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Deciding on the Right Mortgage Term and Amortization Period

For many, the most confusing part of buying their first home is understanding the difference between a mortgage term and amortization period. In Canada, a typical mortgage has a five-year fixed-term with a 25-year amortization period.
That said, there is no one-size-fits-all approach, in fact, there are many factors a homeowner should consider when deciding what kind of mortgage term and amortization to choose.

How to Choose the Right Mortgage Term

Choosing the right mortgage term can be challenging, with terms typically ranging from six months to 10 years. The mortgage term is the length of time you commit to the current mortgage rate, the lender you chose, and the terms of the conditions.

The most popular mortgage in Canada is five years, but you can also get a mortgage term of one year, two years, six years, and 10 years. When you choose a mortgage term, you are locked in until the end of the agreed-upon period (or you can break your mortgage contract). What you commit to will mean you are either protected from rising rates or you pay more than you needed to.

At the end of the term, you will need to renew your mortgage on the remaining principle. Factors that will need to be reconsidered include frequency of payment, interest rate, and length of new term.

It’s important to understand the mortgage terms and what they mean for your bottom line. Choosing the right mortgage term can save you a lot of money over the lifetime of the mortgage.

Frequency of Payments

One of the biggest decisions you’ll make when you get a mortgage is how often you want to make your regular payments. There are actually six different payment frequencies you can choose from:

• Monthly (12 payments per year)
• Semi-Monthly (24 payments per year)
• Biweekly (26 payments per year)
• Weekly (52 payments per year)
• “Accelerated” Biweekly (26 payments per year)
• “Accelerated” Weekly (52 payments per year).

The accelerated options allow you to make extra payments against your principal; this will help you save on interest and reduce the length of time it takes you to pay off the entire mortgage. With accelerated payments, you make one extra monthly payment against your mortgage annually. But because the extra payment is spread out in small amounts over the course of the entire year, it’s easy to accommodate.

Length of Term

The length of the mortgage term you decide on will have a direct impact on the mortgage rate. Because borrowers want to save as much money as possible, they tend to lock into a longer term. A mortgage with a longer term provides more financial stability because the payments stay the same for the term of the mortgage. While this can provide peace of mind, you end up paying a premium.

Short-term mortgage rates are typically lower than long-term mortgage rates. That’s because it’s easier to predict where interest rates will be in the near term. It’s tougher to predict where interest rates will be five or 10 years down the road.

Some Canadian homeowners like knowing what their expenses will be. For others, a shorter term may be more attractive.

Choosing the Right Amortization Period

The amortization period is the length of time it will take you to pay off your mortgage in full. In 2008, before the recession, Canadians could get mortgages with amortization periods of 40 years.

All that changed after the recession and the U.S. housing market crash. In an effort to avoid the same issues in Canada, the Federal Government implemented a number of changes to Canadian mortgage rules.

Today, if your down payment is less than 20% of the purchase price of the home, the longest amortization period is 25 years. However, if your down payment is 20% or more of the purchase price, the maximum amortization period could be up to 30 years.

Choosing the amortization period that best suits your needs will determine how much or how little interest you pay during the life of the mortgage.

Shorter vs. Longer Amortization Periods

The most common amortization period in Canada is 25 years, but shorter and longer periods are available. Choosing a shorter or longer amortization period will depend on a number of different factors.

A shorter amortization period sounds great; you pay off the mortgage more quickly and pay less interest. A short amortization period is a great option for those who can afford higher monthly payments.

But it’s not for everyone. If you’re self-employed, your income is irregular, or you’re buying a home for the first time with a large mortgage, a short amortization period with higher payments that tie up your cash may not be the best option.

Most Canadians choose a longer amortization period because it lowers their mortgage payments. For some, this can be the difference between being able to buy a home and not being able to. Keep in mind, the longer the amortization period, the longer it will take you to pay the mortgage off, which means paying more in interest.

Minimum Age

You’re never too young to start planning for your future and save. But when it comes to purchasing a home in Canada, you need to be the age of majority. In Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and Prince Edward Island, the age of majority is 18. In British Columbia, New Brunswick, Nova Scotia, Newfoundland, Nunavut, the Northwest Territories, and the Yukon, it’s age 19.

