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An integral part of buying a home is planning. There are many things to plan for, the physical activity of moving to a new home such as packing and transferring your worldly goods. There’s planning what to do with your new home, how to bring your own touches to the decoration and the fittings and there’s planning what mortgage is going to be appropriate to support your purchase. Open or Closed?

Open or Closed Mortgages offer different advantages to borrowers, dependent on their situation now and what they have planned for the future.

The Open Mortgage

In the most straightforward terms, an open mortgage is one that is eligible for early repayment and has a shorter term than a closed mortgage. The reason for pairing shorter terms with early repayment options is that open mortgages are designed to be a transitionary type of loan. 

For example, Claire and Robert have decided to buy a home and move in together. The sale of their current, individual, properties will garner enough cash to pay off most, if not all, of the mortgage on their new home. This means they have some cushioning between buying their new home and selling the old ones.

As a rule of thumb, lenders in this situation will overtest the means of borrowers. While the open mortgage they apply for might have a 3% interest rate, the lender will test Claire and Robert’s finances to see if they could tolerate a 6% interest on their loan. Not because they will want to increase the rate, but because the risk involved in waiting for Claire and Robert to sell their properties means there might be an impact on their ability to pay.

It is worth noting that if you plan to get an open mortgage, this comes with a greater degree of financial testing scrutiny, and this should form part of your planning, particularly in what documentation you prepare for a potential lender regarding your financial history. 

A Closed Mortgage

As you may already have anticipated, a closed mortgage does not offer the same kind of flexibility, so why would anyone choose a closed mortgage? 

Most people are not in Claire and Robert’s situation, where they can anticipate a windfall within the term of the mortgage. For those people, a fixed-rate closed mortgage with a defined payment schedule works better because it matches their income. Regular, predictable, income feeding defined scheduled payments. 

If you do think you might get a windfall during the payment scheme, an increase in salary, a return on an investment, or perhaps an inheritance, discuss with your lender what overpayment policy might potentially be included in a closed mortgage product. This will reduce monthly payments, but lenders will almost certainly penalise you for early repayment of the principal debt. This penalty is usually based around the remaining interest on the term as this is what a lender is expecting to get from you in exchange for the loan over the full schedule. Make sure you understand how this penalty is calculated before you commit to a loan.

Needless to say that with a closed mortgage there are also planning considerations to make in advance both around what is predictable for your circumstances and what might be unexpected.

Making the Choice

Predicting the future is best left to futurologists and precognitive psychics. If you want to get the most out of your future and out of an open or closed mortgage, the path to success is laid with advance planning. But even if you make your plans, predict your budgets, and outline your five-year-future, you still have to go to multiple lenders, one-by-one to try and find a lender whose products meet the goals of your plan.

At Canadalend.com all of our experts are independent. They aren’t beholden to us or any of the hundreds of lenders they have access to through us. They can use their expertise to help you really refine your planning and use that plan to find the right mortgage product for you, whether open or closed.

To find out more, contact Canadalend.com today and start planning for a better financial future.

While every life is different, almost everyone aims to own their own home at some point in their lives. Once on the property ladder, you may move to progressively larger homes (as your family grows) or to another city for work or you might decide to rent your home and go travelling.

Whether you’re aiming to join the property ladder, move up it or change your place on it, it’s important to keep abreast of the most recent changes in the prevailing law. We’ve detailed the two most recent changes to Canadian mortgage rules below and explained what they might mean for you.

Getting Stressed

Perhaps the most notable change to the process has been the introduction of stress testing as part of the mortgage process. This new procedure is designed to settle the property market by limiting the amount that Canadians can borrow. It’s working.

The Canadian Real Estate agent Association says that home sales in 2019 are expected to reach their lowest levels for a decade and the rule change has hit new buyers hardest who, on average, can afford 20% less than their predecessors as a result of the new legislation. Different areas, however, have been affected differently. While sales have fallen in Alberta and British Columbia, they have grown in places like Ontario and Quebec.

If you’re looking to join the property ladder in 2020, one of the key steps to getting yourself up to speed on the prevailing rules is to understand both when stress-testing will apply and how it is conducted. Either using the five-year Bank of Canada Benchmark rate or 200 basis points greater than the mortgage’s contractual rate measure. Whichever measure is larger, is the one used.

Down Payments Going Up

In addition to stress testing being brought in for 2019 there were also changes made to the minimum down payment thresholds for properties of different values. 

The revised rules require a minimum downpayment of 5% for a property valued at up to $500,000, rising to 10% for properties up to a million and settling at a 20% flat fee for any property valued in excess of a million dollars.

Where stress testing has a greater effect on first-time buyers, down payment thresholds impact more on people moving further up the property ladder as they will be required to find larger sums of available cash as they move to properties of greater value.

Its impact on first-time buyers is likely to be more tangental; an increase in the amount of time they rent for in order to save more for that initial payment or an increase in those relying on mortgage loan insurance. Mortgage loan insurance is set up to protect the lender in the event that you are unable to make your monthly repayments. Premiums for this type of insurance vary based on the value of the home you are buying and how much of the down payment you can manage. 

If you can’t make the minimum down payment take time to factor in the need for mortgage loan insurance into your budgeting, and like with any other financial product, shop around to see what rates are available to you.

Keeping to the Rules

These rules changes have had a notable effect on how Canadians manage their property purchases. Even if you are on your second or third mortgage application or property purchase, procedures such as stress testing can still appear complex. 

