What is the difference between a mortgage broker and a bank?

A bank loan officer works directly for the bank and can only offer you limited mortgage products from their bank because they work directly for the bank. Since they work directly for the bank they are very motivated to sell you their products and may not give you advice regarding the competitor’s products.

Mortgage brokers differ from a bank loan officer as they don't work directly for any one bank. They are an external entity who has access to anywhere from a few dozen mortgage products to a few hundred. What this means to you as the client is that they can find the best rate shopped from many different lenders or get you a mortgage approval regardless of credit history or down payment. In most cases, the bank or financial institution supplying the mortgage pays their commission so there is no direct cost to the client.

What's the difference between Pre-qualification, Pre-approval and Full Loan approval?

Pre-qualification:
Pre-qualification is when our Accredited Mortgage Agents examine your financial situation in terms of income vs. liabilities and we will give you valuable insight as what you can afford or the maximum that the bank is willing to loan you on your home. This is accomplished through the review of a simple mortgage application process.

Pre-approval:
A pre-approval has the same components of the pre-qualification but includes an analysis of borrowers credit history, a review of the client's employment history, and a verification of down payment funds. In this assessment, we can advise clients, guarantee rates, tell client how much down payment etc...

Approval:
Full loan approval is when the lender has underwritten the application and is satisfied that all conditions have been met including documents supplied by the client. Also, full approvals include the approval of a specific property and the approval of mortgage loan insurance if needed. Once full approval has been received, arrangements will be made by the lender to have the funds forwarded to the solicitor.

What is mortgage loan insurance (CMHC/Genwort/AIG)?

Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and GE Capital Mortgage Insurance Company and AIG who are approved private corporations. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80% referred to as a “High Ratio Mortgage” or sometimes less depending on the circumstance. The insurance premiums are paid by the borrower and are added directly onto the mortgage amount.

What is a conventional mortgage?

A conventional mortgage is the opposite of “High Ratio” and one where usually the down payment/equity is equal to 20% or more of the property value, a loan to value of or less than 80% and probably does not require mortgage loan insurance except in isolated instances.

How can you pay off your mortgage sooner?

Since mortgage interest is not tax-deductible in Canada, you are making mortgage payments of both principal and interest with money that you've already paid tax on - "after tax dollars". This makes it even more important to eliminate the drainage of disposable income as soon as possible.

How does bankruptcy affect qualification for a mortgage?

Depending on the circumstances surrounding your bankruptcy, generally some lenders would consider providing mortgage financing. It is best to speak directly with an Accredited Mortgage Agent as there are specific questions needed to be answered to best find out how you fit.

There are numerous ways to reduce the number of years to pay down your mortgage.

Selecting an accelerated payment schedule increasing your payments Taking Advantage of Lump Sum Payments. (Many people assume that you can only do this once per year but 99% of our lender’s will you do this at any time) Making Double-Up Payments: This is an amazing option for someone with seasonal work. Selecting a shorter amortization at renewal Doing a debt consolidation through your home and keeping the same payments as before.

Should you go with a short or long term mortgage?

A longer-term mortgage is worth considering if you have a busy life and don't have time to watch mortgage rates and you can enjoy long-term security and peace of mind knowing the rate you sign up for is a sure thing.

If you want to keep your mortgage flexible right now, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates and save.

Either option should be discussed with our Accredited Mortgage Agent as market conditions can impact what is best at that time.

What is the difference between a fixed mortgage and a variable mortgage?

The interest rate on a fixed-rate mortgage is set for a pre-determined term usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected as your rate is guaranteed to stay the same and you are protected in case rates increase.

A variable rate mortgage is signed up for a pre-determined term usually between 3 and 5 years but the rates fluctuate depending on market conditions. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest.

What is the difference between Term and Amortization?

The term and the amortization are often confused with each other.

The amortization is the length of time that it will take for the mortgage to be paid in full. The Mortgage Payments are spread over this pre-determined length of time called “Amortization”. If clients had to pay over the term instead of the amortization, mortgage payments would be unachievable in most cases as the average amortization is 25 years and average term is approximately 5 years.

The term is the period for which your current payment obligations are valid. In other words, you can choose a five-year term therefore your interest rate and your payments would stay the same for the next five years. At the end of these five years you would re-negotiate the term, and the amortization would now be 20 years.

What is the difference between Open and closed mortgage?

Open Mortgages
Allow one to pre-pay some, or all of, their mortgage without penalty. Open mortgages usually have a six-month and a one-year term option with higher interest rates than closed mortgages of the same term length.

