rate a financial institution charges its best customers.
Prepayment Penalty: A fee charged a borrower by the lender when the borrower prepays all or part of a mortgage over and above the amount agreed upon. Although there is no law as to how a lender can charge you the penalty, a usual charge is the greater of the Interest Rate Differential (IRD) or 3 months interest.
Principal: The original amount of a loan, before interest.
Rate Commitment: The number of days the lender will guarantee the mortgage rate on a mortgage approval. This can vary from lender to lender anywhere from 30 to 120 days.
Renewal: When the mortgage term has concluded, your mortgage is up for renewal. It is open at this time for prepayment in part or in full, then renew with same lender or transfer to another lender at no cost (we can arrange). Second Mortgage: A debt registered against a property that is secured by a second charge on the property.
Switch: To transfer an existing mortgage from one financial institution to another. We can have this arranged for you at no cost to you. Term: The period of time the financing agreement covers. The terms available are: 6 month, 1,2,3,4,5,6,7,10 year terms, and the interest rates will be fixed for whatever term once chooses. Total Debt Service (TDS) Ratio: It is the other mathematical calculations used by lenders to determine a borrower's capacity to repay a mortgage. It takes into account the mortgage payments, property taxes, approximate heating costs, and 50% of any maintenance fees, and any other monthly obligations (i.e. personal loans, car payments, lines of credit, credit card debts, other mortgages, etc.), and this sum is then divided by the gross income of the applicants. Ratios up to 40 % are acceptable.
Variable-Rate Mortgage: A mortgage for which the interest rate fluctuates based on changes in prime. Vendor Take Back (VTB) mortgage: A mortgage provided by the vendor (seller) to the buyer What is a mortgage? A mortgage is a loan that uses a property as security to ensure that the debt is repaid. The borrower is referred to as the mortgagor, the lender as the mortgagee. The actual loan amount is referred to as the principal, and the mortgagor is expected to repay that principal, along with interest, over the repayment period (amortization) of the mortgage.
A mortgage can be used for financing many different things, including:
- Purchasing or constructing a new home - Purchasing an existing home - Refinancing to consolidate debts - Financing a renovation - Financing the purchase of other investments - Financing the purchase of investment property
Since a mortgage is a fully secured form of financing, the interest you pay is usually less than with most other types of financing. Amount of Down Payment As you know the minimum down payment is now 5% of the purchase price. - A minimum down payment of 5% but less than 20% of the purchase price will require CMHC, Genworth or AIG high ratio mortgage insurance - A down payment of 20% of more won't require high ratio insurance (except for business for self or commission "stated income" which will require 25% down) - A large down payment (35%, 50%, etc of the purchase price) will usually still require down payment proof and history. There are very few exceptions to this requirement. CMHC requires mortgage lenders to prove that the borrower has the down payment and has had it in a provable location for at least 3 months prior to closing.
Even when the down payment is more than 20% and CMHC is not involved mortgage lenders will still require this proof and history. A couple of the reasons for this requirement are concerns about fraud and money laundering.
Acceptable Proof of Down Payment and History
- 3 months bank account statement(s) history. The bank statement should contain the clients name, account number, the bank name and transaction dates - RRSP, GIC or other Investment statements which show the same information - Agreement of sale for a current property, as well as, a recent mortgage statement (the difference being the down payment) - Gift Letter from an immediate family member and the letter has to say that the money doesn't have to be repaid (see sample attached). The gift funds will have to be in the borrowers account 20 days before closing. - Borrowed Funds borrowed from a bank or other financial source where the monthly payment can be verified and taken into consideration in the qualifying (TDSR). Unacceptable Proof of Down Payment
- Less than 3 months history - Cash from an non verifiable source - Foreign Money Transfers which arrive less than 3 months prior to closing. A few countries with banking systems similar to ours may be able to provide acceptable bank statements. This 3 month history requirement can be a big problem if it can't be verified that the funds have been in the mortgagors procession for this length of time. You can't go back in time to correct the problem. Most Important Points - Minimum down payment 5% of the purchase price - 3 month history of where the down payment has come from, provable by statements from Canadian sources - Money coming from out of Canada put it in a Canadian bank at least three months prior to closing, even if the down payment is large (50% or more). There are money laundering concerns.