The experts at Canadlend.com are experienced when it comes to helping new and repeat borrowers with their mortgage products. Staying abreast of the changes in the law and how they affect borrowers means they can help you understand the process. Their access to hundreds of lenders and their products means that once they’ve helped you develop your financial plan they can connect you with the best product to execute that plan.

To find out more, contact Canadalend.com today and find out how you can take your first or next step on the property ladder.

Shopping for a mortgage can be nerve-wracking and navigating the ins and outs of actually securing a mortgage is just the beginning. Once you qualify you have to figure out what kind of mortgage you want, and that can be downright confusing.

What is the mortgage term? What about mortgage rates? Is it better to go for a variable mortgage or one with a fixed term? What about payment options and other terms and conditions?

Most home buyers think the best mortgage rate is the one attached to the lowest rate. This isn’t always the case. The best mortgage is the one that suits all of your financial and lifestyle needs.

Mortgage Term

When you qualify for a mortgage you need to determine what the term and amortization period are going to be. The amortization period is the amount of time it takes you to pay off the mortgage. The most popular amortization period in Canada is 25 years.

The mortgage term though is entirely different. It represents the amount of time you are locked into the current terms and conditions (mortgage rate, repayment options, etc.) with the current lender. The average mortgage term in Canada is five years; though it can be shorter or much longer.

A shorter mortgage term means you don’t have to wait as long to renegotiate your mortgage without paying any fees. The benefits of a longer-term mortgage, however, is that you are locked in at an interest rate you like for a longer period of time.

Once the mortgage term ends though, you can either sign back up with the original lender or you can shop around for a mortgage with better rates, terms, and conditions.

Remember, you’re the client and because of the competitive mortgage marketplace, lenders should be making every effort to keep or gain your business.

Mortgage Rates

When it comes to looking for a mortgage, most home buyers zero in on the mortgage rate, which isn’t a surprise—that’s the interest rate you pay out during the life of the mortgage. A half point on interest can translate into either paying out, or saving, tens of thousands of dollars during the amortization period.

What can affect mortgage rates? There are some factors you can control, others, you can’t.

For the most part, your financial health is in your control. There are a lot of rate-influencing factors that are out of your control, though. This includes the strength of the housing market, which impacts supply and demand. In a hot housing market, mortgage rates will be higher than they are during a correction in the real estate market.

Other factors impacting mortgage rates include the strength of the economy, inflation, the Bank of Canada’s key lending rate (which impacts interest rates for consumer loans and mortgages), and the bond market.

Variable vs. Fixed

It could be tough to decide whether or not you want a variable rate mortgage or fixed mortgage. If interest rates are going up, you may want to lock into a fixed-rate mortgage. This provides the certainty of know exactly how much of the principle you’re paying down every month and how much goes to interest.

On the other hand, if you think rates are going down, you could opt for a variable rate mortgage. With a variable mortgage, the interest rate fluctuates with the lenders prime rate. In a soft economic environment, this might be a good way to go, since there is less of a chance of rates going up. But the banks can change their rates whenever they like, which adds a great amount of uncertainty.

Prime Rates

What is the prime rate? The prime rate, which is also known as the prime lending rate, is the annual interest rate Canada’s big banks and other traditional financial institutions use to set interest rates for variable mortgages and loans.

The prime rate is influenced mainly by the key lending rate set by the Bank of Canada. Also known as the overnight lending rate, it is what major financial institutions charge when borrowing or lending (for one day) amongst themselves.

When the Bank of Canada raises that rate, banks pass on that increase to you in the form of higher or lower prime rates.

Terms and Condition

There’s more to a mortgage than just interest rates. Some key factors mortgage shoppers should consider are:

• The penalty for breaking a mortgage
• Prepayment options
• Porting rules
• Refinance options
• Does the mortgage come with a home equity line of credit?
• What is the rate hold period?

Prepayment Options

Having options for prepayment in your mortgage can save you a lot of money. Mortgage prepayments allow you to increase your mortgage payments or pay off the mortgage, without incurring a penalty.

On a monthly prepayment basis, the increase is a percentage of the original monthly payment. A lump sum provision allows you to put any money you have towards the mortgage principle without penalty.

Making additional payments on a mortgage will reduce the amortization period and how much you pay in interest. Some mortgages also allow you to skip a payment.

You may not think prepayment options are all that important, but you never know what kind of financial situation you’ll be in in three, five, or 10 years. That’s why it’s important to keep prepayment options in mind when determining what kind of mortgage term to get.

Porting and Assuming Your Mortgage

Are you thinking of selling your home? If so, you might want to look at portable and assumable mortgages. A portable option allows you to transfer your current mortgage balance, interest rates, terms and conditions.

An assumable mortgage allows you to take over someone else’s mortgage and their property. The terms of the original mortgage have to stay the same.

Canadalend.com, Helping You Get the Best Mortgage

There is no one-size-fits-all approach when it comes to mortgages. Everyone has different needs. The licensed mortgage professionals at Canadalend.com will ensure you choose the best mortgage with the best rates and terms to suit your needs.

How can we help you secure a mortgage with better rates and terms than Canada’s major banks? Because the mortgage experts at Canadalend.com are independent they have access to hundreds of different lenders. Big banks will only offer you their own financial products, even if they aren’t right for you.

Some of the lenders we deal with specialize in providing mortgages for those who are self-employed, have unreliable income, are new to Canada, have no credit, 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.

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.