Closed Mortgages
Closed mortgages are offered in terms ranging from six months to 25 years and offer more stringent pre-payment options. For most people, such pre-payment options can be vital to reducing the amortization of one's mortgage and should be properly discussed with our Accredited Mortgage Agents.

Can I use my RRSP to purchase a home?

With the federal government's Home Buyers' Plan, you and your spouse can each use up to $20,000 in RRSP savings toward your down payment on your first home. You then have 15 years to repay your RRSP.

Even if you already have your down payment, it may make good financial sense to access your savings through the Home Buyers' Plan. For example, if you had already saved $14,000 for a down payment - and assuming you still had enough room in your RRSP for a contribution of that amount you could move your savings into an RRSP for at least 90 days before your closing date. Then, simply withdraw the money through the Home Buyers' Plan.

Your $14,000 RRSP contribution will count as a tax deduction this year. Use any tax refund you receive to repay the RRSP or other expenses related to buying your home.

Be sure to ask our in-house financial planner whether this strategy makes sense for you, given your personal financial situation.

What if I don’t repay my RRSP’s redeemed under the Home Buyer’s Plan?

If you do not repay the amount you have to repay for the year, you have to include it as income on line 129 of your return. The amount you include on line 129 is the minimum amount you have to repay as shown on your Home Buyers' Plan (HBP) Statement of Account. Your HBP balance will be reduced accordingly.

What is a home inspection?

A home inspection is an examination of the property to determine the condition of the home. A purchaser should have a home inspection done even if nothing alarming appears on the surface as it can add peace of mind and make a difficult decision much easier. It may indicate that the home needs major structural repairs which can be factored into your buying decision. The inspector should be checking all components such as ceilings, roofs, walls, floors, foundations, attics, crawl spaces, retaining walls, electrical, heating systems, plumbing, drainage, insulation, weather proofing, etc...

What is title insurance?

Title insurance is an insurance policy that protects residential or commercial Property owners and their lenders against losses related to the property’s Title or ownership. For a one-time fee, a title insurance policy can provide protection from such losses as: Unknown title defects (title issues that prevent you from having clear Ownership of the property); Existing liens against the property’s title (e.g. the previous owner had Unpaid debts from utilities, mortgages, property taxes or condominium Charges secured against the property); Encroachment issues (e.g. a structure on your property needs to be Removed because it is on your neighbour’s property); Title fraud; Errors in surveys and public records.

What is a cash back

Cash back is a mortgage option where the lender gives back a certain amount of money that could be useful for renovation projects, closing fees, buying furniture or appliances, down payment or pay off existing debts. Some clients opt out because your interest rate for the term is higher. Lender’s do this to pay themselves back for the cash they gave you up front as this money is non repayable if you commit for the full length of your pre-determined term.

Ok, but that does not necessarily mean that you are paying more for the Cash Back mortgage option or?

Assume you are looking for a $200,000 mortgage with a 25 year amortization period.

Example

Type	Mortgage Amount	Interest Rate	Monthly Payment	Outstanding balance After 5 Years
Cash Back	$200,000	5.49%	$1,219.62	$178,348.36
No Cash Back	$200,000	3.89%	$1,040.15	$173,772.58

Cash back mortgage - monthly payment of $1,219.62 for the 5 year period is $73,177.20 ($1,219.62 x 60 months)

No cash back mortgage - monthly payment of $1,040.15 for the 5 year period is $62,409.00 ($1,040.15 x 60 months)

Difference over 5 years $10,769.20. ($73,177.20 - $62,409.00)

Difference is the Outstanding Balance of the mortgages after 5 years is $4,575.78

5% cash back on a $200,000 mortgage would be $10,000

Summary

Taking the Cash Back Mortgage option in our example, you would be paying $10,769.20 more in mortgage payments over 5 years plus you would owe $4,575.78 more on your mortgage. The total cost of the 5% Cash Back Mortgage would therefore have cost $15,344.98.

When you take into consideration the $10,000 in cash back, this option, over 5 years would cost you $5,344.98.

The Spread between the rate with and without cash back can be the deal breaker. Speak to one of our Accredited Mortgage Agents to go through a real time breakdown based on current rates and mortgage amounts.

Why can a mortgage broker get a better interest rate than I can at my own bank?

Mortgage Brokers negotiate on your behalf with over 90 established financial institutions and Private investors to get you the best rates your credit will afford.