Making Extra payments Paying extra amounts on your mortgage can make a big interest saving over time. When we select a mortgage company, privilege payments options are something that we look for. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster. Advantages of Bigger Down Payments As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium. More importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to note that it may not be wise to stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate. Short Term Rates vs. Long Term Rates The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms. Taking a variable or floating rate mortgage can have savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision. Mortgage Types Conventional Mortgage
A conventional mortgage is a loan that does not exceed 75% of the purchase price or appraised value of the home, whichever is less. This type of mortgage does not have to be insured against default.
High-Ratio Mortgage - CMHC Insured / GE Capital Insured
A high-ratio mortgage is a loan that is above 75% and up to 95% of the purchase price or appraised value of the home, whichever is less. These mortgages must me insured against loss by either Canada Mortgage and Housing Corporation (CMHC), a Federal Government Corporation, or GE Capital, a private insurer. The premiums can be added to the mortgage amount or paid at closing, and are as follows:
Open Mortgages
An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgages are available in shorter terms, 6 months or 1 year only, and the interest rate is higher than closed mortgages as much as 1%, or more. They are normally chosen if you are thinking of selling your home, or if you are expecting to pay off the whole mortgage from the sale of a another property, or an inheritance (that would be nice).
Closed Mortgages
A closed mortgage offers the security of fixed payments for terms from 6 months to 10 years. The interest rates are considerably lower than open, and if you are not planning on any one of the above reasons, then choose a closed mortgage. Nowadays, they offer as much as 20% prepayment of the original principal, and that is more than most of us can hope to prepay on a yearly basis. If one wanted to pay off the full mortgage prior to the maturity, a penalty would be charged to break that mortgage. The penalty is usually 3 months interest, or interest rate differential (I.R.D. - please refer to glossary for detailed explanation).
Fixed-Term Mortgages
With a fixed-rate mortgage, the interest rate is set for the term of the mortgage so that the monthly payment of principal and interest remains the same throughout the term. Regardless of whether rates move up or down, you know exactly how much your payments will be and this simplifies your personal budgeting. In a low rate climate, it is a good idea to take a longer term, fixed-rate mortgage for protection from upward fluctuations in interest rates.
The Adjustable Rate Mortgage (A.R.M.)
The Adjustable Rate Mortgage (A.R.M.) provides a lot of flexibility, especially when interest rates are on their way down. The rate is based on prime minus 0.375% and can be adjusted monthly to reflect current rates, and for the first 3 months of the mortgage, a large discount on the rate is given as a welcoming offer. Typically, the mortgage payments remain constant, but the ratio between principal and interest fluctuates. When interest rates are falling, you pay less interest and more principal. If rates are rising, you pay more interest and less principal, and if they rise substantially, the original payment may not cover both the interest and principal. Any portion not paid is still owed, or you may be asked to increase your monthly payment. This mortgage is fully convertible at any time without any cost to you, if you choose a 3 year term or greater, and offers a 20% prepayment privilege at any times throughout the year. While traditionally, banks offer variable mortgages up to 75% of the purchase price or the value of the home, we can go up to 90% with this product. Secured Lines of Credit
Use the equity in your home that you have built up to purchase investments (where interest costs would be deductible against the earned income), finance home renovations, buy a car, or any other reasonable needs, with rates as low as prime. They can be arranged up to 75% of the purchase price or value of the home, and should you need more, we can arrange another secured line of credit as a Second mortgage up to 90%. Accessing the available credit is as simple as writing a cheque, or using the issued credit and/or debit card. You do not have to draw the money until you need it, and once you make a withdrawal, you can pay of your balance at any time or make monthly payments as low as interest only. As you pay down the balance, you have that much more available credit (revolving credit).
Being a secured product, there are the normal legal and appraisal fees that are applicable. From time to time, there are promotions where a lender will cover for part or all of these costs.
