Beginners Guide to Owning a Mortgage

Beginners Guide to Owning a Mortgage

A Beginners Guide to Owning a Mortgage

Beginners Guide to Owning a MortgagePreviously we talked about the Beginners Guide to Getting a Mortgage. Now that you got your mortgage here is a beginner’s guide to owning a mortgage.

Well, technically you don’t “own” your mortgage. In fact as soon as you get the mortgage you “owe” money to the lender who gave it to you. In this article A Beginners Guide to Owning a Mortgage we will raise awareness about and the importance of managing one of the largest debt’s that you will ever have; a mortgage loan

Mortgage Payment Frequency Options

At the most basic and elementary level, you need to pay back your mortgage on an on-time and regular basis as per the payment frequency you agreed upon with the lender. The Canadian Chartered Banks, Credit Unions, Trust companies, monoline lenders, and others will normally give you the borrower several payment frequency options to choose from; monthly, bi-monthly, bi-weekly, accelerated bi-weekly, weekly, and accelerated weekly.

The shorter between the payment frequency’s the more you are paying the lender back and therefore helping reducing the overall life of your mortgage, called the amortization. As well, the more payments you make, the less interest you pay and more of your payments go towards the principal owing, which in turn, the less you owe in principal the less interest is calculated on the lower principal amount.

We recommend to our clients to consider something in the middle ground. This way they won’t feel the pressure of making weekly payments, and at the same time will be taking advantage of making a little more payments than just 12 a year; the bi-weekly accelerated payment frequency option . The accelerated part means that the lender will increase your bi-weekly payment amount a little more by a certain percentage. For example if your bi-weekly payments are $1,000, then your accelerated bi-weekly could be $1,095. This extra $95 every two weeks can go a long way towards helping you save on interest payments.

Mortgage Prepayment Options

In a beginners guide to owning a mortgage we don’t want to forget telling you about the mortgage prepayment options the lenders give you throughout the year. Depending on which lender your mortgage is with, you are allowed to increase your regular mortgage payments by up to 10%, 15%, 20%, or 25% of the original payment amount.

As well, you are given the option to make a lump sum deposit towards paying down your outstanding mortgage balance. Again, depending on which lender your mortgage is with, you can make a lump sum payment of up to 10%, 15%, 20%, or 25% of the original mortgage amount towards your outstanding mortgage balance. And most lenders permit multiple lump sum payments throughout the year, as long as you don’t exceed the maximum percentages each year.

Although people don’t want to worry about any extra money being paid to the bank during their term with the lender, it is a good idea and a wise one to be mindful of setting aside a set amount each month for making lump-sum payments in the year or at the end of each year. By sacrificing a small amount earlier on in the life of the mortgage you are helping to pay less interest to the lender in the total life of the mortgage. For many borrowers who normally buy their homes at the prime of their life and having job security with a steady flow of income, making extra payments towards reducing their mortgage amount is definitely part of ‘owning’ your mortgage.

Be Wise and Prudent

Beginners Guide to Owning a Mortgage

A beginners guide to owning a mortgage wouldn’t be complete without a mention about being a wise and prudent borrower. Never borrow in excess and beyond your means. You wouldn’t want to put yourself in a situation where in the middle of your mortgage term you are unable to make mortgage payments or the high payment amounts create undue stress on your personal finances. The lenders are flexible and accommodating to a certain extent when it comes to late payments, or missed payments, however, they don’t like to see it happen too often, and certainly not regularly. Otherwise, you could find yourself in a legal mess and at the worst case scenario losing your home.

There are many resources out there, and since this article is a beginners guide to owning a mortgage here is one for your reading. Visit the Financial and Consumer Services Commission of New Brunswick and check out their Saving Money tip, which can help you towards controlling your debts and saving more money towards paying down your mortgage balance.

We always like to hear from our readers relevant feedback and information. What has been your experience with having a mortgage? Would you add anything else in a beginners guide to owning a mortgage?

Beginners Guide to Getting a Mortgage

Beginners Guide to Getting a Mortgage

A beginner’s guide to getting a mortgage

In this beginner’s guide to getting a mortgage we will take you through the main steps of applying for a mortgage application. This beginners guide to getting a mortgage will cover the main points that will help you better understand what is involved when getting a mortgage in Canada.

