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Financing that involves the use of a mortgage typically represents the single biggest financial transaction of your lifetime. The use of a qualified mortgage broker is a great place to start in helping you locate the right mortgage for your unique set of circumstances. Also important is that you educate yourself with some of the terms and frequently asked questions. The better informed you are, the more accurately you can direct your mortgage broker with your specific needs. The information provided below is a recap of some essential personal mortgage and financial planning topics. If for some reason you do not see: information on a specific topic you were looking for, information pertinent to Kelowna or the Okanagan Valley, please contact us at your convenience.

Q. What is a Mortgage?

A mortgage is a charge - typically registered - against the title of a property. It essentially provides a form of security to the lender in the event of default. However, this security is not the true goal of any lender. Rather the consistent repayment of the debt as agreed. The person offering the mortgage against his or her property is called the mortgagor. The lender is referred to as the mortgagee.

Q. Types of loans?

Borrowing money can be done under various loan ‘agreements’. It’s important to understand that most financing that is available through conventional institutional lenders is also available through private lenders or investment groups. A good mortgage broker will be able to access all avenues to provide you with the best possible deal.

Mortgages are not technically a loan. They are evidence of a loan. A 1st mortgage is the earliest priority on any ‘lenders’ claim to the property. A 2nd mortgage can only be honored after the 1st mortgage has been fulfilled. This additional risk is reflected with increased mortgage rates for 2nd mortgages.

An unsecured loan is usually a lump sum of money; Paid back over a specific period of time. Banks will typically limit these loans from $5,000 to $50,000.

A secured loan is guaranteed by the borrower with a tangible asset. Such as a car, equipment, gold, or even stocks and bonds. Even though a mortgage at first glance seems like a secured loan, it is different in one major aspect. The laws in Canada protect borrowers and their equity position in the property. This is called the Equitable Right of Redemption. If a borrower defaults on a secured loan, the lender can typically seize the asset (i.e. repo your car). Generally without any accountability or recourse to the borrower.

A Line of Credit can be either secured or unsecured. The main distinction between a regular loan and a line of credit is the revolving nature of the agreement. A borrower will have a set limit as to how much they can borrow. As long as the minimum monthly payments are made you can withdraw funds as you see fit. Most Line Of Credit accounts now come with internet banking and chequing ability.

R.A.M. (Reverse Annuity Mortgage) is a way for a home owner with good equity to borrow against the value of the house. But instead of getting a lump sum of money, the borrower will typically receive regular monthly payments. Over time these accumulate –with interest charges- into one large total figure. The limit to this final amount is usually reflected in a percentage of the overall value of the property.

LEASING is a process in which someone can gain access to an asset without ownership itself. An asset can be equipment for a business, a property or commonly a vehicle. One benefit of a lease is normally some tax deductibility. The regular payments on a lease are also called

Q. Why use a broker?

First - A broker works for you, not the lender. We want the most favorable outcome for you, period. The savings by using a mortgage broker for both New Applications and Renewals can be significant!

Second - We work to assess your financial situation, review many available lenders and pair you up with the most appropriate lender. We save you time and multiple credit checks. Multiple credit inquiries can damage your credit rating.

Thirdly - The terms of the mortgage are equally as important as rates. Your broker can walk you through the finer details so nothing gets overlooked.

Forth – On the vast majority of transactions you don’t pay for brokers services. The lender does. Only in unusual circumstances – and typically private finance lenders – do fees potentially arise.

Fifth – By coordinating on many transactions, lenders will often supply mortgage brokers with preferred rates to their clients.

Q. What qualifications are involved for financing?

Some key elements to gaining approval for financing are:

Having a sufficient gross income. This is usually the first step to validating a client.

How much taxes will accrue each year on the property. Institutions take extra care to factor this into your overall payment. Primarily because property taxes take priority over mortgages in the event of default.

