Our Blog

“A fixed mortgage or a variable mortgage ?” It’s one of the most common questions first-time home buyers or those renewing a mortgage in Toronto ask, and it can be a complicated decision. To decide which one is best for you, you need to make a comparison and determine which one fits your long-term financial and lifestyle needs.

What is a Fixed Mortgage Rate?

A fixed-rate mortgage is a mortgage where the interest rate is set, or fixed, and will not change over the duration of the term of the mortgage, regardless of the amortization period.

If interest rates are low and you don’t think they’ll fall any further, a fixed mortgage rate might be right for you; in fact, the majority of mortgages in Toronto are fixed-rate mortgages. Most people like fixed-rate mortgagesbecause they provide stability and the locked-in rate means you know how much principal and interest you pay on each mortgage payment.

What Is a Variable Mortgage Rate?

If you think interest rates are going to fall, you might want to consider a variable-rate mortgage.

A variable-rate mortgage, often called a floating-rate mortgage , is a mortgage with an interest rate that fluctuates over the life of the term. A variable-rate mortgage is quoted as prime+/- a specific amount. While the prime lending rate could fluctuate, the quote (relationship to prime) will stay the same over the duration of the term.

The Bank of Canada adjusts the prime rate depending on the strength of the economy. If inflation is high, the Bank will increase the prime rate to make borrowing more expensive and when inflation is low, the Bank will cut the prime rate to encourage borrowing.

If the Bank of Canada lowers the prime interest rate, your mortgage rate will go down and a bigger amount of your mortgage payment goes toward the principal—and the faster your mortgage gets paid off.

Conversely, if the Bank of Canada raises its key lending rate, your mortgage rate will go up and a small amount of your mortgage payment will go toward the principal. Because less is going toward the principal, the amortization period of your mortgage is extended.

Which is Better? A Fixed or Variable Mortgage Rate?

There is no one-size-fits-all approach to mortgages in Toronto . You need to decide which one fits your comfort level and financial needs.

There is a risk/reward payoff with a variable-rate mortgage. Many people chose one because the interest rate is usually lower than that of a fixed-rate mortgage.

Right now, interest rates are near historic lows, but they will start to increase. And because they are so low, it’s quite possible rates could double over the next year or so. This will greatly impact how much of your mortgage payment goes to paying down the principal.

The benefits of a fixed rate mortgage is that you know exactly what the interest rate is over the life of your mortgage. One of the downsides of a fixed mortgage rate is that you cannot take advantage of a lower interest rate. As a homeowner, you need to ask yourself if it’s important to know exactly what your interest rate is going to be over the next five or 10 years.

Canadalend.com—Helping You Find the Best Mortgage Products

The busy spring home buying season is here. But before you buy your dream home, it’s important to talk to one of Canadalend.com’s independent licensed agents so you know how much of a house you can afford. They’ll also help you decide whether a fixed-rate mortgage or variable-rate mortgage is best for you.

As the nation’s leading low-cost private mortgage solution provider , Canadalend.com agents draw from hundreds of banks and lenders to help you secure the mortgage products best suited to your financial needs. Many of these lenders specialize in providing mortgages to clients that are self-employed, have a recent employment history, have bruised credit, and/or have declared bankruptcy,

To find out whether a fixed-rate mortgage or a variable-rate mortgage is better 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.

A commercial (or industrial mortgage) mortgage can help you finance a new commercial property, expand an existing premise, or even consolidate business debt. With interest rates near record lows, it’s a great time to consider a commercial mortgage.

What is a Commercial or Industrial Mortgage?

Where a residential mortgage is typically taken out by an individual borrower, a commercial mortgage is a loan secured by a company or businesses and the commercial property, such as an office building, hotel, industrial warehouse, shopping centre, or apartment complex, is used as collateral.

Commercial mortgages are a popular option for businesses looking to purchase or refinance income producing properties because it typically provides long-term funding that can range from $500,000 to $1.0 million (for a smaller commercial mortgage) to well over $2.0 million.

Because of the structure and purpose of a commercial mortgage , the rules for obtaining a commercial mortgage are more demanding than a simple residential loan. In addition to assessing credit history and doing a detailed analysis of the business in question, it’s important to understand that commercial mortgage rates are higher than residential rates.

Commercial Mortgage Properties

A number of properties can be classified as a commercial property. The most obvious types of commercial properties you would consider for a commercial mortgage would include an office, retail property, or industrial property.

Residential real estate is also eligible for a commercial mortgage but only if it is purchased as an investment property. Residential investment properties fall into three different categories: pure residential (1-4 units), pure residential (5 or more unites) and residential commercial mix.

