Mortgage refinancing includes equity take outs and home purchase loans. In British Columbia there are rules that are specific to our Province and wading through the minefield is difficult. Sherry has a strong background in refinancing issues that can be put to work for you. Understanding the process is vital to you making the most of prepayment options, avoiding penalties and maximizing your equity.
- Default insured mortgage?
- Should I pay my annual property taxes through my lender
- What is the “Interest Adjustment Date” in my mortgage?
- Closed, Convertible and Open what is the difference?
- How can I pay down my mortgage faster?
- Are there penalties if I pay out or switch my closed mortgage?
- Amortization and Term of a mortgage
- Collateral mortgage, what is it?
Your new mortgage must be default insured when you borrow more than 80% of the appraised value of a home. Your mortgage is insured by either Canada Mortgage and Housing Corporation or GE Capital. Occasionally, lenders require default insurance even though your new mortgage is less than 80% of the appraised value. Besides the default insurance premium, an insured mortgage has unique terms that your Notary will discuss when you meet.
We typically recommend that you avoid this option if you can. Though each city is different, most have an option where you can pay your property taxes directly via monthly payments. This option is not available for rural property. Paying your annual property taxes through the municipality is a recommended option. Most lenders reserve the right to use the money accumulated in your tax account. Lenders apply the money accumulated against your mortgage if you miss any payments. Some lenders are now also charging a fee for administering the tax account.
The IAD is the date the lender first adjusts the interest due. Unlike rent, when you make a mortgage payment you pay the interest after the interest accumulates. Your first mortgage payment is due after the first payment period after the Interest Adjustment Date. So, if you pay monthly, your first mortgage payment is a month after the Interest Adjustment Date, etc. If you pay weekly, your first mortgage payment is one week after the Interest Adjustment Date. If your mortgage closes before the Interest Adjustment Date then what happens? Your lender simply collects the interest due from the mortgage advance date up to the Interest Adjustment Date.
A closed term mortgage may be ideal if you’re not planning to pay off your mortgage in the short term. Interest rates for closed term mortgages are generally lower than for open term mortgages. Closed term mortgages offer you the ability to save on interest costs and pay off your mortgage faster. However, you will pay a prepayment penalty if you pay your mortgage balance prior to the end of its terms.
A convertible mortgage gives you the same benefits as a closed mortgage but can be converted to a longer, closed term at any time without prepayment penalty.
Open term mortgages may be appealing if you are planning to pay off your mortgage in the near future. They can be repaid either in part or in full at any time without prepayment charges. Open mortgages can be converted to any other term, at any time, without a prepayment charge. Interest rates for open mortgages are generally higher than for closed mortgages because of the added pre-payment flexibility.
Typically, mortgages are either closed or open. An open mortgage can be paid out in full any time you want. With an open mortgage, you can also pay extra money against the principal whenever you desire without a penalty. A closed mortgage has limitations. If you pay above those limitations, you will pay a penalty to the mortgage lender.
If you payout or transfer a closed mortgage before the end of your term, the lender will charge a payout penalty. This can add significant costs to your decision. You should confirm what the cost is before you take any steps that might impact you. This should also be a factor in your original lender choice as the prepayment rights change with every lender.
Amortization is the length of time over which a mortgage loan will be retired in full. This is generally done by way of monthly or weekly payments of principal and interest. The “term” is the length of time during which a borrower pays a specific interest rate on the mortgage. Your entire mortgage is usually not paid off at the end of the term. This is because the amortization period is normally longer than the interest rate term.
This is a mortgage where you give property as security for a Loan granted by way of a Promissory Note or Loan Agreement. The money which is borrowed can be used to consolidate debt or used for another large purchase such as a vehicle purchase. If you default on the Loan the lender can then take legal action to possess the property.