Mortgage 101
The purchase of a home is one of the biggest decisions and significant financial investments a consumer makes. It is extremely important that you do your research and educate yourself on key mortgage terms in order to make an informed decision about what mortgage product is best for you.
Different consumers are at different stages in their lives. They have different mortgage needs and there are many mortgage products to choose from. The best result will occur when you work with a mortgage professional who can offer sound, professional advice and a mortgage solution that matches your needs and circumstances. Above all, you need to be comfortable with your mortgage choice.
PRE-APPROVAL
It is important to obtain
a pre-approval for the amount of money you can borrow from a
lender and avoid looking at homes that may be out of your price range. The
pre-approval process is usually guaranteed for a period of 90 days. For
additional security for the lender, you may want to have a co-signer –
a party who signs the mortgage documents along with the borrower, but
who does not have any interest in the ownership of the property.
WHAT IS A MORTGAGE?
Few people can come up with the entire amount of money required to pay for the
cost of a home. A mortgage is a loan of the money
most people require to finance the purchase their home. A mortgage allows
individuals to buy property without paying the full value all at once. The
mortgagor is the person borrowing money, the
mortgagee is the lender of the money.
When negotiating the amount of your mortgage, you should be aware that you will
most likely be required to provide a down payment
which is the money you put towards the purchase price of your home. The amount
of your mortgage is determined by the purchase price of the home less the amount
of your down payment. As with all loans, a mortgage must be repaid to the
borrower with interest. There are different types of repayment methods which
make up the different kinds of mortgages available.
Like all loans, regular payments made over time go towards paying down the
mortgage. These payments are made up of two parts – one part goes towards paying
the principal (the amount of money borrowed) and
other part goes towards paying the interest (the
fee charged for borrowing the money.)
The more money you can put down, the less you will have to borrow, and the less
interest you will have to pay over the length of the mortgage.
If you have a down payment equivalent to 20% or more of the purchase price, you
will have what is called a conventional mortgage.
If your down payment is less than 20% of the purchase price, you will have what
is called a high ratio mortgage. A high ratio
mortgage must be insured to protect the lender.
This insurance is called mortgage default insurance.
It protects the lender in case the borrower isn’t able to repay the loan.
The Canadian Mortgage and Housing Corporation (CMHC) and Genworth
Financial offer assistance to first-time home buyers who do not have a lot of
disposable funds for a down payment. Ask your mortgage professional for more
details.
TERM OF MORTGAGE
The term
of a mortgage is the length of time a lender will loan mortgage funds to a
borrower. This duration can be from six months to ten years, two to five years
being the most common. Generally, the shorter the duration of a mortgage term,
the lower the interest rate, and the less it costs to borrow the money. At the
end of each term, you will either pay off the balance owing or renegotiate the
mortgage for another term until the entire mortgage is paid back.
Short Term
Short term agreements or
mortgage contracts are usually for two years or less. Short
term mortgages offer a lower cost of borrowing (interest rate) than a longer
term. People who believe that interest rates are currently higher than they will
be in the future generally choose a short term mortgage. They anticipate that
interest rates will be lower at the time of renewal.
Long Term
Long term agreements are generally for three years or more.
Long term mortgages cost a bit more than short term mortgages, so the interest
rate will be higher. A higher interest rate appeals to borrowers who value the
stability and predictability of fixed expenses over a set period of time. A
stable mortgage payment is easier to budget and offers peace of mind.
It can take a long time to completely pay off your mortgage – usually from 15 to
25 years. The process of fully paying off your loan by installments of principal
and interest over a definite period of time is called Amortization.
There are many ways of repaying your mortgage. Some people find comfort in
a pre-determined fixed rate – it helps them budget and plan for other things in
their life. Some people desire more flexibility in their repayment – their
circumstances might include fluctuations in their cash flow, and they may want
to make larger payments whenever possible. Different kinds of mortgages appeal
to the different types of borrowers. Your mortgage professional can help you
decide what is best for you.
MORTGAGE TYPES
Open Mortgages
If you want to make large payments on your mortgage or pay off the entire
mortgage without penalty, then an open mortgage is for you. An
open mortgage offers maximum flexibility. These homeowners are
willing to accept some fluctuation in the interest rate for the flexibility of
paying off the entire mortgage before the term is complete.
It is important to keep in mind that most regular mortgages will allow
homeowners to make lump sum payments of up to 20% of the entire mortgage once a
year without penalty. That payment goes directly towards paying down the
principal of the amount borrowed. You may therefore not need an open mortgage,
with higher interest rates, to make additional payments.
Closed Mortgages
A closed mortgage is a commitment with a
pre-determined interest rate, over a pre-determined period of time. A buyer who
uses a closed mortgage will likely have to pay the lender a penalty if the loan
is fully paid before the end of the closed term.
With a closed mortgage, the interest rate will not
change over the length of the term and the length of the term will not change.