If you’re not the age of majority in the province you live in, you can still purchase a house, you just need to have a co-signer that is the age of majority.

Canadalend.com, Helping Canadians Pay off Their Mortgages Fast

If you’re looking to step onto the property ladder and want to determine what kind of mortgage is best for you, contact the independent, licensed mortgage professionals at Canadalend.com.

The mortgage experts at Canadalend.com can help you find the best mortgage rates and determine the best mortgage term and amortization period to suit your financial and lifestyle needs.

How can we get you better financial products than the big banks? Unlike the banks, which only sell their own mortgage products (whether they’re right for you or not), the independent agents at Canadalend.com have access to hundreds of different lenders. As a result, we can help you find a mortgage that meets your long-term goals.

The mortgage brokers at Canadalend.com can also get you pre-approved for a mortgage or loan in 24 hours or less.

To see what kind of mortgage or loan you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment for a free personal consultation at your earliest convenience.

If you’re looking to refinance your property, for whatever reason, you should consider getting an appraisal first. With interest rates near record lows, getting an appraisal before refinancing could unlock a huge portion of equity that has built up over time.

Why Do You Need an Appraisal?

There are a lot of reasons why you might want to have your property reappraised. The most common reason for an appraisal is to obtain a loan on a property.

Refinance or Get a New Loan Approved

Why do you need a home appraisal to refinance? The most common reason for an appraisal is to obtain a loan on a property. If you want to consolidate a loan, help with tuition, start major renovations, or just to tap into the home’s equity, you’re going to need a new loan. This often requires a new appraisal on the property.

That’s because you can borrow up to 80% of a home’s appraised value (minus the amount left to pay on your mortgage) when refinancing.

For example, if your home is newly appraised at $500,000 and you have $125,000 left on the mortgage, you can refinance up to $275,000. ($500,000 x 0.8 = $400,000 – $125,000).

Receive a Lower Interest Rate

If your mortgage is coming up for renewal and interest rates have fallen, it might be a good idea to get a home appraisal. A lot of different factors go into what kind of interest rate a lender will charge. This includes the kind of property (single family home, townhouse, apartment, or condo), location, and condition.

Spot a Rising Trend

In addition to real estate agents, professional appraisers should be able to help identify when a market rebounds. A local home appraiser should be knowledgeable about the community in which they conduct their appraisals. As a result, they should be able to spot a rising trend.

Estate Liquidation

A home appraisal in the event of estate liquidation is a great way to establish the fair market value of the property. One of the first steps in liquidating an estate is having an understanding of the property’s true value. This ensures everyone involved in the liquidation knows they are receiving a fair deal.

Selling a Home

Whether you’re selling a home to move up, downsize, or relocate because of a job, a home appraisal can help you determine a selling price. Unlike a real estate agent, a home appraiser has no vested interest in what the home sells for. Seeking a home appraiser can provide the property owner with an objective understanding on what their house is worth and setting a fair selling price.

Other reasons for getting an appraisal include establishing the replacement cost for insurance purposes, to contest high property taxes, or to settle a divorce.

Who Does Home Appraisals?

Home appraisals are performed by professionals who are trained to determine the value of your property. Appraisers operate differently than home inspectors do. Before buying a property, you want the home inspector to determine if any repairs need to be done. That’s why they check the electrical, plumbing, etc.

An appraiser, on the other hand, checks the general condition of your home to come up with a comparable market value. Banks and other lending institutions need to know the market value of your home before they could loan money on the property.

Canadian home prices rose to a record high in June; the sixth consecutive monthly increase. The increase was led by housing prices in Vancouver (8.5%) and Toronto (7.8%). Outside of these two markets, the average Canadian housing price increased by less than two percent.1

Regardless of where you live, with the rising values of Canadian real estate, it’s important to get an appraisal before refinancing your property. That’s because you can borrow up to 80% of a home’s appraised value (minus the amount left to pay on your mortgage) when refinancing.

For example, if your home is newly appraised at $500,000 and you have $125,000 left on the mortgage, you can refinance up to $275,000. ($500,000 x 0.8 = $400,000 – $125,000).