These kinds of residential properties include: high-rise and mid-rise condominiums, single family homes (townhouses etc.), apartments/condominiums designed for rental purposes, retirement and nursing homes, student housing developments, and mixed use property development (residential component must represent at least 80% of the overall project).

Basic Types of Commercial Mortgages

Once you decide what kind of property you are financing and secure funding, it’s important to decide on what kind of commercial loan is best for your company. Below are four different types of commercial loans to consider.

Fixed-Rate Amortized Commercial Mortgages

A fixed-rate amortized commercial mortgage is a loan where the interest rate never changes and the monthly payments are the same. This is a great option for those looking to lock in low interest rates.

With a fixed-rate amortized commercial loan, a higher percentage of the monthly payment goes toward interest in the beginning. The closer you get to paying off the loan, the ratio will be reversed, and a larger portion goes to the principal.

For example, in the initial stages of the fixed-rate amortized commercial loan, 95% might go toward interest while just 5.0% goes toward the principal. The ratio is reversed the closer you get towards the end of the loan.

Variable Rate Amortized Commercial Mortgages

With a variable rate commercial loan the interest rate fluctuates. A variable rate commercial loan is a great idea when rates are low, and could go even lower. On the flip side, it means less of the monthly payment goes to the principal if the rates increase. This also means the amortization period will be extended.

While there is more inherent risk with a variable rate commercial mortgage, it can save you a lot of money if you think interest rates are going to be low for a long period. Keep in mind, if interest rates do rise, the monthly payments will also rise.

Interest Only Commercial Mortgages

An interest only commercial loan is a great option for businesses that have little capital and or need their payments to be as low as possible in the beginning. That’s because, with an interest only loan you only pay the interest portion of the loan. This also means no money is going toward the principal loan amount.

In theory, you can never pay off a loan by making interest only payments. With an interest only commercial mortgage, the “interest only” portion of the loan only lasts for a set period of time. After which, you need to start paying both the principal and the interest. Compared to just paying the interest, this blended payment will be considerably higher.

Commercial Balloon Mortgage

A commercial balloon mortgage is a loan where the borrower makes small, regular payments that go towards the principal and interest. At the end of the amortization period, (usually 5-10 years) the remainder of the loan is due in a lump sum.

That said, with a commercial balloon loan, you can make additional payments during the term of the mortgage. This will reduce the lump sum needed to pay off the loan at the end of the amortization period. And help pay off the loan more quickly.

Many businesses who take out a commercial balloon payment will refinance into an amortized loan (fixed or variable) after a few years to avoid having to make the final balloon payment.

Canadalend.com—Your Commercial Mortgage Experts

There is a lot to consider when it comes to securing a commercial loan mortgage. In addition to understanding what kind of property it is you want to finance you need to determine which type of commercial mortgage loan is best suited to your corporate needs.

At the same times, Canada’s big banks make it difficult for businesses to qualify for a commercial mortgage. If your business is new, struggling, or in debt, it could be difficult to secure a commercial loan.

As the country’s leading private commercial mortgage professionals Canadalend.com is dedicated to helping your business meet its short and long-term cash flow needs. Unlike Canada’s big banks, which only offer their own products, whether they suit your needs or not, the licensed, independent agents at Canadalend.com have access to hundreds of commercial mortgage lenders. Many of which specialize in providing commercial mortgages to clients with bruised credit or have filed for bankruptcy.

To apply for a commercial mortgage, 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.

Interest rates are near historic lows and are forecast to stay low for the foreseeable future. This is great news for those looking to refinance their properties or tap into their home’s equity. Instead of refinancing with a home equity loan or home equity line of credit (HELOC) , homeowners should consider cash-out refinancing.

Cash-out refinancing allows you to take out a new loan greater than the value of the original mortgage. As the borrower, you get to keep the difference between the loans in cash.

Is Cash-Out Refinancing Right for You?

Where home equity financing is a separate loan in addition to your mortgage, a cash-out refinance actually replaces your current mortgage. On top of that, a cash-out refinance often comes with a lower interest rate than a HELOC or home equity loan.

With cash-out refinancing, you can refinance up to 90% of the loan-to-value ratio (LTV). This ratio is the relationship between the principal balance of your mortgage and the property value. For example, if you have a home valued at $200,000, then 90% LTV allows you to get a loan of up to $180,000.

