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 institution. They are only able to sell you their products and may not have a full understanding of a competitor’s products and services.

Mortgage brokers are external entities who have access to hundreds of mortgage lender’s products. This gives them the opportunity to find you the best mortgage options shopped from many different lenders or can often get you a mortgage approval even with bruised or damaged credit. 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 we examine your financial situation in terms of income vs. liabilities. We use this to give you valuable insight as what you can afford or the maximum the bank is willing to loan you for your home.

Pre-approval:
Pre-approval has the same components of the pre-qualification but includes an analysis of the borrower’s credit and employment history, as well as verification of down payment funds. In this assessment, we can thoroughly advise clients, guarantee rates, notify of the amount needed for down payment, etc...

Approval:
Full loan approval is when the lender has underwritten the application and is satisfied that all conditions have been met. It includes the approval of a specific property and 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 the Canada Mortgage and Housing Corporation (CMHC), GE Capital Mortgage Insurance Company or AIG.  This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%, or sometimes less depending on the circumstances. These are referred to as a “High Ratio Mortgages.” 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.” The down payment/equity is equal to 20% or more of the property value and has a loan to value of 80% or less. It usually does not require mortgage loan insurance, except in isolated instances.

How can you pay off your mortgage sooner?

It is important to eliminate the drainage of disposable income as soon as possible.  Since mortgage interest is not tax-deductible in Canada on your own occupied property, you are making both principal and interest payments with money you’ve already paid tax on – “after tax dollars.”  By paying off your mortgage sooner, you are putting more money directly into your pocket.
There are numerous ways to reduce the number of years to pay down your mortgage:

• Selecting an accelerated payment schedule and increasing your payments 
• Taking advantage of Lump Sum Payments - Many people assume that you can only do this once per year but more and more of our lenders will let you do this at any time
• Make 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 increasing your mortgage payments to match what they were before plus what you are paying on your consolidated bills

How does bankruptcy affect qualification for a mortgage?

It is best to speak directly with an Accredited Mortgage Professional as this depends on the circumstances surrounding your bankruptcy and there are specific questions that would need to be answered to find out if you qualify. Some lenders would consider providing mortgage financing to someone who has previously filed for bankruptcy.

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. 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, you can explore a shorter-term mortgage that usually allows you to take advantage of lower rates, saving you money.

Either option should be discussed with our Accredited Mortgage Professional 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 from 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected since your rate is guaranteed and you are protected in the event that rates increase.

A variable rate mortgage is also set 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 toward reducing the principal; if rates go up, an increased portion of the monthly payment covers the interest.

What is the difference between Term and Amortization?

Term and 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 the pre-determined length of time or 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 the average term is approximately five years.

The term is the period for which your current payment obligations are valid.  In other words, if you chose a five-year term, your interest rate and payments would stay the same for the next five years.  At the end of the term, you would re-negotiate your rate and the amortization would be reduced by five years. 

What is the difference between Open and closed mortgage?

Open Mortgages
Allows 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 Professionals.

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 required for the year, you have to include it as income on line 129 of your Income Tax Return. The amount to include on line 129 is the minimum amount 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. It can add peace of mind and make a difficult decision much easier. For example, if the inspection indicates the home needs major structural repairs, this can be factored into your buying decision. The inspector should be checking all components such as the roof, foundation, attic, ceilings, walls, floors, crawl spaces, retaining walls, electrical and 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, a down payment or to pay off existing debts. Some clients opt out of this option because your interest rate for the term is higher. Lenders charge a higher interest rate to pay themselves back for the cash they gave you up front. This money is non repayable if you commit for the full length of your pre-determined term.

That does not necessarily mean that you are paying more for the Cash Back mortgage option; it is dependent on many different variables.

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 numerous established financial institutions and private investors to get you the best mortgage options your credit will provide.