Overall debt load. There is an expectation that people go on living their lives. That means buying consumables, groceries, electronics, taking vacations, driving a vehicle, getting sick periodically etc… If too much of your income is required to pay just a mortgage payment, a lender would be rightly concerned that you may not have enough money for the other living expenses. By reviewing your overall debt load a lender can establish your capacity to continue to service that current debt obligation AND allot for a reasonable level of living expenses.

Work history is important because a loan, like a mortgage, is projected to be paid back well into the future. If you haven’t had stable income from employment, how confident can anyone be you’ll be able to make your payments in another year or two! Lenders will usually provide some flexibility by taking into account the company you work for and how specialized (or invaluable) your position is. An obvious example, a brand new Doctor with almost no work history. The specialized nature of the profession in conjunction with the employer (B.C. Government) is very reliable.<br>

Self employed income is very common with mortgage applicants. Generally those individuals can obtain equally great rates. Usually the only hurdle is a little extra paper-work. Self employed income normally requires two to three years of financial statements for verification.  Contact our office today for more details on preferred lenders and programs.

Personal Income Taxes. Two things to remember. 1) By being current (nothing owing for previous year) lenders will begin assuming you have some level of financial planning skills. 2) Lenders are very aware how the government can interject in someone’s life when taxes are owed. A definite concern would be the trickle down effect of scrambling to meet that obligation if cash flow was not sufficient. IF YOU HAVE TAX QUESTIONS OR CONCERNS PLEASE USE OUR LINK SECTION OF THE WEB-SITE TO CHOOSE AN ACCOUNTANT. IF YOU MENTION SUPERIOR MORTGAGE YOU GET A FREE INITIAL CONSULTATION.

Credit Score. A credit score is the public record of your ability to handle debt. The higher the number it is perceived the more likely you are to repay your obligations. Although it’s still possible to obtain a mortgage with poor credit; You will likely pay for the increased risk (from the lender’s point of view) with higher rates and / or stricter terms. For more information please see our other question (Understanding Credit Scores).

Equity is how much you own on the property which you make payments towards. Theoretically the more you have of it, the less likely you are to default. Primarily because the consequences to you increases with your equity position in your property. Conventional financing requires 20% equity by the owner. High ratio is less than 20% and requires insurance on the loan amount. PLEASE NOTE, lending value is not established from your purchase price or even your realtor. Banks and financing companies and Insurance companies will use their own qualified appraisers. This lending value is for the most part somewhat less than the purchase price.

Q. What is a Variable vs. Fixed Rate?

A variable rate means that it floats in relation to the Bank of Canada’s Prime Lending Rate. When you negotiate your mortgage rate it may be a specific % up or down from Prime.

A Fixed rate mortgage means that your rate is ‘guaranteed’ for that specific term. Some Variable rate mortgages are ‘convertible’, meaning they can be locked into a Fixed rate if the interest rates start to rise. The problem is most lenders will make you lock in at the posted rate… which is considerably more than if you negotiated a Fixed rate upfront. This is one example why you want a Mortgage broker on your side during the application process.

Q. So which is better, a Variable or Fixed Rate?

If in doubt, and you are happy with current rates, 'lock it in' with fixed.  If you expect posted rates to remain constant or drop from present levels 'let it ride' with variable.  Also if you expect your income or financial situation to change in the near future, take a shorter term.  So do what is right for your situation.  The bottom line is even experts can only form an educated guess for future rates.  One thing that is certain is that rates are at historic lows.

Another option to consider is a variable rate that is capped or convertible.  Capped means there is a limit to how high your rate can rise during you contract term.  Convertible means you can switch over to a fixed rate during the term.  Make sure you know up front with a convertible variable rate mortgage what fixed rate discount (if any) will apply to the posted rates when you switch.

Q. What does Open and Closed mean?

Open mortgages mean you can pay a specific amount out (or even the entire loan amount) at generally any time. A Closed mortgage means you can’t pre-pay without first paying a penalty to break your agreement. A typical penalty might be three months interest.

