General Mortgage Information Contact our mortgage specialist today! Shawn Ramautor will be happy to assist you with any questions you may have. A Mortgage is, in simple terms, a loan that you take to buy a home. The loan is secured by the property value and your ability to repay the loan. The amount borrowed is called principal and the cost of borrowing the money is called interest. The borrower is the Mortgagor and the lender is the Mortgagee. Different Types of Mortgages Conventional Mortgage: Under a conventional mortgage, a lender will normally provide up to 75% of the appraised value or purchase price of a property, whichever is less. You must be able to provide at least 25% of the financing on your own. Example: Purchase Price $200,000.00   Conventional Mortgage $150,000.00   Required Down Payment $  50,000.00 High Ratio Mortgage: Under a high ratio mortgage, a lender will provide up to 95% of the appraised value of the purchase price of the property, whichever is less. This type of mortgage must, by law, be insured against non-payment by the Canada Mortgage and Housing Corporation (CMHC) or GE Capital, which protects the lender against loss if the borrower fails to meet the repayment terms. Example: Purchase Price $200,000.00   Down Payment Available (5%) $  10,000.00   Amount of Mortgage $190,000.00   Assuming Insurance Premium of 3.25% $    6,175.00   Total Mortgage $196,175.00   Monthly P. & I. payment at 4.75%, 5 yr. term, 25 yr. Amortization $    1,113.21 Special Note In today's mortgage market, there are also programs that offer special financing arrangements for $0.00 down payments; the self-employed; landed immigrants; and those with equity versus income. Your Down Payment It is to your advantage to aim for a down payment of 25% or more instead of the minimum 5% and avoid paying the mortgage premium. The larger your down payment, the easier it will be to arrange a mortgage and carry it comfortably. The smaller your loan, the lower your interest expense will be, and the more equity you will have in your home. Equity is equal to the value of the home minus the amount of your mortgage. Choosing an Amortization Period Once you're settled on the type of mortgage that fits your financial circumstances, you are ready to start considering the various options available. Amortization refers to the number of years it will take to repay the loan in full-most commonly 25 years. Longer amortization periods result in lower payments, but increase the total amount of interest paid. If you can handle a shorter amortization period, you'll achieve tremendous savings on the interest cost of your mortgage and live mortgage free sooner. The following table is based on the mortgage amount shown above under 'High Ratio Mortgage'. Amortization Period Monthly Payment Total of Payments Total Interest Paid Interest Savings 25 Years $  1,113.21 $333,963.00 $137,785.00 $         0.00 20 Years $  1,262.78 $303,067.00 $106,888.00 $30,897.00 15 Years $  1,521.23 $273,821.00 $77,645.00 $29,243.00 10 years $  2,052.45 $246,294.00 $50,117.00 $27,528.00 Each mortgage payment consists of interest plus repayment of part of the principal. In the early years of a mortgage, a higher portion of your payment is used to pay interest. by the time you reach the last years of your mortgage, almost all of your payment will be applied against the principal. Shown below under 'Payment Options', by paying on an accelerated basis, that is, weekly or bi-weekly, interest costs can be greatly reduced. Approximate Mortgage Calculator Click here to view current mortgage rates. (Courtesy of Cannex.) Years: Interest: Loan Amount: Annual Tax: Insurance: Results Monthly Prin + Int Monthly Tax Monthly Ins Total Payment Deciding on a Term The length of time for which the interest rate is fixed is called a term. Most mortgage have terms of six months to five years. Open Versus Closed Term: An Open Mortgage is one that allows payment of the principal, in part or in full, at any time without penalty. Open Mortgages tend to be for a short term-usually six months or one year. Since open Mortgages offer greater flexibility than closed Mortgages, they usually have a higher interest rate. A Closed Mortgage requires you to maintain a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of the term. A Convertible Mortgage allows you to renew your mortgage at any time without penalty for a longer term, closed mortgage. Short Versus Long Term: When interest rates are either high or falling, there is a tendency to choose a shorter term Mortgage. This strategy pays off if you can renew at a lower rate six months or one year later. You may want to consider a longer term Mortgage if interest rates are rising, if you have limited income or if you want to keep your Mortgage payments the same for a few years. The Effects of Interest Rates on the Term: As a rule, you'll find interest rates rise with the length of the term. The lowest interest rates are usually associated with six-month and one-year mortgages or variable rate mortgages. Higher interest rates mean higher mortgage payments. Example: If you have a $100 ,000.00 mortgage and 25 year amortization Interest Rate Monthly Payment Total Amount Repaid Total Interest Repaid 5% $581.60 $174,480.00 $  74,481.00 6% $639.81 $191,943.00 $  91,943.00 7% $700.42 $210,126.00 $110,126.00 8% $763.21 $228,963.00 $128,963.00 (Assumes constant rate for the entire 25 years. Payment consists of principal and interest) When you apply for a certain Mortgage, you'll receive an interest rate that is usually guaranteed for up 60 to 90 days or until the day before closing, whichever comes first. The interest rate on your Mortgage will be the lesser of the rate at application or on the day before closing. If rates increase, you are protected. If rates decrease, you should receive a lower rate. Payment Options The three most common payment frequencies are monthly, bi-weekly, and weekly. Increasing the frequency of your payments can allow you to pay off your Mortgage sooner and reduce the total amount of interest paid. You should select a payment frequency based on what is convenient for you. You may want to match your payments to your pay periods. If your goal is to pay off your Mortgage quickly, consider accelerated weekly or bi-weekly payment plans. You'll make the equivalent of 13 monthly payments each year, rather than 12, and realize significant interest savings. Other options are to choose shorter amortization period or take advantage of prepayment privileges. Example: If you have a $100,000.00 Mortgage, 4.75% interest rate, 25 year amortization Payment Frequency Payment Total. Int. Pd. Int. Saving Mortgage Free Monthly $567.46 $70,228.00 --- 25 Years Accelerated Bi-Wkly $283.73 $59,215.00 $11,013.00 19.9 Years (Savings assumed interest rate of 4.75% for entire 25 years) See how much you'll save if you make your payments biweekly versus on a monthly basis. Biweekly Mortgage Calculator This biweekly mortgage calculator will show you how much you will save if you make 1/2 of your mortgage payment every two weeks instead of making a full mortgage payment once a month. In effect, you will be making one extra mortgage payment per year -- without hardly noticing the additional cash outflow. Notice the "increased" cash flow that will occur when you pay your mortgage off way ahead of schedule! Note: When entering numbers into the data fields only use numbers and applicable decimal points. Entering commas, dollar signs, or any other non-numeric characters will cause an error. Enter the principal balance of your mortgage: Enter the amount of your monthly mortgage payment: Enter the your mortgage's current interest rate: Interest you will pay under your current monthly payment plan: Interest you will pay if you switch to a bi-weekly mortgage payment plan: Bi-weekly Mortgage Interest Savings: Prepayment Privileges Prepayment privileges are voluntary payments in addition to your regular mortgage payments. The money is applied directly against the principal owing, so you'll pay off your mortgage more quickly. You'll also significantly reduce the total amount of interest you would otherwise have paid. Interest Adjustment (Closing) If you are arranging a new First Mortgage, your lawyer will receive the mortgage monies from the Mortgage Company on the morning of the closing date. You will pay interest only from the day of closing of your mortgage to the first of the following months. This money will come out of your bank account after the 1st of the month.