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Qualifying for a mortgage can be stressful. But once you do, you have to decide what kind of mortgage you want. And there are a lot of different types of mortgages. It’s important to keep in mind that there is no one-size-fits-all approach to mortgages. There are mortgages designed to meet everyone’s personal and financial needs. Below are explanations on the different types of mortgages available to Canadians, what makes them unique, and why they might be right for you.

Fixed-Rate Mortgage

A fixed-rate mortgage is one where the interest rate is “fixed” meaning, it doesn’t change during the mortgage term. In Canada, the average mortgage term is five years, but it can be longer or shorter.

Homebuyers will often opt for a fixed-rate mortgage if they think interest rates are going to increase. Locking in at a fixed rate means your payments won’t change.

There is a trade off with a fixed-rate mortgage; the interest rates are generally a little higher than other types of mortgages. But you also get stability, knowing how much you pay each month, and how much goes to the principle and is going to interest.

A five-year fixed rate mortgage is the most popular mortgage in Canada.

Variable-Rate Mortgage

With a variable-rate mortgage, the interest rate fluctuates based on the bank’s current prime rate. Some people chose a variable-rate mortgage because interest rates are low and they do not expect those rates to rise during the mortgage term. Like a fixed-rate mortgage, your monthly mortgage payments are the same, but the amount that goes toward the principle and interest will change depending on what the prime rate is.

If interest rates fall, more of your mortgage payments goes toward the total principle and less goes toward interest. But if rates rise, less of your payment goes to paying off the mortgage and more goes into the banks.

Because of the higher risk associated with a variable-rate mortgage, the rates associated with this type of mortgage are generally lower than they would be with a fixed-rate mortgage.

High-Ratio Mortgages

If you have a down payment that is less than 20% of the value of the home, the mortgage is considered high ratio. Because the loan-to-value ratio is over 80%, you are required, by law, to get mortgage default insurance. The fee for the insurance is included in the monthly mortgage payments. Just because you’re paying for “default insurance” doesn’t mean it’s there to help you. It protects the lender in case you default on the mortgage.

Sometimes, it makes more sense to get a high-ratio mortgage with mortgage default insurance than wait until you can save up a 20% down payment. Even those who have a 20% down payment will sometimes get a high-ratio mortgage, holding back some of the down payment to help with closing costs, an emergency fund, or to set up their new home.

Open Mortgage

An open mortgage is a flexible mortgage that allows you make lump sum payments, or extra payments—including paying off the mortgage in its entirety—without having to pay a penalty.

An open mortgage often has a term of less than a year and tends to come with a slightly higher interest rate than a closed mortgage.

Closed Mortgage

A closed mortgage comes with restrictions or penalties for paying off the balance or renegotiating before the mortgage term ends. Because they are not as flexible as an open mortgage, the interest rates are lower than an open mortgage. At the same time, because the rates are lower there are more restrictions.

With most closed mortgages you can still make extra payments, refinance, or break the mortgage before the end of the term, but you just have to pay a big penalty.

Home Equity Line of Credit

A home equity line of credit, or HELOC, is a revolving line of credit that allows you to tap into the equity you’ve built up in your home. You build up equity every time you make a mortgage payment, or the value of the property increases.

To qualify for a HELOC you have to have built up at least 20% equity in the property. You also need to have good credit. If you do qualify, you can access up to 65% of the value of the property.

With a HELOC, the full sum is deposited into an account. You can take out as much or as little as you want and use it whenever you want on whatever you want. There are no fixed prepayment amounts and you only pay interest on the money you use.

Cash-Back Mortgage

A cash-back mortgage provides you with a percentage of the home’s property value up front, in cash. This money can be used for anything (moving expenses, furniture, the dentist, a vacation, etc.) except the down payment.

Because the interest rate is higher on a cash-back mortgage it is best suited for those who need an influx of cash after they purchase the home.

Conventional Mortgage

A conventional (or traditional) mortgage is one that requires you to have a 20% down payment. The remaining 80% of the cost of the house is provided by the lender. Depending on where you get your mortgage, whether from one of the big banks or a private lender, you may have to get insurance as well.