Q. Do I pay mortgage broker fess?

No. The vast majority of all transactions you don’t pay for brokers services. The lender does. Only in unusual – and typically private financing lenders – does a fee potentially apply. Under any of those circumstances you would be made aware of those costs prior to undertaking any financial obligation.

Q. How much can I afford?

The answer is a result of the qualification process. Most important is that if you apply less than 20% deposit, the law now requires you to be approved at the Bank of Canada's 5 year rate; Unless you are taking a 5 year fixed term. In which case you can use the banks preferred (lower) 5 year rate that they might offer you. However, a responsible borrower will first ask this question of themselves. Where do you feel comfortable for payments? Like many gambling commercials say on T.V. – Know Your Limit.

Q. What is a high ratio mortgage & Insurance?

Financing over 80% of the lending value is considered High Ratio. Insurance will apply to the loan amount (typically 1% - 3%). CMHC and Genworth Financial are two companies that offer such insurance. It is important to note that it is possible to have a lender require insurance for loans where the owner’s equity is more that 20%. For example, CMHC publishes their insurance rate table to values of 65% financing (or 35% owner equity).

Q. Do I need personal insurance products?

High ratio mortgage insurance is discussed under another question. Insurance products here refer to LIFE INSURANCE. If you have a family I like to suggest that you need a plan to deal with unforeseen circumstances. All mortgage brokers are required to offer you Life Insurance when you sign a mortgage contract. Some banks or lenders may simply require Life Insurance as a condition to their offer. If you take insurance at the time of accepting a mortgage at the very least you have some coverage. The downside is this type of insurance has the same payment while your amount owing on the mortgage decreases over time. An insurance agent can provide you with other options for long term coverage. If you find something more suitable to you, the prior policy can typically be cancelled.

Q. Understanding Credit Scores?

A credit score for almost all Canadian’s is maintained by Equifax and TransUnion. From the earliest time you request ‘credit’ a file is maintained that shows how much funds you’ve been given access to, how much you’ve borrowed, and how consistently you’ve made your payments, and finally how often you’ve requested credit. Other personal details are also stored like your SIN #, Date of Birth, Address, Work History. Records typically go back 7 years, which is why it can take a while to rebuild your credit score after a Bankruptcy.

The conventional idea about a score is usually within a range of 300 to 900. 300 being the worst and 900 the best. At times a bureau may not reply with any information, indicating the consumer has no credit or to new to rate.

Each consumer is entitled once a year to free access of their credit report in Canada. Your request must be in writing and have valid picture ID. You are also entitled to correct or dispute incorrect information and have it noted on your file. Please use our LINKS section of the site to be routed to the Equifax and TransUnion web-sites for more information.

Q. What are some tips to improve my credit score?

The first step is to take an interest in your credit file.

Here are some other helpful tips:

Deal with Outstanding Issues. If there’s a problem with a current creditor, deal with them. At least make payment arrangements even if you can’t address the entire debt right now.

Regular Payments. Pay consistently, and by the due date. If possible pay off your credit card balance each month. Multiple missed payments will raise a red flag to lenders.

Pay it off Early. Do you know when the monthly cut off is for your statements? Try paying off your credit card bills even before the statement arrives in the mail. Don’t wait until the DUE DATE. Early payments will positively affect your score.

Correct Mistakes. If there is an old problem, make sure what’s reported is accurate AND if it’s not too late try and deal with it. One benefit of the bureaus records is more weight is generally given to more recent activity. So those past problems will hopefully be in the past soon enough. If your employment is with a new firm and your salary is double, let them know.

Check Yearly. You are allowed to access your file from the two Canadian Credit Bureaus. Equifax and TransUnion will both offer a free report once a year. This is the easiest way to monitor your file. You are also allowed to purchase your report at any time, typically for around $15.

Utilize various types of Credit. Are all your credit cards VISA? By having one or two Visa, MasterCard or even American Express it shows reporting from multiple sources. Secondly, make use of a line of credit or loan. This appears as another type of credit.

Consistency. By keeping track of several years, the bureau is better able to identify future probability of payments. So start developing your credit EARLY and maintain those payments!!

