Sutton Member Program and Mortgage Advice
A mortgage is a charge 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.
You can also use mortgage for financing many different things,
including: purchasing your second home or a condo, refinancing to
consolidate your debts, financing a renovation, financing the
purchase of other investments etc.
Sutton Member Program
When you buy or sell your home/ condo using Amit's services or any
other Sutton REALTOR® who is also a member Sutton Member Program (SMP)
you may qualify for the best mortgage rates. SMP is available only
to members who purchase a home through a Sutton real estate
salesperson person registered with the Sutton Member Program except
for refinance in which case the individual must be referred by a
REALTOR® member of the Sutton Member Program.
Apply for a mortgage loan today!
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mortgage broker and or SMP mortgage representative. Your
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| How much can I afford?
The shortest answer to that question depends on number of
factors. Factors include your gross household income, your
down payment the mortgage interest rate and amortization
period. Lenders will also consider your assets and
liabilities (debt).
To help you estimate the maximum mortgage you can afford
CHMC has developed the following easy to use
mortgage calculator. |
What is pre-approved mortgage certificate?
If rates go higher, your rate will not be affected, and if rates go
lower, you get the lower rate. This protection is solely responsible
for savings thousands of dollars for many people who obtained a
pre-approval and the rates increased afterwards..
With pre-approved loan you can confidently negotiate an offer on a
home. A seller also prefers to negotiate an offer of a purchaser who
has been pre-approved. With more lenders, lower rates, and no-cost,
no-obligation, make us your choice for your pre-approval.
What is fixed vs. variable mortgage and closed vs. open mortgage?
Fixed rate vs. Variable rate mortgage
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.
A variable-rate mortgage (also called adjustable-rate) provides a
lot of flexibility, especially when interest rates are on their way
down. The rate is based on prime and can be adjusted monthly to
reflect current rates. Typically, the mortgage payment remains
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. Make sure that your variable-rate mortgage is open or
convertible to a fixed-rate mortgage at any time, so that when rates
begin to rise, you can lock-in your rate for a specific term.
You may also opt to choose mortgages that are combination of both
the fixed rate and the variable rate.
Closed vs. Open mortgage
An open mortgage allows you the flexibility to repay the mortgage at
any time without penalty. Open mortgage interest rate is higher than
closed mortgages by as much as 1%, or more. They are normally chosen
if you are thinking of selling your home, or if expecting to pay off
the whole mortgage from the sale of another property, or an
inheritance. There is no penalty to break the mortgage at any time.
A closed mortgage offers the security of fixed payment 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, lenders 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.
What is difference between term and amortization?
Term refers to the length of time which a specific mortgage
agreement covers, generally between 6 months to 5 years. When the
term matures, the balance of the mortgage is either paid off or
renegotiated for another term at the rates in effect at the time.
Amortization Period is the number of years it would take to repay
the entire mortgage amount based on a set of fixed payments. The
longer the amortization, the more interest is paid over the life of
the mortgage. Therefore, when choosing the amortization period,
careful planning should be done to meet your cash flows. Remember,
the amortization can be easily shortened after the closing, by
simply making arrangements to increase your payments. These days
banks offer up to 35 year amortization period.
First-time buyers can choose to pay up to five percent down payment
and stretch out payments for as many as 35 years. A
long-amortization mortgage, combined with mortgage insurance, can
help get someone into a home far sooner.
What is conventional and high ratio mortgage?
A down payment of 20% or more is a conventional mortgage. If your
down payment is less than 20%, you would qualify for a high ratio
mortgage on which you would have to pay insurance premiums.
What mortgage term should one take?
When you're looking at term and interest rates, look also at what
you can live with in terms of payment amounts, because trying to
predict where interest rates are going is a tough job. There are
many forces that affect Canadian interest rates - economic,
political, domestic, and international. Even the best economists
cannot pinpoint this. Predicting interest rates is very much a
gamble and one should be prepared to keep a close eye on the market.
Here's a suggestion: If you feel that rates are at a point you can
live with and you want to guarantee that rate as long as possible,
go with a long term (5 years, 7 years, and 10 years). If interest
rates appear to be rising, take advantage of the lower rate for as
long as possible, and remember, if you sell your property, you can
take the mortgage with you to the new property or have someone
assume the mortgage. It could prove to be a great selling feature if
you have an assumable mortgage at very low rate.
If rates appear to be falling, you can choose a shorter term
(6-month convertible or variable-rate mortgage) that offers the
flexibility to lock-in to longer term at any time, just in case the
rates start going the other way.
What is mortgage loan insurance and how much insurance
premium is paid?