Beginners Guide to Getting a Mortgage

A beginner’s guide to getting a mortgage STEP 1 – find a mortgage professional

We strongly recommend you working with a Mortgage Broker or Agent. They are licensed with their respective Provincial Governments and have met all the required educational standards to become a licensed mortgage broker or agent.

There are many advantages to acquiring the services of a mortgage broker or agent. To name a few;

  1. They work for their client’s best interest,
  2. Mortgages are what they do day-in, day-out,
  3. Because a mortgage broker or agent is not working for any of the lenders there is no conflict of interest for them towards pushing you to one lender or the other,
  4. They constantly stay up to date with the real estate financing world by participating in continuing educational courses and workshops.

A beginner’s guide to getting a mortgage STEP 2 – ‘checks and balances’

Buying real estate is, for most people, the largest single investment they will ever make, and because of this, getting a mortgage should not be taken lightly. Every person thinking about buying their own home whether now or in the future should start planning for the inevitable. What is the inevitable you ask? It is being able to show the lender that you are able to pay them back on a timely manner as agreed upon based on your credit strength and income. And how do you show this in practicality? Lenders such as Chartered Banks, Trust Companies, and Credit Unions follow Government underwriting guidelines, and as well their own internal policy’s, all designed to test how strong or week someone’s personal financial strength is in comparison to their debt level’s to be able to pay back the mortgage loan. To do this the lenders have certain requirements and they ask for information from the borrower when considering whether to approve them for a mortgage loan or not. They want to make sure at minimum the borrower has:

  • Enough income to pay back the monthly principle and interest of the loan
  • At least 5% down payment or more; you can even use gifted money from immediate family
  • A satisfactory credit history and a healthy credit score
  • We also recommend checking your credit report and score regularly, perhaps every year or two at Equifax and Transunion. This is great preparation for when you are ready to apply for a mortgage by making sure there are no discrepancies or fraud activity in your accounts.

Beginners Guide to Getting a Mortgage

That means from now you can start putting aside money each month in your bank account for your down payment and making sure that you have a steady job or income coming in to show the lender that you can afford to pay back the loan. As well, you want to make sure that you are paying back your debt on time, and on a monthly basis, and not be late making those payments.

A beginner’s guide to getting a mortgage STEP 3 – Consult with your Mortgage Broker or Mortgage Agent

Beginners Guide to Getting a Mortgage

Now that you have done your checks and balances, you can contact your Mortgage Broker or Mortgage Agent and consult with her or him about your current financial strength and debt obligations. They will ask you to fill out their mortgage application so that they can better assess your financial health and credit worthiness/readiness to apply for a mortgage. Your mortgage professional will, after reviewing your financial and debt history, ask further questions and give you advice on what steps to take next; whether to continue with your mortgage application or to wait until other matters are taken care of to strengthen and improve your chances of getting approved for a mortgage.

 

This post and its content, we hope, has provided you with the basic information you need when considering applying for a mortgage. Don’t hesitate to Contact Us with your questions, and if you would like to start the mortgage application process. As well, we invite you to share any thoughts you may have about the mortgage application and approval process below in the comments section.

Home Buying Defining the Financial Terms

Mortgage Glossary

Mortgage glossary – terms that you will like to know about

In the spirit of November’s Financial Literacy Month #FLM2014, we share with you Genworth Canada’s mortgage glossary, where you can search for all the main mortgage terms that come up in documents from banks and other lenders when getting a mortgage.

It can be confusing and intimidating when confronted with so many different strange or unfamiliar words that are not used in day to day conversation. The mortgage glossary can help alleviate this anxiety.

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Sit down, relax, and enjoy your cup of coffee with a nice read through the Genworth Canada mortgage glossary page. Review the mortgage glossary of common phrases that new buyers need to know. Here’s an A-Z guide to the key mortgage jargon. Learning more mortgage terms will help you also when its time to purchase your home as you will be able to better understand your realtor. Even if you’re not ready yet to buy a place, but are starting to do research and check out the Bank web sites and the MLS, the mortgage glossary can help you navigate the world of financial and real estate vocabulary.

Here are some examples of words that can be found in the Genworth Canada Mortgage Glossary:

Closed mortgage

A mortgage that discourages prepayment privileges (making extra payments beyond the agreement terms, to pay your mortgage off faster). Closed mortgages allow prepayment privileges of no more than 10% of your mortgage each year.

Open mortgage

If you want to pay off your mortgage faster, you can make as many “extra” payments of any amount as you wish, with no penalty. “Extra” payments are called prepayment.

