Selecting the right mortgage product is very important. You want to ensure that the product(s) you choose don’t just work for you now but throughout the entire term.
Avoid restricted products. We will get more into this in the Rates section but these are rarely in your best interest. Restricted products are typically the ultra-low rates you see on rate shopper sites. They often come from brokers looking to make money from volume and not necessarily good service. Restricted products mean fewer or no pre-payment options and substantially higher penalties if you break your mortgage early. A collateral mortgage (mentioned previously) is also considered a restricted product unless you are properly utilizing it.
A collateral mortgage is fine if you are using a more advanced mortgage product. For example, LOC's (lines of credits), hybrid mortgages (part fixed & part variable), etc. The downside to a collateral mortgage is that you have to hire a lawyer and an appraiser to move to another lender at renewal. Unfortunately "certain" lenders like to place you into a collateral mortgage (often without educating you on it) for a simple fixed or variable product and you get stuck with an unpleasant surprise at renewal.
Understand your payment options, these all equate to the same thing at the end of the year: - Weekly - every 7 days - Bi-weekly - every 14 days (equates to 24 bi-weekly payments) - Semi-monthly - on the 1st & 15th of each month (equates to 24 semi-monthly payments) - Monthly - every month (equates to 12 monthly payments) - We strongly recommend accelerated payments instead: - Accelerated weekly (equates to 4 additional weekly payments)! - Accelerated bi-weekly (equates to 2 additional bi-weekly payments)!
You have the option of selecting an Open or Closed mortgage. Open mortgages can be paid off at any time without penalty but are far more expensive. Closing mortgages incur a penalty if you cancel the mortgage prior to term completion. There are two types of closed mortgages: closed VRM's (variable rate mortgages) and closed fixed rates. Closed VRM's have only a 3 month interest penalty while closed fixed rates have the greater of an IRD (interest rate differential) or 3 months interest. We will indulge more on this later.
The convertible VRM (variable rate mortgage) is a wonderful product that allows you to convert (lock in) your mortgage at from a VRM to fixed at any time at no cost. Just understand that you will be able to access the best fixed rate "at the time of conversation", not when you took the mortgage. Over the years we have noticed that the larger banks offer less favourable conversation rates when switching versus broker wholesale lenders.
The Frozen VRM payment. Now this is cool. It's a variable product (can also be convertible) that allows "you" to set the payment. This is wonderful for investment properties or those with fixed budgets who still want to ride the variable rate roller coaster. Even if the prime rate changes (affected by the Bank of Canada’s overnight lending rate), your payment stays the same. You will just end up paying more or less of the principle off depending on the direction of change.
For those of you who are new to Canada, there is a program for you too! Qualified homebuyers who have immigrated or relocated to Canada within the last 5 years are eligible under the New to Canada program to purchase a property with as little as a 5% downpayment. Here is the borrower qualification for this program: - Must have immigrated or relocated to Canada within the last 60 months - 3 months minimum full-time employment in Canada (borrowers being transferred under a corporate relocation program are exempt) - Must have a valid work permit or obtained landed immigrant status - For 95% LTV (5% down payment), down payment must be from own resources. For LTV's less than 95%, the remainder may be gifted from an immediate family member or from a corporate subsidy - Guarantors are not permitted - Foreign Diplomats who do not pay tax in Canada are ineligible for this program
Are you looking to purchase a home and do some renovations? There is a purchase plus improvement program for you! We can help qualified home buyers make their new home just right for them, with tailored improvements, immediately after taking possession of the purchased property. All this can be done with one manageable mortgage and with only 5% down. If the proposed improvements exceed 20% of the initial purchase price or $40,000, details of the proposed renovations including cost estimates and available contracts must be approved through a higher level of management.
Side note: lenders will collect (included in your mortgage payment) and pay your annual property tax. We highly recommend this to all clients!