Private Mortgage

Conventional mortgages and other financial products provided by traditional lenders come with a lot of hurdles, including a mortgage stress test. If you don’t pass the stress test, you don’t get the mortgage. If your credit isn’t good enough for the big banks, your mortgage application will get rejected.

There are other options. Instead of using a traditional lender like the big banks or a trust company, you might want to consider using a private mortgage lender. Because traditional lenders are not federally regulated, they do not need to adhere to the same prohibitive rules.

Canadalend.com, Helping You Get the Best Mortgage

If you’re looking for a mortgage, contact the licensed mortgage professionals at Canadalend.com. They will ensure you understand all your options and help you find a mortgage that best suits your lifestyle and financial needs.

How does Canadalend.com do it? The mortgage experts at Canadalend.com are independent, they have access to hundreds of different lenders. This means they have your best interest at heart.

Some of the lenders Canadalend.com works with specialize in helping those who are self-employed, have unreliable income, are new to Canada, or have failed the mortgage stress test, secure a mortgage.

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

Refinancing a mortgage can potentially save you tens of thousands of dollars over the life of the mortgage. But many Canadian homeowners don’t refinance their mortgage when the opportunity arises because there are many mortgage refinancing myths floating around.

These mortgage refinancing misconceptions prevent homeowners from getting the best rates and terms, which has a big impact on your financial and lifestyle needs. If you’re thinking of refinancing your mortgage but aren’t sure if you should, the following mortgage refinancing tips should help you decide whether it’s in your best interest or not.

Myth 1: You Will Not Save Much Money when Refinancing

Refinancing a mortgage, even if you break your current contract and need to pay a penalty, can still save you a lot of money. Most homeowners refinance to get a lower interest rate.

Refinancing your interest rate by just 1/8th of a percent could save you tens of thousands of dollars in interest payments. That means less money going to the bank and more money staying in your pocket.

Myth 2: With Rates Rising, It Doesn’t Make Sense to Refinance

The biggest reason for refinancing is to find a lower interest rate. But with interest rates on the rise, many homeowners have decided that it doesn’t make sense to shop around. First, interest rates are inching their way up, but they are still near historical lows.

Second, because rates are going up, now is the perfect time to refinance. Waiting for rates to climb even higher will mean paying more in interest.

Third, you’re the customer and lenders want your business. That’s why it’s always a good idea to shop around and find a lender that will provide you with the best rates, terms, conditions, and personal service.

Myth 3: Banks Always Have the Best Rates

Banks and traditional lenders do not always have the best rates. Homebuyers are initially attracted to big banks because they are the most recognizable face of the mortgage industry and people assume that they must have the best rates and financial products.
That’s wrong.

Instead of shopping around and helping you refinance with the best rates, big banks will only try and sell you their own products, even if it’s not in your best financial interest.

On top of that, they only give their best rates and terms to their best clients. If you’re credit rating is bruised, you’re not going to get the same kind of offer someone with a better credit rating will.

Even if a bank tries to offer you a rate that they claim is great, it might not be. There’s an excellent chance that another lender will get you better financing terms. Here’s why. Private lenders are independent, which means they do not need to adhere to the same strict rules federally regulated banks and trust companies do.

Alternate lenders can provide the same kind of services that traditional lenders do, but because they are independent, they have access to hundreds of different lenders. More lenders mean more options and freedom to choose what’s best for you.

Myth 4: Lower Rates Are the Only Reason People Refinance

Refinancing to get a lower interest rate is certainly important. But a lower interest rate is only one piece of the puzzle. A licensed private mortgage professional will help you look at the big picture and come up with a plan. For example, in addition to lower rates, maybe you want a shorter mortgage term, allowing you to pay off the mortgage sooner, which could save you even more in interest.

Understanding the total cost of borrowing will have a big impact on how you refinance, consolidate debt, or get a second mortgage.