 

mortgage glossary

 

 

 

 

 

 

 

 

To learn more about Genworth Canada, visit their web site at http://homeownership.ca.

Variable vs Adjustable Rate Mortgage

Variable vs Adjustable Rate Mortgage

Did you know there are two types of mortgages whose interest rate can change as per the change in the lending institutions prime rate? That’s right, the two types are the Variable Rate Mortgage and the Adjustable Rate Mortgage.

You now might be asking what is the difference between a variable vs adjustable rate mortgage. In this post we provide a general overview of each one and hopefully provide a clear explanation to your question what is the difference between a variable vs adjustable rate mortgage.

variable vs adjustable rate mortgage

Adjustable Rate Mortgage – ARM

Payments automatically adjust with changes in the prime rate of the lending institution your mortgage is with to ensure that you maintain the original amortization schedule of your mortgage. The rate varies during the term of the adjustable rate mortgage.

The interest rate can change from time to time because it changes when the prime rate changes.

If your adjustable rate mortgage interest rate decreases, the payment amount also decreases..

If your interest rate rises, the mortgage payment amount will also increase.

One advantage of this product is you can have the ability to potentially lower, short-term interest rates.

 

Variable Rate Mortgage – VRM

The main difference with a variable vs adjustable rate mortgage is that the mortgage payments with the variable product remains fixed for the duration of the term; as the interest rate changes with any fluctuations in the prime rate. If the prime rate decreases, more of the mortgage payment will go towards paying off the principal; if the prime rate increases, more of the mortgage payment will go towards interest costs.

Your amortization period (number of years to repay the mortgage) may vary and be longer if rates have risen or be shorter if rates have fallen since the start of the term.

 

With both the Variable Rate Mortgage and the Adjustable Rate Mortgage you can always convert your mortgage into a fixed rate mortgage should you feel that the prime rate is rising or don’t have the tolerance anymore of rate fluctuations. Most of the time, the variable and adjustable interest rates are lower than the fixed rates.

If you still are not sure of which one is better or what the main differences are between a variable vs adjustable rate mortgage we encourage you to contact us with your questions and we would be happy to answer them. You may also like to add your remarks and questions in the comment section below.

Variable Rate vs Fixed Rate Mortgage

Variable Rate vs Fixed Rate Mortgage

This is probably one of the most popular and famous questions of all times in the real estate mortgage financing world; variable rate vs fixed rate mortgage. Which one is better? or Which one is worse? How do you decide which mortgage product is good for you?

variable rate vs fixed rate mortgage

To look at variable rate vs fixed rate mortgage as a question for your own good would be right for everyone depending on their own unique needs and tolerances.

A fixed rate mortgage has a rate guaranty for the term of the mortgage. For example, if you get the 5 year closed fixed rate, then, you are guaranteed to hold on to your rate for the full five years without it changing. There is a sense of security and closure for you knowing that you don’t have to worry about the fixed rate changing during the life of your mortgage term.  Even if you are an investor of real estate, this type of a mortgage can be beneficial to you because you know exactly what the interest rate will be and can calculate your R.O.I. accurately and work into your formula other expenses, which would allow you to know exactly what your net income could be each year. One down side to a fixed rate mortgage is the fact that if you ever decide to break the term / contract in the middle of it, the penalty can be significantly higher than if you were to break a variable mortgage.

A variable rate mortgage many times starts with a much lower interest rate than its counterpart fixed term rate. The variable interest rate is a discount that you would get from the lender against it’s prime lending rate. For those who are not tolerant of minor rate adjustments throughout the term of a variable rate mortgage, this product might not be your cup of tea. Currently the Bank of Canada has not changed its stance on the prime lending rate and it has not changed since September 9, 2010. However, the lenders have changed their discounts off of the prime rate. Several years ago you could have been approved for a variable rate as low as Prime minus .90%. Since then the current average discount for the closed variable rate is Prime -.50%. If you are planning to break your mortgage in the middle of its term, the penalty for the closed variable rate mortgage is three months interest payments, which for the majority of the time comes out a lot less than if you were to break a closed fixed rate mortgage that uses a formula called interest rate differential to calculate the penalty amount.

However, overall, statistics have shown that you can save more money if you go with a variable rate vs fixed rate mortgage. As of the date of writing this post the 5 year fixed closed mortgage is 2.99% and the 5 year closed variable mortgage is Prime -.50% = 2.50%.