Access to Debt. Make sure you don’t have access to credit that is far beyond the scope of your capacity to pay. Even if you don’t use it all, the ability to access it will still be reflected in the bureau.

How Much Do You Owe. Lenders expect their money back. Your income is the only anticipated stream of resources to address those debts. If you are already obligated on many fronts, it will be harder to access credit when you need it. Generally a good rule of thumb is not to go over 50% of your available card limits AND never max it out.

Number of Applications. Each time you ask for a new credit card or to borrow money for a car, those entries are recorded in the credit bureau. If you make those inquiries too frequently it will negatively affect your score. This is also a significant benefit of using a mortgage broker. Instead of shopping around various banks to get your best rate, adding multiple inquiries to your bureau, the broker can access this information once and supply it to multiple lending agencies if so required.

Q. What Is An Amortization Period?

An Amortization period is the desired length of time required to pay your debt down to $0. Over the years you may have various interest rates and shorter TERMS in your mortgage agreement. To keep your overall debt reduction schedule on track your payment will be adjusted. (i.e. 25 Year Amortization, 5 Year Term.)

Q. What is a TERM?

The Term is the period of time where your rate has been fixed or otherwise agreed to be variable. Terms in Canada are generally shorter than the overall Amortization schedule. In a mortgage agreement it also means that you are restricted (per the terms of your mortgage contract) from renegotiating with the lender during this time. At the expiration of your Term technically you must pay out the balance due on your mortgage. Even if there is 20 Years left for Amortization. In practice however, most lenders will offer you a new rate to renew under a new Term. This is a good time to call your mortgage broker. Most lenders will only offer you their posted rate or a slight reduction if you’ve been a good customer. A Mortgage Broker will typically find you a much better rate under similar Terms that more than offsets incidental costs (like legal or appraisal) to transfer your mortgage elsewhere. Mortgage brokers may even be able to get you a better rate with your current lending institution.

Q. What is the maximum amortization period?

Only a few years ago it was not uncommon for mortgage amortization to be 40 years. In the U.S.A. some mortgage repayment plans had the effect of even longer periods. With the economic housing crisis lenders and government policies have tried to shorten the amortization period. In Canada you should expect the maximum period now to be 25 years.

It’s important to understand that increasing the amortization period beyond 35 years does very little to reduce the actual payment. This means you are paying much more interest for a longer period of time

Q. What Is An Interest Adjustment?

An interest adjustment is normally done under two situations.

The first instance is at the beginning of a new mortgage. This is called the Interest Adjustment Date. It occurs when there are extra days involved beyond the standard payment schedule. For example: assume monthly payments, possession is July 1, first payment is due August 1. Now what if to close on the purchase agreement, funds must be provided on June 15? Now your first payment is based on one month but you’ve had the funds for 45 days? These extra 16 days must be accounted for… to do that you either pay the interest portion for June on July 1st. Or add it to the principal. Or increase the August 1st payment. Your mortgage broker is trained to calculate this information for you.

The second situation is if you missed a payment. The number of days your payment was missing needs to account for the ‘extra’ interest that occurred. Most lenders will have a program that can keep track of such situations.

Q. Why Should I Get Pre-Approved?

Pre-Approval is very important. First, it gives you an idea of how much money is available to you. Second, it locks your rate in for generally 90 days. If the rate goes up you’re protected, if it goes down you can still take advantage of the lower rate. Thirdly, it can dramatically reduce the financial ‘conditions’ on an offer to purchase. This last factor is magnified in a HOT real-estate market where lengthy conditions often cost the prospective purchaser a deal.