Top 7 Tips to for High-Value Home Appraisals

If you’re getting an appraisal, these tips can help you get the top current market value for your home.

Clean Up

The appraiser is basing the value of your property on how good it looks. Before the appraisal, prepare your home as if you’re selling it. Clean and declutter every room, vacuum, and scrub. Do whatever you can to make your home as presentable as possible.

Make Necessary Repairs

While the appraiser isn’t concerned if your home is in perfect condition, they will factor in anything that requires repairs when it comes to determining your home’s value. Before the appraisal, make sure you take care of any obvious problems. That could mean a leaky faucet or a cracked window. Repainting a room or putting up a new light fixture might not cost much but it could provide a dramatic impact.

Curb Appeal

An appraisal is all about first impressions. And the very first one they get is when they walk up to your property. Spend an hour or two making sure the outside of your home is warm and welcoming. Clean the windows, mow the yard, trim the hedges, or shovel the snow.

Make a List of Upgrades and Features

It’s important that the appraiser is made aware of any updates you’ve made, especially those which are hidden, like new plumbing and electrical. Make a list of what was done, when, and by whom. Additional upgrades could include new floors, bathrooms, kitchen cabinets or counters, decks, etc.

Difference between Home’s Actual and Effective Age

A home appraisal can tell potential homebuyers or the bank the effective age of the home. When people hear a home was built in 1900, they might see the property as a money pit in need of a lot of repairs. If you’ve done renovations and upgrades, you’ve changed the effective age of the home. A home appraisal could show a century home with an effective age of just five to seven years.

Do Your Homework

You know your neighbourhood better than your appraiser does. Find out what similar homes in your neighbourhood are selling for. Your property might look like one down the street, but if you believe the value of your property is worth more, let them know why.

Lock Up Pets

I’m sure most appraisers like pets, but they may not like your cat rubbing against their leg or the dog barking, sniffing, or following them around. Remember, no one is 100% objective, and in-the-way pets shouldn’t impact the value the home appraiser provides, but you never know.

The same goes for homeowners: don’t pester the appraiser with questions and comments while they’re doing their job. Prepare some questions and ask them when they’re finished.

Canadalend.com: The Nation’s Leader in Refinancing

If you’re looking to refinance your mortgage and need to have your property reappraised, contact the independent, licensed professionals at Canadalend.com. Not only will they explain the refinancing process, they will help you get the best rates possible, and suggest professional appraisers in your area.

To see what your refinancing options are, contact Canadalend.com or apply online and a mortgage specialist will help set up an appointment at your earliest convenience.

Sources:

“Teranet House Price Index,” housepriceindex.ca web site; http://www.housepriceindex.ca/

Refinancing a Mortgage to Pay off Credit Card Debt

Should you refinance a mortgage to pay off credit card debt? With interest rates still near record lows, refinancing a mortgage is a popular way to pay off credit card debt. But there are a lot of factors that need to be considered before deciding if this is the right direction.

For starters, paying off high credit card debt with a refinanced mortgage should only be considered if you’re willing to change future spending habits. After all, refinancing doesn’t pay off your credit card debt. It just moves the high interest credit card debt to a lower interest rate mortgage. If you don’t figure out what lead to overspending in the first place, you could end up in a worse spot than before: a bigger mortgage and even more credit card debt to pay off.

Refinancing a mortgage to pay off credit card debt will only be effective if you change your spending habits. Fortunately, more and more Canadians are realizing the benefits of living within their means and paying off their debts. In fact, paying down credit card debt is the top financial New Year’s Resolution for most Canadians.1

This isn’t surprising given that Canadian household debt hit record levels in 2016, and higher credit card debt levels are expect to rise even further in 2017. According to the latest figures, Canadian household credit debt hit $2.04 trillion in the third quarter of 2016, with $692.0 billion in credit cards, car loans, and other personal loans.2

While some Canadians turn to debt settlement and bankruptcy to settle their credit card debt, these solutions should only be considered when you’ve run out of all other options. Not all options are created equally. If you’re stressed about credit card debt, avoid taking out a payday loan or loan title, transferring the credit card balance to a new zero-interest credit card, or cashing in a Registered Retirement Savings Plan (RRSP).