If you still owe $100,000 on a $400,000 house and want to take advantage of the lower interest rates and you also want $25,000 in cash, you can refinance the mortgage for $125,000. Get a cheque for $25,000 and use it however you like. Essentially, you’ll be paying a lower rate of interest on your mortgage while getting some extra cash to spend.

Am I Eligible for Cash-Out Refinancing?

Is your property eligible for cash-out refinancing? Like any financial product, there are restrictions and limitations to note. The following are some considerations that may help you qualify:

• If your property is an existing resale property (this excludes new construction)
• If your property is located in a market with ongoing re-sale demand
• If the estimated remaining life of your property is a minimum of 25 years

The maximum limit to how much equity you can remove from your property (save for certain instances) is $200,000. There are also a number of different terms and qualifying interest rates (fixed, standard variable, etc.).

Moreover, there are a number of borrower qualifications. A homeowner must have a minimum credit score of 600; no prior bankruptcy or judgement; and a mortgage that is assumable. Non-residing guarantors are not permitted. Non-residing co-borrowers are permitted as long as they are an immediate family member who’s on the title.

What Is the Best Time to Consider Cash-Out Refinancing?

There is no hard and fast rule to answer that question. However, you may want to consider cash-out refinancing if interest rates have dropped significantly since the last time you financed your home. Cash-out refinancing is also a good option if you plan on staying in your home long-term or even if you want to shorten the term of your loan.

As a result, there are some important questions you need to consider to determine if cash-out refinancing is right for you:

• Are interest rates lower than your current financing?
• How much money do you need?
• What will your new monthly payments be?
• What is the total cost of borrowing?

Canadalend.com, Your Cash-Out Refinancing Experts

The best way to find out whether cash-out refinancing is for you is to contact the independent, licensed agents at Canadalend.com . Our experienced mortgage experts will answer any questions you have and help you determine whether cash-out refinancing fits into your long-term financial needs.

To set up a free consultation, contact Canadalend.com today! Alternatively, you can apply online and one of our private mortgage specialists will help you set up an appointment at your earliest convenience to discuss your cash-out refinancing options.

With interest rates near record lows and the Canadian housing market strong it’s an excellent time to consider getting on the property ladder. But before you buy a home, you need to set a budget and figure out how much of a home you can afford.

Budgeting for your home is crucial because it’s important to set a home budget before looking at houses so you can determine what kind of house you can afford to live in. That’s because there is more to setting a home-buying budget than just the cost of the home.

Below are a number of upfront fees you need to consider when setting your home buying budget.

How Much Are Home Appraisal Fees?

It’s important to do a home appraisal before purchasing your home. In fact, many financial institutions insist you have one done. That’s because they want to verify the value of the home to ensure that you’re not over-paying and over-borrowing.

The cost for a home appraisal can vary depending on the size of the home, but a residential home appraisal typically runs from C$300 to C$500.

How Much Does a Land Survey Cost in Ontario?

Homebuyers often forget to include land survey costs when setting a budget for their homes. Land surveys help determine the size of the property, the location relative to roads and adjacent properties, and other geographic and physical features. In Ontario, only a licensed Ontario Land Surveyor can provide you with this kind of information.

Your mortgage lender might ask to see an up-to-date survey prior to finalizing the mortgage. They want to ensure that the listing for the property and the survey match. If the seller does not have one or does not agree to get one, you will need to pay for it.

The cost of a land survey varies depending on the type of survey and the size and complexity of the property (location, terrain, etc.). While an Ontario Land Surveyor is the only person who can provide you with the exact price, it can cost between C$600 and C$2,000 This may sound like large sums, but they’re not if you’re going to spend hundreds of thousands of dollars.
Ontario Land Transfer Taxes

When you buy a home, condominium, or land in Ontario, you need to pay a land transfer tax which is due when you close on the property. The Ontario Land Transfer tax is a marginal tax, so as a result, each portion of your home’s value is taxed at a different rate.

In Ontario, 0.5% is charged on the first C$55,000; 1.0% is charged on C$55,000 to C$250,000; 1.5% above C$250,000 to C$400,000; and 2.0% above C$400,000 where the property contains one or two single-family residences.3

If you live in Toronto, you also need to consider the Municipal Land Transfer Tax, which is in addition to the Province’s Land Transfer Tax. In Toronto, 0.5% is charged on the first C$55,000; 1.0% on C$55,000 to C$400,000; and 2.0% over C$400,000

To top it off, there is now an administration fee of C$75.

CMHC Mortgage Insurance Rates

The Canadian Mortgage and Housing Corporation (CMHC) provides mortgage loan insurance to financial lenders for homebuyers who have a down payment of less than 20% and minimum of 5.0%.