Q. Property Transfer Tax?

Tax Rates

The amount of tax due depends on the fair market value of the property that is transferred:

If the fair market value is $200,000 or less, the tax is 1% of the fair market value

If the fair market value is greater than $200,000, the tax is 1% of the fair market value up to $200,000, plus 2% on the portion of the fair market value that is greater than $200,000

For example:

if fair market value of property is $150,000 tax payable is: 1% of $150,000 = $1,500

if fair market value of property is $250,000 tax payable is: 1% of $200,000 = $2,000 plus 2% of $50,000 = $1,000 for total tax payable of $3,000

Q. First Time Home Buyer?

The First Time Home Buyers’ Program

UPDATE FEBRUARY 22, 2012. THE B.C. GOVERNMENT HAS INTRODUCED A NEW FIRST TIME HOME BUYERS INCOME TAX INCENTIVE REBATE UP TO $10,000. If you are purchasing your first home, you may qualify for an exemption from property transfer tax if certain requirements are met.

WHAT ARE THE REQUIREMENTS?

Purchaser

You qualify for the exemption if:

you are a Canadian Citizen, or a permanent resident as determined by Immigration Canada,

you have lived in British Columbia for 12 consecutive months immediately before the date you register the property, or you have filed 2 income tax returns as a British Columbia resident during the 6 years before the date you register the property,

you have never owned an interest in a principal residence anywhere in the world at anytime, and

you have never received a first time home buyers’ exemption or refund. Property

The property you purchase qualifies if:

the fair market value of the property is not more than the current threshold of $425,000,

the land is 0.5 hectares (1.24 acres) or smaller, and

the property will only be used as your principal residence.

If the property does not meet all of these requirements, you may still qualify for a partial exemption.

HOW DO I APPLY FOR THE EXEMPTION?

You apply for the exemption when you register the property at the Land Title office. Generally, a lawyer or notary public registers the property and applies for the exemption on your behalf.

The Land Title office sends your application to the Ministry of Small Business and Revenue to verify your eligibility.

Make sure you do not apply for the exemption if you have owned an interest in a principal residence anywhere in the world at anytime. If you do this, you will be assessed for the tax due and an additional penalty equal to the tax due.

If you do not apply for the exemption when you register the property at the Land Title office, you can apply for a refund of the property transfer tax you pay within 18 months of the date you register the property.

WHAT ARE THE REQUIREMENTS TO KEEP THE EXEMPTION?

You need to occupy the property within 92 days of the date you register the property and continue to use the property as your principal residence for at least 1 year after you register the property.

If the land is vacant when you purchase the property, a principal residence needs to be built on the property within 1 year of the registration date, and you need to reside on the property for the remainder of that year. The fair market value of the land, plus the cost of building any improvements on the land cannot exceed the current threshold of $425,000.

The ministry will send you a letter at the end of the first year you own the property. If your property purchase was registered on, or after, February 20, 2008, the letter will ask you to confirm that the property is still your principal residence. If your property purchase was registered before February 20, 2008, the letter will ask for details of your financial account(s) that you have registered against your property from the date of registration until February 20, 2008.

If your property purchase was registered before February 20, 2008, and you paid down your mortgage before February 20, 2008, there are limitations on how much of your financing you can pay down. For further details, please see Bulletin PTT 004, First Time Home Buyers’ Program.

You may still qualify for a partial exemption if you pay down your financing more than the limitation amount before February 20, 2008, or if you move off the property before the end of the first year.

It is your responsibility to make sure the ministry receives all of the necessary information. If the ministry does not receive the information, you will be assessed for the property transfer tax due.

More Information

This brochure provides general information on the First Time Home Buyers’ Program. For details on the program, please see Bulletin PTT 004, First Time Home Buyers’ Program. This bulletin is available on our website at www.gov.bc.ca/sbr If you have any questions, please contact us. Telephone: (Victoria) 250 387-0604 Toll-free in Canada: 1 800 663-7867 (request a transfer to 250 387-0604) E-mail: PTTENQ@gov.bc.ca

Q. How much deposit do I need?

After the housing collapse in the U.S.A. the Canadian government moved to reinforce the lending practices in this country.  Two basic changes came into effect.  Buyers now require 5% down on a property and must qualify for the 5 year interest rate.  Commercial or investment properties now require 20% deposit (up from 10%).