Myth 5: Private Lenders Can’t Help Me with My Situation

Traditional lenders cannot come close to proving the kind of service that private lenders do. Big banks prefer to deal with people with excellent credit rating and a big down payment. There are a lot of people looking to refinance that do not meet the bank’s strict rules.

What if your job situation has changed? Or what if you have bad credit or no credit, are self-employed, have unreliable income, are recently divorced, or new to Canada?

For those refinancing their mortgage, working with a private lender can give you more options than you are aware of. Again, because mortgage brokers are independent, they work with hundreds of different lenders—even the big banks.

A private mortgage specialist will help you find a lender that will refinance a mortgage or find any other financial product that meets your needs.

Myth 6: Private Lenders Are Expensive

One big mortgage refinancing misconception is that private lenders are costly. Not true. It’s the same as using a traditional lender. Fees for using a private lender comes from the funds of the mortgage refinancing they put together for you. If they are unable to help you refinance, there is no cost to you.

Myth 7: There’s Too Much Paperwork to Deal with

Refencing is actually not as complicated as you think. Yes, when you refinance a mortgage you are applying for a new loan and will need to provide the same kind of information you did the first time around. This will include a mortgage statement, property tax assessment, and employment letter.

But here’s the thing: You’ve been through this process before and a mortgage broker will help you with the rest. This can include requesting documentation on your behalf and having you sign and submit the paperwork digitally.

Canadalend.com, Helping You Get the Best Mortgage

Are you thinking of refinancing a mortgage? If so, the licensed, independent mortgage professionals at Canadalend.com will ensure you find the financial product with the rates and terms that best suit your financial and lifestyle needs.

Why choose Canadalend.com? Because our mortgage experts are independent, they have access to hundreds of different lenders. Some of the lenders Canadalend.com works with specialize in helping those who are self-employed, have unreliable income, or have failed the mortgage stress test.

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

According to recent data from Black Knight, 80% of mortgages originating in 2018 could benefit from refinancing. Coupled with data from the US Mortgage Bankers Association showing that refinancing applications are up 117% on last year, is it time you looked at refinancing your mortgage?

Refinancing is a way to redraw the terms of a mortgage. For the borrower, this usually results in a lower interest rate. This reduces the monthly cost and the ratio between paying off the principal debt and paying off the interest. The borrowing period of the mortgage is also reset, meaning that the lender can rely on your interest payments for a longer period of time.

One of the most common barriers to refinancing is penalty fees. Lenders often include a fee to refinance to cover expenditures they incur. So in the short term, a borrower may see a small decrease in their monthly payments paired with a large initial cost and decide it’s not a viable thing to do.

But is this correct view to take?

While both the monthly payments and penalty fees can feel more relevant, looking at them in relation to the lifetime of a mortgage can recontextualise them. Small changes in the applicable interest rate (up or down) compound in the long term.

The average Canadian mortgage value currently stands at around $200,000. Let’s compare the difference between a 30-year mortgage with a 4.25% interest rate and one with a 4% interest rate. Over the lifetime of the higher rate mortgage, the total repayment is $354,042. At 4% the borrower repays $343,573. With a 0.25% lower interest rate, the borrower saves more than $10,000 over the lifetime of their mortgage. That represents a 3% reduction of the overall repayment figure.

So even when factoring in fees for refinancing, the benefits are clear, borrowers can save a lot of money over the lifetime of their mortgage.

When to Refinance Your Mortgage

With the example above in mind, is it a surprise that Black Knight found that within the first 18 months, 80% of mortgages could be improved with refinancing?

In order to reap maximum benefits for refinancing, it needs to occur earlier in the schedule rather than later. The more time you spend paying in at a higher rate, the more money you’re spending that you don’t need to spend.

There’s also the interest-to-principal ratio to consider. The deeper you get into your mortgage schedule the more your monthly payment goes towards paying down the principal debt rather than paying off the interest. This ratio will be reset when you refinance and you take on a new schedule. After a certain point in the life of your mortgage refinancing can be a worse option. It’s better to pay two years at 4.25% and thirty at 4%, than fifteen years and then another thirty years.