If you have a down payment of 20% it means you were able to save a sizable portion and a lender will feel confident that you won’t default on the mortgage. If you pay less than 20%, the lender may worry that you will not be able to repay your mortgage. As a result, you pay for mortgage insurance to protect the lender from any potential default on the loan.

The CMHC Mortgage Loan premium is calculated as a percentage based on the loan and the size of your down payment. The lower your down payment, the higher the percentage you will pay in insurance premiums. The premium is based on the size of the mortgage.5

A 15% to less than 20% down payment requires an insurance premium of 1.8%
A 10% to less than 15% down payment requires an insurance premium of 2.4%
A 5.0% to less than 10% down payment requires an insurance premium of 3.6%
Closing Costs and Legal Fees

When determining a home-buying budget, you need to consider closing costs and legal fees. Closing costs and legal fees are paid when you close the purchase of your home. Fees vary from lawyer to lawyer. In addition to covering your lawyer’s time, your bill will cover expenses used for title insurance, registering the deed and mortgage charge, performing a title search, and preparing the tax certificate.Â

Your real estate agent should be able to provide you with the name of a good lawyer.

Home Insurance

Your mortgage lender will insist that you have enough home insurance to cover the cost of the property since your home is the security for the loan. The price of your home insurance is based on the value of the home and how much it would cost to rebuild it.

Property Tax Adjustments

Nothing is free when you buy a home. You need to factor in reimbursements for pre-paid costs, such as property taxes, hydro and water, gas, and even filling the oil tank. With metered services (hydro, gas, water) the meters are read on the day you take possession. If your house is heated with oil, the seller will top up the tank and you, the buyer, will pay the buyer for one full tank.

Remember to factor in various adjustment costs when budgeting for your home.

Moving Costs

Don’t forget about factoring in moving costs when you’re setting a budget for buying a home, as well. Moving costs will depend on who you hire, how far you’re moving, and how much you’re moving (how many kilograms). Get at least three estimates.

If possible, move during off-peak periods. It will cost less if you move in the middle of the month since movers are not as busy. And you might get a better deal.

Maintenance

Another hidden cost when it comes to determining a housing budget is maintenance. When moving into your home, it’s a good idea to set aside C$2,000 in case something unexpected occurs, such as a leak or a break. Or maybe you want to build a fence or landscape.

Once you’ve moved in, be prepared to set aside between 3.0% and 5.0% of your home’s value annually. If your home is worth C$400,000, you should expect to spend C$12,000 a year on maintenance.

It may not happen every year, but eventually, you will need money to replace the furnace, re-shingle the roof, pave the driveway, add a new septic system, replace the appliances, update the bathroom or kitchen, paint the walls, or refinish the hardwood floors.

Canadalend.com Helping Ontarian’s Set a Home-Buying Budget

There’s more to saving for a home than just the mortgage. In addition to helping you find the best mortgage with the best rates, the licensed, independent agents at Canadalend.com will also help you determine a home-buying budget—one that includes all the hidden costs. That’s because, at Canadalend.com, we want to help you meet your financial and long-term lifestyle needs.

If you’re thinking of buying a home and want to find out what kind of mortgage you qualify for and how to set a budget for buying a home, contact Canadalend.com today. Or apply o nline and a Canadalend.com lending specialist will help you set up an appointment for a free personal consultation at your earliest convenience.

Sources:

• King, R. “9 tips for high value home appraisals,” Money Sense, February 15, 2012; http://www.moneysense.ca/columns/9-tips-for-high-value-home-appraisals/.
• Vaz-Oxlade, G., “Hidden Costs When Buying a Home,” GailVazOxlade.com, last accessed March 10, 2016; http://www.gailvazoxlade.com/articles/home_sweet_home/hidden_costs_when_buying_home.html.
• “Land Transfer Tax,” Ontario Ministry of Finance web site, last accessed March 10, 2016; http://www.fin.gov.on.ca/en/tax/ltt/.
• “MLTT Rates and Calculation,” City of Toronto web site, last accessed March 10, 2016; http://www1.toronto.ca/wps/portal/contentonly?vgnextoid=a690a58e82cc1410VgnVCM10000071d60f89RCRD&vgnextchannel=4f90ff0e43db1410VgnVCM10000071d60f89RCRD.
• “How Much Does CMHC Mortgage Loan Insurance Cost?” Canadian Mortgage and Housing web site, last accessed March 10, 2016; http://www.cmhc-schl.gc.ca/en/co/moloin/moloin_005.cfm.