For most people, the hardest part of buying a home — especially a
first home — if buyers can put down at least 20 per cent of the cost
of home, they don't have to buy mortgage insurance.
Mortgage insurance protects lender against payment default. The
mortgage loan insurance premium is calculated as a percentage of the
loan and is based on the size of the down payment in relation to the
total purchase price. For example, a down payment of 5% would incur
an insurance premium of 2.75% of loan value plus PST. You can either
pay this premium in cash or have your lender add it to your mortgage
amount.
Table of premiums (How much does it cost?)
How can I quickly pay down my mortgage and become debt free?
To help you become mortgage-free faster
Reduce amortization period
One way to pay off your mortgage faster is to opt-in for a shorter
amortization period, that is the number of years it would take to
repay the entire mortgage based on a set of fixed payments. The
longer the amortization, the more interest is paid over the life of
the mortgage. Therefore instead of paying off your loan in 35 years
(420 months); you can choose shorter amortization period of 25 year
(300 months), 15 year (180 months) or even lesser. Make sure that
the mortgage payment (principal + interest) does not hurt your
monthly cash flow. Don't forget to add property taxes and utility
charges to your monthly home expenses.
Pay bi-weekly or weekly mortgage payments
Once you have the mortgage amount, rate and amortization period,
your monthly payment can be calculated. Now is the time to decide
how often you want to make your payments, because by selecting the
right payment frequency could literally mean thousands of dollars in
long term savings. You can save more by paying weekly or bi-weekly
in comparison to paying monthly.
If you have other payments throughout the month, bi-weekly may be
less stressful and easier to budget. If you are self-employed or
commissioned, and your income varies greatly from week to week, it
may be easier to pay monthly and use your prepayment privileges to
knock the amortization period.
Pre-payments-pay extra payments against principal
This is one of the most important features to look for. Having the
prepayment privilege that works for you could mean a difference of
thousands of dollars over the life of your mortgage. Although all
financial institutions offer some form of prepayment privilege, the
amount and how it can be applied varies from one to another. Some
Banks offer as high as 20% per year. Ideally, you should work your
prepayment privilege as often as possible throughout the year.
Increase your regular payment
The secret to borrowing is borrow early in your life. The reason is
that the future value of the dollar decreases. When you borrow
early, your payments are set. As time goes, your incomes increase,
but your mortgage payments stay the same, provided you locked-in to
a long term, fixed mortgage. Therefore, in the future you may be in
a position to increase our payment on your mortgage, regardless if
you are paying weekly, bi-weekly, or monthly. Any increase in
payment is directly going to pay down the mortgage, thus saving you
thousands down the road due to the effect of interest not
compounding on that amount for the life of the mortgage.
Again, this feature varies from bank to bank.
Double-up on your payments
A few lenders will allow you to double-up on your payments, and the
extra payment goes directly towards the principal. This is a neat
feature for someone who prefers monthly payments but wants the
results of weekly and bi-weekly payments.
Early renewal mortgage option
This is a great feature to have when interest rates are on a rise.
If you are locked-in to a term and the mortgage will be maturing in
months or years down the road, and the mortgage rates are on a rise,
you can renew your mortgage before the maturity and lock-in the low
rates for a new term.
Port your lower rate mortgage and avoid mortgage penalty
If you want to take your mortgage with you when you move, you can,
if your mortgage has a clause that allows you to do that. This
option allows you to continue your savings on your lower rate if the
going rates are higher, as well as avoid any penalties if you were
to break that mortgage. If you need a larger mortgage for the new
property, your existing mortgage amount might also be increased. As
for the associated costs, since a new mortgage document must be
registered on title, legal fees and normal appraisal fees would be
applicable.
Let sellers assume mortgage
If you are moving and don't want to take your mortgage with you, or
you are selling and not buying, an assumable feature can allow the
buyers of your property to take over the mortgage, provided they
meet the lender's qualifying criteria. By doing so, you will not pay
any penalties as you are not breaking the mortgage contract. In
fact, if your interest rate is lower than those available at the
time, your assumable mortgage suddenly became a great selling
feature for your property.
A word of caution here: Just because someone assumes your mortgage
does not necessarily mean you are off the hook for the
responsibility. You must get a release from the lender to ensure
that you are no longer liable for it. Some mortgage lenders
automatically offer a release, but with others, you must make the
request, and do it through your lawyer.
Is mortgage interest tax deductible in Canada?
No, mortgage interest is not tax deductible (on your principal
residence) in Canada, like in the US. Mortgage interest can be
deductible on your investment property. Speak with your accountant/
tax consultant for detailed information about
interest deductible mortgages.
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