Equity Mortgages
These are mortgages that are assessed on the equity of the home (market value minus the mortgage amount). They can be as high as 75% of the purchase price or value of the property and if more is required, we can look at a small Second mortgage. These are generally offered to applicants that do not meet the normal income and/or credit qualifying guidelines. You may have little or no income verification, self-employed, and/or your credit may be less-than-perfect.
Multiple Term Mortgages
If you wanted the lower rates of a short term mortgage but wanted the security of a long term, why not choose both. Yes, "build your own mortgage" product. You can split your mortgage in to as many as 5 parts, all having different terms, rates, and amortizations, but one total monthly payment. This way, you are spreading the risk. But, be prepared to be "hands-on" and watch the market very carefully here. This is not for everyone, as the time and stress levels are quite high.
The 6 Month Convertible Mortgage
When rates are on their way down, or you may feel that they will in the near future, a 6 month convertible mortgage offers you the short term commitment at fixed payments, with an added advantage that while within the term, the mortgage is fully convertible to a longer term from 1 year to 10 years. At the end of the 6 month period, the mortgage becomes fully open, where one can renew with the existing lender or transfer to another lender. Even though it is offered at many financial institutions, there are differences from one to the next.
All-Inclusive-Mortgage (A.I.M.)
The AIM mortgage takes care of everything automatically. For Purchases, it includes: Solicitor's legal fees and standard disbursements to close the purchase and mortgage; Title transfer; Title Insurance from LandCanada for the clients; CMHC application fee or Appraisal fee; 1% Cash-Back to cover Land Transfer Tax; Registration of Deed and Mortgage. For Refinances, it includes: Legal fees and standard disbursements to prepare and close the mortgage; Title Insurance from LandCanada; CMHC application fee or appraisal fee; 1% Cash-Back; Registration of new first mortgage; Registration of discharge of existing first and second mortgage. The minimum term available is a 5 year term.
Bridge Financing
Bridge financing refers to a special, short-term loan needed to cover the time gap when two properties, both firm sales, are involved and the closing dates don't match. The property being purchased closes before the one that was sold. There is a small set-up fee charged by the lender to have the bridge loan arranged, plus the cost of the interest as now you are carrying both properties for a short time. The rate charged on the bridge loan is about 2-3% above the bank's prime. | For Mortgages Up To: | 75% | No Insurance Required | | For Mortgages From: | 75.1-80% | Premium is 1.00% | | | 80.1-85% | Premium is 1.75% | | | 85.1-90% | Premium is 2.00% | | | 90.1-95% | Premium is 3.25% |
If you obtained an insured mortgage after April 1'st, 1996, the premium you paid on the mortgage is now portable to another property (if you closed before this date, it is not portable, meaning that if you bought another home and your mortgage needed to be insured, you must pay the applicable premium again.) NOTE: This insurance is for the benefit of the lender against default. It is very costly and there is another way we can arrange a mortgage for you with a low down payment. That is with a 1'st mortgage and a 2'nd mortgage. For your unique situation, it may be less costly to consider this option. Banks, on the other hand, cannot offer you this option as they cannot provide secondary financing over 75% of the purchase price or value of the property.
First Mortgages:
A First mortgage is the first debt registered against a property that is secured by a first "charge" on the property. If a default on the mortgage occurs, the first lender has first right on the property to recover the outstanding principal and interest costs, and any other costs incurred during the process. Second Mortgages: A second mortgage is a debt registered after a first mortgage has been registered. In most cases, the interest charged on the second is higher than the first, reflecting the higher risk to the lender, but over a short term, still more cost effective than paying the high cost of the CMHC/GE Capital insurance premium. They can be used to finance up to 90% of the purchase price or value of the home.
ONTARIO CANADA MORTGAGE RATE, ONTARIO MORTGAGE RATES, ONTARIO MORTGAGES, CANADA BEST MORTGAGE RATES CALCULATOR, CANADIAN MORTGAGE RATES CALCULATOR * Rates may vary provincially and are subject to change without notice.
Rates Last Updated: April 14, 2009 |