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Mortgage Life Insurance

Is this coverage right for you?

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Mortgage Insurance

Another thing to take into consideration during your low mortgage rate shopping process is Mortgage Life Insurance, which is different than Mortgage Default Insurance.

What is Mortgage Insurance?

Mortgage Insurance is also referred to as mortgage life insurance and creditor insurance. In Canada, banks use post-claims underwriting for Mortgage Insurance. They only confirm that you qualify after you submit a claim.

Here are a couple of reasons why you ought to take a look at options aside from Mortgage Insurance:

  • Coverage decreases with time.
    • While your premiums remain the same throughout of your mortgage, the coverage you’re receiving is in fact decreasing with your Canadian mortgage rate balance.
  • Coverage is not eternal.
    • Your mortgage insurance will simply last as long as the “term” of your mortgage.
  • The lender is the beneficiary.
    • Assuming that your claim has been approved, the lender is the recipient and the money goes straight into their pockets.

What’s the Alternative?

Another choice is to purchase Term Life Insurance. With Term Life Insurance your coverage does not decrease with time, you’re approved in advance, and the money goes straight to you.

Term Life Insurance

The most common types of term life insurance for mortgage protection are 10-year, 20-year, and 30-year terms. These products charge consistent premiums for that time period. No medical examinations in the middle, no re-qualifying, and no surge in premiums.

Life Insurance Benefits

Individual term life insurance products are not tied to your mortgage.

Name Your Own Beneficiary

Plus, the majority of term life insurance policies in Canada have what’s referred to as a conversion privilege. This enables you to trade in your term life insurance policy for a permanent life insurance policy– without a medical examination.

Other advantages of life insurance consist of:

  • Discounts are offered based on your health and your family history.
  • Premiums are taxed at a much lower rate.
  • Versatile– you can switch mortgage lenders and take the coverage with you if you move or you can convert a term policy into a permanent policy.
  • Policy terms do not alter and in most cases the policy premiums are guaranteed.
  • If you’re shopping for mortgage insurance, you ought to consider life insurance as an alternative option.

Shop Around

Compare life insurance rates to the mortgage insurance rates provided by your bank.

Top It Up

Think about purchasing or topping up an individual life insurance policy to cover your best mortgage rate instead of utilizing mortgage insurance.

Speak with an Expert

Speak with a licensed insurance broker, not just your mortgage broker, to get insight on coverage.

Mortgage Penalties: Just How Much Will it Cost to Break my Mortgage?

Would now a good time to break your mortgage and refinance?

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How Much is my Mortgage Penalty?

This is a really common concern– when should I break my existing mortgage and refinance for a current best mortgage rate? It’s best to initially weigh out the costs.

Breaking your Mortgage

A Canadian mortgage rate agreement is a fully committed contract. There is an out clause, however it comes at a cost.

How Much is my Mortgage Penalty?

Typically the cost is determined based upon either three months worth of interest payments, or the interest rate differential (IRD).

Step 1: Calculate your IRD (Interest Rate Differential)

1) Use the principal balance and multiply it by the difference between your existing mortgage rate, and the new low mortgage rate.
2) Divide that number by 12.
3) Multiply that number by the remaining months in your term to obtain the approximate IRD owed.

Step 2: Calculate 3 Months of Interest

Just simply multiply the amount of interest you would owe on the present mortgage amount. Multiple this by 3.

Step 3: Find out the Penalty you Would Pay

When it comes to a fixed rate you would pay the greater of the IRD, or 3 months of interest. While in a variable rate, you would generally pay 3 months of interest. Contact your mortgage broker or lender to identify your specific required payments.

Step 4: Calculate Your Savings

1) Calculate the interest on your current mortgage rate.
2) Calculate the interest for your new mortgage rate.
3) Calculate your savings.

Step 5: Find out if it is Worth It

Decide if changing is worth it by comparing your expenses to your savings.

Mortgage Term Vs. Amortization

Do you understand the difference between your mortgage term and your amortization period?