While some lenders have programs that may still allow borrowers to effectively apply no down payment; this will take your application out of some major conventional lending institutions.  Some programs offer 5% cash back and then increase your rate to compensate over time.  If you would like more information on programs for buying with 0% down, please contact our office.

You should realize that lenders want you to share the risk in the property.  By having no equity upfront yourself, there is less downside if real-estate prices fall and you want to walk away.

Q. Is now a good time to buy?

Ask a group of experts and you will get a variety of opinions. Here are some things to remember:

Your situation is unique to yourself. If you have a growing family and need the room a new property might be a requirement that can’t wait.

It’s possible to rent for a short period of time (months to a couple of years); without losing much ground. You can even stand to benefit from a decrease in values short-term. PLUS you may benefit from interest on your money if you sold a property that had equity. But long-term, prices have always gone up.

Is it a bubble? Depends who you talk to. We escaped (so far) the U.S. housing crash remarkably unscathed. One thing is certain, at any point in time there are homes and properties in the market place that are a better deal than their true value. Many unique situations and negotiations can lead to a purchase price that gives you a cushion to short term instability.

Cost of construction will have some cyclical aspects relating to demand for workers. In a slow economy labour prices will often fall. Modern manufacturing techniques also mean modern conveniences can be added to homes more cost effectively. However, tastes for buyers in the 21st century are much more expensive than those of our parent’s generation. Another thing to remember is construction cost will ultimately rise over time with inflation.

If you value the idea of home ownership, time is on your side. Every year you pay down some principal you’re closer to being debt free. Owning a home however is not cost free. Maintenance is a big factor with older homes, property taxes, and useful lifespan of all construction are important factors. In Europe home ownership is far less a priority. In a sense it’s really what can you live in and afford while you’re still alive and kicking. You can’t take your home with you. In North America more emphasis is placed on Estate planning. Generationally “passing down” property builds up a family’s wealth.

Global, regional and local economics –including government policies- play a big role in national economies and real-estate markets. However, the most fundamental aspect of all real-estate is the immobility of land. A parcel of farm field in the Okanagan can’t be used to increase beach frontage in White Rock. This means despite national or global real-estate trends markets can act independently locally. This was seen recently with Vancouver experiencing a bump in prices while the recession continued to drag down the overall market. If you live in Kelowna, or Richmond you are well aware that exclusive properties sell at a premium. How many people wish they bought lakeshore property in Kelowna when it was still $300,000 and not $3,000,000. Again, the principal here is long-term thinking.

We all support each other. New home buyers that can only afford a townhouse, condo or apartment provide motivation for developers to acquire land as investment. Over time couples that plan on starting a family or want more room will seek out detached housing. Often a step up from the townhome. Over time families’ move to refine their housing or neighborhoods and often purchase and relocate several times while raising children. Over time higher income families or couples, or professionals will seek out their dream home. Ultimately this buying and selling creates the overall real-estate marketplace. Without those first time buyers, nobody could move up or down the chain and lower prices would result. That’s why skilled people look at specific economic indicators to gauge the short term demands on real-estate. Such as: Bank of Canada Prime Rate, Unemployment Figures, New Job Creation, Fixed 5 year Rates, GDP, Average income and tax brackets, Rental availability, Homes listed vs. Homes sold on MLS etc…

Q. What are closing costs?

Some typical closing costs are: Legal / Notary Fees, Property Transfer Tax, Discharge of Existing Mortgage, High Ratio Mortgage Insurance, Fire & Property Insurance, Life Insurance, Appraisal Fees, Land Survey Fees or Title Insurance, Property Taxes & Utility Adjustments, Home Inspection Fee, Interest Adjustment, HST. Ah yes, HST. Few people in the real estate industry will miss the HST. Effective April 2012 - April 2013 the HST rebate will be increased on new home purchases to $850,000. Afterwards a new transition tax will apply (details to follow). Hopefully the final implementation of the old PST / GST system will resolve any lingering confusion. It’s important to realize the Vendors statement of adjustments will be different than the Purchasers. If you would like a detailed description of any fees, please e-mail our office and we would be happy to help you.

