Tag Archives: Tips

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

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

calculator isolate on White Background

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.

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.

Preparing For Your First Mortgage

Four moves to make when getting ready for your first mortgage.

Happy couple holding for sale and sold signs in front of a new house

You First Mortgage

Step 1: Know What You Want

Should your mortgage be fixed or variable?

Fixed Mortgage Rate:

Enables you to “lock in” a predetermined rate for a set amount of time (term).

Variable Mortgage Rate:

This type of mortgage rate changes monthly according to the mortgage lender’s prime rate. Anyone handling a variable Canadian mortgage rate has to have the ability to manage modifications to their monthly payments.

Open or Closed Mortgage?

If you are not prepared to pay a sizable lump sum in the coming future, typically a closed mortgage would be the best option for you.

Open Mortgage:

An open mortgage is a versatile alternative that enables you to make substantial payments or settle the whole mortgage without a penalty. Open mortgage rates are more than closed mortgage rates. This form of mortgage allows you to settle large amounts of your loan prior to completion of the mortgage term.

Closed Mortgage:

Not too many individuals need the flexibility to settle their best mortgage rate prior to completion of the term. If you have a closed mortgage you are going to be penalized if you try to pay off the loan early and the charge can be rather substantial.

Step 2: Knowledge is Power!

Searching for the best rates can save you money on your low mortgage rate.

Step 3: Speak with a Mortgage Broker

Brokers are able to assist in determining what you will be able to manage, what your options are, and help you through the process.

Step 4: Discuss Your Mortgage

As soon as you have prepared, you are ready to put your mortgage broker to work by having them negotiate a rate.
Take the first step towards homeownership now. Get pre-approved for a low mortgage rate.

Seller’s Market vs. Buyer’s Market

Understanding the housing market

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Seller’s Market vs. Buyer’s Market

Have you ever wondered who decides how much a house is worth and how they do it? The market is influenced by a variety of factors, all adding to the final asking price. A few of the factors include:

  • Tempo of the market– the speed at which homes are currently selling
  • Confidence in the economy– prices have the tendency to go up when confidence is high
  • Competition within the market– a packed market tends to result in lower prices
  • Financial Institutions– a professional appraiser will determine the property’s lending value
  • Insurance Companies– a broker will calculate the property’s replacement value
  • The buyer and the seller– ultimately, buyers and sellers decide the final purchase price, which in turn influences the market

Seller’s Market vs. Buyer’s Market

Instability in the market scares people– sometimes right out of moving. A better understanding of the market will help you choose the best time to sell.

Cycles in the market are strongly influenced by the economy. The economy can produce both a shortage and a surplus of housing. In a seller’s market many buyers are competing for a limited number of houses. Prices on houses tend to be higher in a seller’s market. Conversely, in a buyer’s market there are plenty of houses to choose from. This surplus of housing can slow rising prices, as well as cause price reductions, which can ultimately impact your low mortgage rate.

Knowing the market is an important factor when selling or buying a home. Be sure to research the current market and best mortgage rate, or hire a real estate professional who is aware of the complexities.

Canadians take, on average, 11 months to plan their Canadian mortgage rate home purchase and 88 percent indicate that they have a good sense of how much they can afford. (Source: CAAMP).

Buy First, or Sell First

This is one of the biggest concerns for sellers. Unless you time both the purchase and sale perfectly, you could end up in one of two scenarios: living in a motel temporarily, or paying two mortgages at the same time. Neither sounds very appealing. Here are a few things you can do to avoid this dilemma:

Make it ‘conditional’ that your offer to purchase stands only if your current home sells. However, in a hot market (i.e. seller’s market), the seller could reject your offer for a more suitable one.

If you receive an offer, negotiate the closing date until the sale of your home is complete. Again, this could lead to a withdrawal of the offer if it does not work with the potential buyer’s schedule.