Understanding Mortgage Terms

Understanding Mortgage Terms

A frequent source of confusion for potential homebuyers is the difference between a mortgage term and amortization period. A standard Canadian mortgage rate has a 5-year term with a 25-year amortization period.

Mortgage Term

The mortgage term is the length of time you commit to a low mortgage rate, lender, and associated best mortgage rate terms.

Mortgage Amortization Period

This is the length of time it will take you to repay your whole mortgage. Longer amortization periods lower your month-to-month payments, as you are paying your mortgage off over a greater number of years. But nevertheless, you will pay even more interest over the life of the mortgage.

Maximum Amortization Reduced to 30 years on March 18th, 2011

In January 2011, Minister Flaherty revealed that the maximum amortization duration on all CMHC insured houses would be lowered from 35 to 30 years.

Quite a few home buyers opt for a reduced amortization period leading to greater regular monthly payments if they have the means to do so, understanding that it encourages desirable saving habits and minimizes the overall interest payable.

Short vs. Long Term Amortization Periods

Prepayment privileges set out by your lender will determine whether you can reduce your amortization period, by either enhancing your regular month-to-month payments and/or putting lump sum payments towards the principal. Nevertheless, beyond these privileges, you will typically incur charges for making extra payments. According to the Canadian Association of Mortgage Professionals, 24 % of Canadians benefited from prepayment options in 2009.

Mortgage Transfers

What you will need to know.

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Ask Your Lender

Are you planning to transfer your mortgage to another property? If you’re trying to sell, chances are you still have a mortgage on the home you currently own. So what happens to your existing mortgage when you want to move on from your current home and purchase a new one?

Well, the reality is you still must repay the remaining mortgage balance, and this will need to be either paid off or transferred to your new home. You will also need to consider that since you are repaying your mortgage early, if you do not have an open mortgage, you may be required to pay a prepayment penalty.

Ask Your Lender

Here’s some information you should speak with your best mortgage rate lender about:

  • What amount of my remaining mortgage balance?
  • Can the buyer assume or take over my mortgage? If so, what are the requirements for the buyer?
  • Am able to pay off the total mortgage balance? If so, is there a prepayment penalty?
  • Can you transfer this mortgage to my new property?

Sometimes your lender will waive the penalty if you or the buyer takes out a new Canadian mortgage rate with them. Getting the answers to these questions in writing will avoid any unpleasant surprises later on.

Still have questions? Not a problem, speaking with a low mortgage rate specialist can help you determine what’s best for your personal situation. It’s free and there are no obligations.

Open or Closed Mortgage?

Open or Closed? Do you know which option is right for you?

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Open or Closed Mortgage?

Closed mortgages provide lower interest rates than open mortgages. Nonetheless, open mortgages include a smaller amount of fees.

What is a Closed Mortgage?

Closed mortgages cannot be prepaid, renegotiated or refinanced prior to maturation without paying a penalty. The majority of closed mortgages do provide a little flexibility by allowing you to pay back the principle through lump sum payments, or by enhancing your monthly payment amount for your best mortgage rate.

When to Consider a Closed Mortgage

Given that closed mortgages have considerably lower interest rates, they are more appealing to the average homebuyer.

When NOT to Consider a Closed Mortgage

If you believe that you will need to break your mortgage early.

What is an Open Mortgage?

Open low mortgage rate terms vary from 6 months to 1 year for fixed rates, and 3 to 5 years for variable rates. They may be settled prior to maturation without penalty.

When to Consider an Open Mortgage

If you are anticipating to get a large amount of money, an open mortgage will offer you the flexibility to settle your loan sooner.

The Beauty of Prepayments with Closed Mortgages

The majority of closed mortgages allow prepayment options, consisting of: lump sum payments as much as a portion of your annual principal, or enhancing your regular monthly Canadian mortgage rate payment.

How Much Does a Closed Mortgage Penalty Cost?

If you do choose to break your closed mortgage prior to completion of your term, you could possibly pay a penalty. The penalty you pay is the higher of either:

3 months of interest.

Or the Interest Rate Differential (IRD): the difference between today’s interest rate and the rate you currently pay.