Payment amounts are predictable and the principal amount owing at the end of the
term is predictable.
Closed mortgages generally have lower interest rates than open mortgages.
Most closed mortgages will allow the homeowner to make a payment up to 15% of
the entire mortgage once a year without penalty. This payment goes directly
toward paying down the principal of the amount owing.
Convertible Mortgages
A
convertible mortgage is an agreement made at the beginning of a term
that allows homeowners to change the type of mortgage they hold during its term.
If a homeowner wants to start with an open mortgage and then lock into a closed
mortgage, a convertible mortgage is the right choice. It offers lower rates than
an open mortgage, and has the option of switching to a closed term.
RATES
An interest rate is the amount
of interest charged on a monthly loan payment, expressed as a percentage. It is
based either on the rate the Bank of Canada charges to lend money to money
lenders or on bond yields. Interest rates are generally lower if you borrow
money for a short period of time and higher if you borrow the money for a longer
period of time.
Fixed Rate Mortgage
When you agree
to a fixed rate mortgage, your interest rate will never change
throughout the term of your mortgage. There are no surprises as 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 Mortgage
When you
agree to a fluctuating interest rate for the length of the term, then you have a
variable rate mortgage. Interest rates fluctuate with the
bank’s prime lending rate, and may vary from month to month. When interest rates
change, your payment amount remains the same, however the amount that is applied
to the principal will change. For example, if interest rates drop, more or your
mortgage payment is applied to the principal balance owing. The variable rate
mortgage is a good option for homeowners who believe that interest rates are
currently high and will drop.
HOME CLOSING TERMS
When you and the seller come to an agreement on the price to be paid for the
house, you must provide a deposit. A deposit is an
advance payment of part of your down payment and is paid at the time of signing
the Agreement of Purchase of Sale.
The Agreement of Sale is a legal document the
buyer and seller approve detailing the price & terms of the transaction.
When negotiating the cost of the house you want to purchase, it is important to
keep in mind that you will also be required to pay property tax.
Property tax is paid on privately owned property
and is usually paid semi-annually or monthly. The amount is based on local tax
rates and assessed property value.
Other than the deposit and down payment, you should keep in mind that you
will likely also be paying for a home inspection – an
examination of the structure and mechanical systems to determine a home’s safety
and makes the potential homebuyer aware of any repairs that may be needed.
Considering insurance on your mortgage
Talk to your mortgage professional about insurance protection against your
mortgage in case of death, accident or illness. There are many insurance options
to choose from. Insurance is available to protect you and your family should you
be unable to work.
PAYING OFF YOUR MORTGAGE SOONER
How to shorten the length of your mortgage and minimize the cost of borrowing
There are many benefits to shortening your mortgage, and thereby paying less for
the cost of borrowing the money. You can free up money for other things in your
life – the education of your children, money for your retirement or an emergency
fund.
Make more payments. Increase the frequency
of your payments. Ask your mortgage professional to show you how you’ll save by
paying biweekly or weekly, instead of monthly. Paying more frequently can save
you hundreds of dollars in annual interest costs.
Make the largest down payment you can afford. This
will substantially reduce the length of time to it takes you to repay the
mortgage. If interest rates decrease when it is time to renew your mortgage,
consider keeping your payments the same and applying more money to the
principal.
Make prepayments or anniversary payments.
Most mortgages will allow you to make payments up to 20% of the entire mortgage
once a year. This money is applied directly to the principal, saving you money
in annual interest costs. Consider using your tax refund or annual bonus for
this type of payment.
Make lump sum payments whenever your financial
circumstances permit.
Double your payments whenever possible.
Choose a shorter length of time to repay your loan.
Ask your mortgage professional to show you how selecting a 20 year amortization
period instead of a 25 year amortization period will affect your payments and
interest costs. Consider choosing 15 years to repay if possible. Your mortgage
payments will be higher but you’ll pay substantially less interest over the
course of the loan.
If interest rates have dropped when you renegotiate your next term,
keep your mortgage payments the same. More money will go directly
to paying down the principal.
TYPES OF HOUSES
Condominium
A form of ownership in which the homeowner purchases and owns a unit of housing and shares financial responsibility for common areas. (In British Columbia, these are also called “stratus”.)
Detached/Freehold
A property where you own both the property and the land on which it is built.
Townhouse
An attached home that is not a condominium.
LAST DETAILS YOU’LL NEED TO CHECK
You
will be required to provide the following list of information to your mortgage
professional to finalize the mortgage:
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Confirmation of income or employment earnings |
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Current bank information |
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Evidence of your down payment |
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List of assets |
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List of liabilities |
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Contact information for your lawyer |
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Copy of the Purchase Agreement |
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Copy of the MLS listing |
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Contract and building plans if your home is being built |
Centum Mortgage Renewal Team Specialist
Renewing Your Centum Mortgage
Renewal is an excellent time to reassess your borrowing needs. At Centum
we have a wide-range of fixed and variable rate mortgage products to meet your
needs.