Should You Refinance to Pay off Credit Card Debt?

Canadians get into credit card debt for any number of reasons. Canadians also struggle with paying it off. It’s a destructive cycle: you put money on your credit card to help pay it down, but are left with little cash, so you end up charging expenses to the credit card.

With credit card debt at record levels, it’s easy to see that finding extra money at the end of the month to pay toward that debt is getting more and more difficult—especially when interest rates attached to credit cards can range from the teens to 20% and higher. Department store credit cards can be closer to 30%.

On the other hand, home mortgage interest rates on a five-year fixed mortgage, the most popular mortgage term in Canada , remain under five percent. If your mortgage is coming up for renewal, consolidating credit card and other high-interest debt into a new home loan can have serious benefits and translate into substantial savings.

Paying off your credit card debt by refinancing a mortgage will mean paying off the high-interest debt in full. Your credit score will increase as Canada’s credit bureaus see payment in full as a sign you are handling your credit well.

How Refinancing to Pay off Credit Card Debt Can Save You Money

Why should you refinance your mortgage? Because of the savings.

A young profession in Toronto feels crushed under a mountain of credit card debt. Despite earning $85,000 annually, they have no savings, $20,000 in credit card debt, and unsecured line of credit debt of $30,000. Their monthly payments were in excess of $1,500. They also have a $240,000 mortgage with a 4.5% rate.

With mortgage rates much lower than what the person is paying on a credit card and line of credit, it makes sense to refinance the loan, thus leveraging the refinancing process to fold the credit card and line of credit debt into a new mortgage.

Even if his mortgage was not coming up for review, it would still make sense to break the mortgage, pay the $4,500 penalty, and fold the credit card debt and credit line into a new mortgage.

The person would take on a new mortgage of $295,000 at 3.10% for four years. This equals the $240,000 mortgage balance plus $55,000 to pay off the credit card and line of credit debt.

Their old mortgage payment was $1,430 and the new mortgage payment is $2,330. The size of their mortgage increases but the monthly mortgage payments will still be less than what they would have been paying with the high-interest debt. Increased mortgage payments also lowered the amortization period from 22 years to 13 years.

Thanks to lowering the mortgage rate and saving on debt carrying costs for the line of credit and credit card, the estimated interest savings over two years is approximately $14,400.

Canadalend.com, Helping Canadians Refinance and Save

If your goal is to get out from under credit card debt, refinancing your mortgage to pay your high-interest debt might be a good option. The Canadian housing market remains strong and interest rates are expected to remain near record low levels in 2017.
If your mortgage is up for renewal and you’d like to roll credit card debt into a new mortgage, it’s an excellent time to talk to a licensed agent at Canadalend.com .

The independent agents at Canadalend.com will help evaluate your financial situation and consider all of your options. To find out if refinancing or breaking your mortgage to pay off credit card debt is right for you, contact Canadalend.com today. Or apply online and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

1. “Paying down debt remains No. 1 priority for Canadians heading into 2017,” Newswire, December 29, 2016; http://www.newswire.ca/news-releases/paying-down-debt-remains-no-1-priority-for-canadians-heading-into-2017-cibc-poll-608583615.html.
2. “National balance sheet and financial flow accounts, third quarter 2016,” Statistics Canada, December 14, 2016; http://www.statcan.gc.ca/daily-quotidien/161214/dq161214a-eng.pdf.

Private Lenders Becoming More Popular

Not all mortgages come from Canada’s big banks and lending institutions. In fact, a growing number of Canadian homebuyers are turning to private lenders to help them realize their dream of home ownership.

Why? Since 2008, the federal government has initiated a large number of stricter lending rules for government-backed insured mortgages. Some of the changes include reducing the maximum amortization period and increasing the minimum needed for a down payment from zero to five percent of the purchase price.

If the purchase price of a home is over $500,000, the down payment rules are even tougher. Buyers still need to put down at least five percent on the first $500,000, but also need to put down at least 10% down on the portion of a home that costs more than $500,000. Homes that cost more than $1.0 million still require a 20% down payment.
All of this has made it more difficult for first-time homebuyers to get onto the property ladder.