Self Employed Mortgage

A Self Employed Mortgage can be the write lending option

A self employed mortgage could be right, for example, if you own a business or work independently as a contractor. It has always been a known fact that self employed mortgages are hard to come by and once found difficult to get approved for. But that does not necessarily have to be the case.

Another issue for self employed individuals who are looking for a self employed mortgage product is how much down payment they can afford to provide the lender. With the readiness and availability of mortgage default insurance it has made it available now for self employed individuals to get approved for a mortgage with less than 20% down payment.

Working with a Mortgage Broker or Mortgage Agent is of great benefit for self employed individuals as these professional’s offer one-on-one service and work with the individuals on finding a self employed mortgage that is suitable for their unique situation and needs.

One example of a mortgage default insurance provider here in Canada is Genworth Canada, and one of their insurance products they offer through the lending institutions is their Business For Self program.

Have a look at this recent article we provided about them:

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sefl employed mortgage

 

Why rent when you can own

Why rent when you can own?

First Time Home Buyers why rent when you can own your home! Switch from paying rent, to making monthly mortgage payments that’s going towards your property instead of someone else’s.

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Working with Trusterra Mortgage

Working with Trusterra Mortgage has many advantages.

Professionalism, truthfulness, customer service, judiciary responsibility, openness with client consultation, are just a few important points that we take seriously with the interest of our clients being the first priority when working with Trusterra Mortgage.

With years of real estate mortgage financing experience under our belts we have the know-how to get the job done right the first time around. By working with Trusterra Mortgage you bypass the long wait of making an appointment to walk into your local bank, and then after all that time spent there, feeling like the representative is trying to sell you a mortgage plus other products that you don’t really want.

Working with Trusterra Mortgage gives you the benefit, advantage, and comfort of knowing that we are here to work on your behalf and for your best interest. And we’re not going to try to sell you a whole lot of things you don’t need or want.

Have questions, not sure about something in the mortgage world, whatever your real estate financing needs are, we’re here to help. Don’t hesitate … CONTACT US! and let us show you why working with Trusterra Mortgage is a good idea.

Mortgage Happy

Are you a Mortgage Happy person?

Are you a mortgage happy person or not a mortgage happy person?  We want to hear about what was your good and bad experiences when going through the mortgage application process when you were buying a home whether as a first time home buyer or an existing home owner.

Share with us and the world why you are a happy person, or not when it comes to the mortgage application process.

If you were to go through the mortgage application process what changes do you want to see in the mortgage industry, what can be improved on?

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How to Select Mortgage Broker

How to Select Mortgage Broker

Are you planning to buy your first home, or refinance your existing home? Maybe you have been thinking about purchasing an investment property. Whatever your plans are, you should know how to select mortgage broker.

In the mortgage industry, these professionals are called mainly Mortgage Brokers, or Agents. There are many reasons why you should know how to select mortgage broker and we will provide a few here, and invite you to also share your points and experiences on how to select mortgage broker in the comments section below.

An experienced and licensed mortgage broker or agent specializes in helping you get a mortgage to purchase real estate. Mortgage brokers or agents for the most part do not sell other products as part of their mortgage services and they are here to work on your behalf and for your benefit in applying for a mortgage with one of the lending institutions in Canada.

First you need to make sure when selecting a mortgage broker or agent that they are licensed with the provincial governing body of the province they reside in. You can go onto the Governments web site and check to see if their name is on their approved list. Or you can call in and check that way.

Another way on how to select mortgage broker would be to see how many years of experience they have in the field. Being a member of the Canadian Association of Accredited Mortgage Professionals CAAMP www.caamp.org  is a bonus and a good sign as well of the mortgage broker or agents level of professionalism, and commitment to the industry.

As part of how to select mortgage broker you should also make sure that you interview the mortgage broker or agent over the phone or in person. This will allow you to gauge their sincerity and personal demeanor and respect for their clients by way of their tone of voice and body language; are they showing interest in you and listening to all your questions and concerns?

Referrals from a close friend or family member are another method in which you can funnel out the mortgage broker s or agents. These are individuals who would have worked with a mortgage broker or agent in the past and will have your best interest in mind.

Don’t be fooled or swayed towards advertisement promoting best and lowest rates around, but not knowing who the company is or person advertising the rate. You might be promised a low rate, but how will the service and trust factor be?

These are just a few suggestions, and we hope to hear your comments as well below.