Q. What is Title Insurance?

Title insurance is protection for the lender that the title on file in the B.C. registry is valid. Lenders are not protected in the event the rightful owner claims interest in the property against someone who gained title fraudulently. Also, that the property is correctly described within its boundaries and that the dwellings do not encroach other properties. Simply put, to protect against Title Defect and Survey Defects.

Q. Insider Tips for a better rate?

To truly capitalize on rates you need to realize that you’re in a negotiation with the lenders.  By dealing direct with a bank you forgo the benefits, training and expertise that a mortgage broker can provide.  Typically at no cost or obligation on your part.  In any negotiation you are trading off some elements that are not important to you, for others terms that are.  Certain lenders may not be willing to ‘offer up’ concessions that you highly value... so a brokers job is to steer your application towards the ‘right’ lender that can accommodate your wishes.  By being open minded and having a clear objective, your broker can narrow in on the best rate possible.

Here is what you should know:

1. All lenders consider the amount of administration attention required for a mortgage or loan.  This includes up front approval documentation and long-term account management.  Higher rates are charged on loans involving greater account oversight.   Keep your paper-work in order, have all supporting documentation ready at the time of approval, maintain your credit bureau record by showing consistent payments on all obligations.

1. B. Traditional lenders have higher operational costs associated with staffing and local branches.  Unless you’re the perfect customer, most (but not all) of the banks will ‘download’ some of these cost to borrowers with slightly higher rates.  Even if you get a great rate up front, typically upon renewal you’re stuck with posted rates. Consider utilizing major lenders that have lower overheads because they primarily operate by phone, internet or select regional offices. If you’re comfortable with this type of lending relationship there are potential rate savings.  The major downside is the difficulty of correcting your mortgage if you’ve missed a payment.  This option is therefore best suited for borrowers in stable economic situations that don’t require a lot of modifications during the contract term.

Within your mortgage contract the right to pre-pay your mortgage or a specific percentage each year adds another element of potential administrative work.  However, most mortgages typically come with some allowance for both situations assuming the payment of some administration fee.

2. It is important to recognize that extending the amortization period beyond 25 years does little to increase the loan amount a given income can service.  Also, extending the term beyond 25 years increases the fees and premiums involved with CMHC insurance.

3. Lenders are willing to offer borrowers a lower interest rate on borrowed funds if the mortgage contract is written for a short term (6 months – 3 years) rather than a long term (3 years or more). Primarily because reducing the period of time over which funds are committed improves a lenders’ liquidity.   A variable rate mortgage also benefits the lender by reducing mismatched levels of assets (mortgages, loans, etc.) to deposit liabilities (GIC’s term deposits etc.).

Q. What are the 5 C's of Credit?

Lenders use the five Cs to judge an applicant.  Capital, Capacity, Credit, Collateral & Character.  Capital refers to how much money you will personally invest in the property.  Capacity is your ability to service the debt obligation (i.e. Monthly payments).  Credit is your collective history of debt management recorded in the credit bureaus.  Collateral is the quality, type and value of the property being used to secure the debt.  Keep in mind not all lenders provide loans for all types of property.

So what about Character?  Character is a subjective opinion by the lender as to the likelihood the borrower will repay the loan as agreed.  Factors such as: employment situation, business experience, education, number of years at current residence, number of dependants, etc.. contribute to this opinion.  A lot of this information is contained in the mortgage application itself.  Remember that no two applicants are identical.  The information being presented must be true first and foremost, but also logical and in the most favorable light possible.  Your personal mortgage broker will likely spot something you missed that the lender would have otherwise formed an opinion on as to your Character.  A good example is delinquency on taxes or contributions.  At Superior Mortgage.ca we have certified accountants that we can refer you to that will review your tax situation.  Often the first meeting / review is even FREE.  This way you can get a handle on your personal taxes ‘quickly’ before sending off your mortgage application.  It’s just another benefit of contacting a representative today.

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