Enter private mortgage lenders. What’s a private mortgage? With a private mortgage you don’t borrow money from a bank or trust; you borrow from another person or business. Thanks to tighter lending rules, more and more Canadians are turning to private lenders.
While the number of mortgages given out by private lenders in Canada  remains small at roughly four to five percent of the Canadian mortgage market, the number is growing. During the 2008/2009 recession, private lenders accounted for just 0.8% of overall mortgages.

The fact of the matter is that private lenders play an important part in Canada’s real estate landscape. In 2014, the Canada Mortgage and Housing Corporation (CMHC) discontinued mortgage for those who are self-employed without third-party income validation. With more than 15% of the workforce being self-employed, this was a huge hit to large number of potential homebuyers.

Private mortgage lenders also provide options for first-time homebuyers who are saddled with debt, have bad credit, are divorced, have an illness, have lost a job, owe back taxes, or are non-residents.

Private mortgage lenders in Canada also provide options for potential homebuyers who do not have a long enough income record, or business owners who, for tax purposes, take home a big enough salary.

While private lenders charge a higher interest rate than traditional banks do, they help borrowers rebuild their credit rating so they can eventually go to other lenders and get better rates.

7 Benefits of Using a Private Mortgage Lender

Less Red Tape

If you go with one of Canada’s bigger banks, be prepared to roll up your sleeves. That’s because tighter lending rules means more paperwork for homebuyers. Proof of income documents will be more difficult for those who are self-employed. Or, you may even run a profitable, growing business, but you may not have all the documentation the banks need. Private mortgage lenders streamline the process. Explain your situation to the licensed, independent broker, and they can help you determine what kind of loan you qualify for—right on the spot.

Mortgage Flexibility

Big banks need to adhere to strict lending rules making it more and more difficult for Canadian homebuyers to qualify for a mortgage. Independent mortgage brokers on the other hand are not bound by the same rules and have more flexibility in finding the right loan or financial product for their clients.

Good Mortgage Rates

A private mortgage broker is an expert in mortgages and has a comprehensive understanding of the ever-changing mortgage rate environment. Unlike the banks, which just promote their own products, an independent private mortgage broker can have access to hundreds of different lenders. This means the private mortgage broker can get you the best financial products available at the best rates.

Easy Mortgage Pre-Approvals

Private mortgage brokers are in the business of finding lenders for borrowers who have been turned away from the big banks. And they want to make the mortgage pre-approval process as easy as possible. Because of their independence and streamlined structure, private mortgage brokers have more power and authority for approve or to adjust their loan package.

Higher Lending Risk Tolerance

Homebuyers like private mortgage lenders because they have a higher tolerance for risk than institutional banks do. They know lenders who specialize in helping find mortgages for those with bad credit, are self-employed, or have recently filed for bankruptcy.

Real-Time Lending Speed

With interest rates near record lows and a competitive housing market, timing is of the essence when getting a mortgage or loan. Standing in line at a traditional bank, filing out all the forms, and waiting for approval means you could miss out on your dream home. Private mortgage lenders on the other hand have less red tape, a streamlined process, and access to capital in real time. Because of their personal service, private mortgage brokers can get you pre-approved for a loan that suits your financial and lifestyle needs in 24 -hours or less.

Purchasing Advice

Buying a property is a big step. And there is a lot to consider before you sign on the dotted line. That’s where a private mortgage broker can help. Not only do private mortgage brokers understand mortgages, they also understand the real estate market in your area. They may be able to offer you advice on your property and explain the pros and cons of the purchasing process.

Canadalend.com: The Private Lender Specialists

Just like the big banks, when it comes to private lenders, it’s important to shop around. The best way to find the best private mortgage is to talk to a licensed, independent agent at Canadalend.com .

At Canadalend.com, we network with a large number of private lenders who have helped our clients with private mortgages. If you’ve been turned down by one of the big banks, contact Canadalend.com today to set up a free consultation, or apply online and one of our private mortgage specialists will help you set up an appointment at your earliest convenience.