Refinancing your mortgage can shave whole percentage points off the total repayment value of your mortgage and the sooner you do it, the greater the benefit you derive from it.

But refinancing often sits at a convergence point between a number of things that most people are reticent to deal with. Talking honestly about money, paying penalty fees, complicated math and the need to undertake some administrative work.

The independent mortgage experts at Canadalend.com can help with the concerns you might have. They’ll be able to discuss knowledgeably, and confidentially, the different options available from the hundreds of different lenders they have access to. They’ll be able to guide you through the admin side of refinancing. Though you are applying for a new loan, the work done for your previous loan can form a basis for this one.

Our experts will always make sure you understand every aspect of your refinancing before going ahead.

To find out what options might be available to you for refinancing your mortgage, contact contact Canadalend.com today and start a conversation about saving money.

As with any major financial decision, a home equity loan should not be rushed into without forethought and consideration. Once that’s been undertaken you need to be inquisitive with potential lenders to ensure that the product you are getting will meet your needs and your expectations. A good lender will always allow you the comfort of asking as many questions as you want. 

When it comes to finances there are rarely any stupid questions, only people that don’t ask questions.

Q1 What Will It Cost?

This might seem like a straightforward question, but it’s designed to help you assess not just the value of a loan, but what it will actually cost long term. You may be borrowing $125,000 but it costs you more than that across the term as interest will be charged on the principal debt on a monthly basis. That means the true cost is more than $125,000 and is dependent on the interest rate you agree.

This is especially important when taking out a loan to consolidate debt, will the lifetime cost of your debt be improved through consolidation?

Q2 How Long Will It Take To Repay?

The length of time a loan is set to be paid over is called a schedule and it’s one of the key factors in a loan that can vary, along with the amount loaned and the interest rate.

Shorter loans may have higher rates of interest, but longer loans may allow you to overpay from your monthly budget, ensuring more money goes towards your principal debt rather than the interest on that debt. 

In general, a home equity loan will have a schedule of between 5 and 15 years. 

Q3 What Fees Are Involved?

While a longer scheduled loan may enable you to overpay, you’ll want to know if there are fees for this in advance. Or fees for closing the debt early. Or closing fees at the end of the schedule. Or… well, you get the picture.

Make sure you’re clear about what actions you might take with your loan, such as overpayments or closing early, and whether you will be penalised to do so. While the documentation associated with a loan is detailed, and can sometimes seem impenetrable, you can search electronic versions for keywords such as fee, charge, levy or payment to see what you might be liable to pay.

Q4 Can I Get A Home Equity Loan With Bad Credit?

There’s no straight answer on whether you can as every person’s situation is different. You may have bad credit due to historic factors while your current debt-to-income ratio is good. Or, you may have a larger than normal amount of equity in your property, though most lenders set an upper limit of 80% equity to borrow against. Discussing these factors with a lender prior to settling on a product is essential.

The majority of lenders set a threshold for credit scores at around 600 for automatic consideration of a home equity loan. At the least, a lower credit score will probably mean you face a slightly higher interest rate on your loan rather than impediments to getting the loan.

Q5 Will A Loan Like This Meet The Needs I Have For The Money?

There are many reasons why people take out loans, including home equity loans, and not every type of loan matches every type of need. 

As much as this is an important question for you to ask of a lender, you also need to be clear on why you want the money and what your plans are for repayments. Lenders have been known to use the reasons for wanting a loan as a deciding factor in assigning a loan, so make sure you can explain how you'll use the money and how you intend to manage the debt.

Who Should You Ask?

The experts at Canadalend.com are independent experts. This means that they can give you knowledgeable advice and guidance prior to taking on a new financial commitment, but it also gives them freedom. Freedom to work with you to find the right product for your financial needs. 

Through Canadalend.com they have access to hundreds of different lenders, and a plethora of available products, such as home equity loans, that can meet your needs in a manageable and appropriate way.

To find out more, contact Canadalend.com today and start asking questions about your options for borrowing.