Renewing is Easy
At Centum, we make the renewal process easy. Approximately 90 days prior
to your renewal date, Centum will send a renewal agreement to you in the mail
detailing your interest rate and payment options, along with our 30-day rate
guarantee. Simply select the term and rate that is best for you and mail or fax
the completed offer back to us.
Talk to a Centum Renewal Specialist
The renewal of your mortgage is important. So much so that Centum has a dedicated team of Mortgage Renewal Specialists designed specifically to look after your mortgage renewal needs. Whether you are unsure of the difference between a fixed or variable rate term or concerned about rising interest rates, our Renewal Specialists can explain it all to you in terms that are simple and easy to understand. Our Specialists are only a phone call or e-mail away. Call 902-759-8024 to contact us.
Telephone Renewals
Convenience is only a phone call away. Call our Mortgage Renewal line at 902-759-8024 and under most circumstances we can renew your mortgage immediately over the telephone. If you’re unsure of what term to select, our Renewal Specialists can provide you with easy to understand information that can help you make a final decision.
Automatic Renewal
If you do not return the signed renewal agreement by your maturity date, your mortgage will be automatically renewed for a 6-month fixed rate convertible term. This term allows you to convert into a fixed or variable rate mortgage at a later date without penalty, however it also comes with a higher interest rate than is available on most of Centrum’s fixed and variable rate terms. If you’re concerned that rates may be changing, our variable rate mortgage provides the same conversion flexibility as the 6-month convertible term at a much lower interest rate.
Our Mortgage Products
Fixed Rate Mortgage
CENTUM offers fixed rate mortgages for terms between one and ten years. All of our fixed rate terms come with the peace of mind of knowing that the principal and interest payments are guaranteed not to change over the length of the term selected.
Variable Rate Mortgages
CENTUM offers variable rate mortgages below Prime, plus provides the flexibility to lock into a fixed rate term at anytime without a fee or penalty.
Open Mortgage
CENTUM offers a fixed rate 1-Year Open mortgage. Our 1-Year Open mortgage allows you to prepay any amount of principal without administration fee or prepayment charges. The open mortgage also provides the opportunity for early renewing into any other term offered, without an interest penalty
Convertible Mortgages
CENTUM also provides a convertible mortgage. Our fixed rate 6-Month Convertible mortgage provides the flexibility of converting to a longer term fixed or variable rate mortgage at anytime, without penalty.
Early Renewal
Looking for a change in your interest rate? Depending on interest rates it may be a good time to look at renewing your mortgage prior to your maturity date. Contact Our Mortgage Renewal Specialists to discuss your options at 902-759-8024.
Porting
Has that house that seemed so perfect five years ago suddenly gotten too small for your growing family? Perhaps it's time to move up to a bigger home? “Porting” allows you to take your existing mortgage with you to another property. You simply pick up the balance and rate on your current home and move it to the new property you are purchasing.
Do you need additional financing on the new property? You can take your existing balance to the new property, and we’ll lend you the additional amount required at current market rates.
Are you at the stage in life where it’s time to scale back? Once again no problem, Centum Mortgage Specialist provides “decreased ports”. This allows you to take only the portion of your existing balance that you require to the new property. Decreased ports can save you thousands of dollars in potential interest penalties.
We’ve designed Centum Mortgage Specialist “port” options to save you time and money. We often blend interest rates, to help you avoid any potential interest charges as a consequence of breaking your current mortgage prior to maturity.
Renovating
Centum Mortgage Specialist allows you to use the equity in your home to complete these renovations.
Debt Consolidation
Typically, the interest rate on unsecured debt such as bank or store credit cards, personal loans, and some lines of credit is much higher than the rate of interest people pay on their mortgage.
For many homeowners, it just makes sense to use their available home equity to pay-out this high interest debt. If you have equity built up in your home, there are a several options to consider to become debt-free faster:
Equity Take-Out
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Have you ever dreamed about a vacation to a tropical paradise? |
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Do you need the funds to pay for your child's education? |
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Would you like to invest more into your RRSP? |
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If you're like most people, you probably answered yes to at least one of these questions. If you have equity built up in your home, why not borrow against it to finance your dreams? |
Extended Amortization Program (up to 40 years)
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For homebuyers who want to own the home of their dreams today, or simply enter the real estate market.
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More affordable payments compared to mortgages with standard loan amortization periods up to 25 years |
Find out more about our Extended Amortization program today.
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Self Employed
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Ideal for borrowers with good credit who find it difficult to produce standard income documentation — those who are self-employed, 100% commissioned or salaried.
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Stated income is sufficient — minimal income verification required. |
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More affordable mortgage payments with extended amortization periods of up to 40 years for qualified borrowers. |
Find out more about our Self Employed Program today.
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