If you are unsure whether closed or open, fixed or variable is right for you. The information below will give you a better understanding. I am just a phone call away in case you want to talk to a live mortgage professional in Calgary, AB. Contact me to know more about the mortgage services we provide at Mortgages For Less.
First Time Home Buyers
I work with many First Time Home Buyers. There are various programs available to help first time buyers including the ability to withdraw RRSP savings with no tax implication.
RRSP – Home Buyers Plan
Tax savings aren’t the only reason to invest in an RRSP. With the Federal government’s Home Buyers’ Plan (HBP), first-time homebuyers have the opportunity to put that tax-free cash towards a new home.
Each individual involved in the purchase of the home may withdraw a maximum of $25,000 from their RRSP — provided it is the first home for all parties involved. The home must be used as a principle residence, and all funds must be withdrawn from the RRSP within 30 days of the property’s closing date.
You have 15 years to repay your RRSP ‘loan’, and payments must start two years after the initial home purchase. Every year, you will receive a notice of assessment stating the amount you have repaid, your total balance, and the required amount for your next payment.
For more information about the HBP, visit Canada Revenue Agency’s website www.cra-arc.gc.ca/tx/ndvdls/tpcs/rrsp-reer/hbp-rap/menu-eng.html.
Purchasing Rental Properties
If you are turning your existing house into a rental and buying a new house to occupy as your primary residence you can do so with as little as 5% down. There are rental offset options to offset the debt of your house you are turning into a rental and allow you to purchase your new home you will occupy.
To buy a rental you will be required to put 20% down payment. Down Payment for rental properties must come from your own savings, or a Home Equity Line of Credit. it can not be borrowed and can not come as a gift from Family. The RRSP Home Buyer’s Plan is not eligible for rental property purchases either.
Mortgages for Self Employed Borrowers
Today more and more Canadians are opting to work for themselves or go on contract with their existing companies rather than receive a salary. There are certainly some advantages to being business-for-self. Perhaps the greatest being the ability to write-off many personal expenses and ultimately pay less income tax. The downside to this is showing less income on your tax return and as a result qualifying for less or not qualifying at all.
It can often be difficult to get a mortgage through the chartered banks as they typically will not “read between the lines” or evaluate Self-employed individuals with a common sense approach. This does not have to be the case. Fortunately, there are options and we offer loan programs specifically for the Self employed. Approvals are based on factors such as good credit, length of time in business, and the property type and location rather than business financials or tax returns alone.
At Mortgages for Less, we pride ourselves in being experts when it comes to arranging self employed or business-for-self mortgages. If you are Self employed, we have a mortgage for you!
Equity Takeout / Debt Consolidation
We all have times when it seems there is too much month left at the end of our pay cheque. Credit cards, car loans, taxes, etc, etc. All of these add up quickly, and before we know it, we can find ourselves in a heap of trouble.
Well, there are two ways to handle this:
- Make more money! Sounds easy right? Maybe not.
- Make the money you have borrowed, cost less!
Number one is not really an option for most of us, at least not in the short term. Number two can be done quite easily though. Most debts, like credit cards and department store cards, are unsecured debts, making them very high risk for the lenders. This means the interest rates on these loans will be very high (some as high as 29%). Also, in general they will be amortized over a relatively short period of time, (usually 3 to 5 years) making the principal portion of your payments very high. Get a few of these going and you can see how a pay cheque can disappear very quickly.
Be smart; use the equity in your home. Pay off these high interest loans and replace them with a single low interest secured loan, amortized over 25 years. In doing this you are still obligated to pay your debt, but the payments will be significantly lower, and more manageable. This will save you from late payments, bankruptcy or structured settlements, which destroy your future borrowing potential. It will also increase your credit score almost immediately as all your debt load will be cleared away. Imagine the feeling of telling credit cards companies that you don’t need any more cards. Financial freedom is only a call or application away.
Open vs. Closed Mortgages
An open mortgage is 100% open for prepayment at any time throughout the term of the loan. This means that you have the option to repay any or all of the mortgage balance at any time without penalty. This type of mortgage may be important to you if you can foresee repaying your mortgage loan in the near term. For example, you may be planning to sell your home within the term of the mortgage and paying it out in full, or you may be expecting other money that will allow you to make large prepayments to mortgage loan.
A closed mortgage has restrictions on how much of the principal you can repay without penalty within the term of the loan. Most closed mortgages will allow you to repay a certain portion of the principal amount every year without penalty. The amount you can prepay depends on the lending institution but usually ranges from 10% to 25% of the original principal amount per year. There may be restrictions on when these prepayments can occur and how many times per year you can make a prepayment. For example, you may be able to only make prepayments once throughout the year on the anniversary date of the mortgage or the prepayment may need to coincide with a payment date. Your mortgage professional will discuss these policies with you as each institution’s policies can vary widely.
Fixed rate vs. Variable Rate
A fixed rate mortgage is where the interest rate is set at the time you get your mortgage loan and will not change for the entire term of the loan. For example, if you take out a 5-year term, fixed rate mortgage at 5.25% you know that your rate is fixed at 5.25% for five years and will not change. This type of mortgage offers you security and peace of mind, as you know exactly what the interest rate and payments will be. You will generally pay a little higher interest rate for a fixed rate mortgage and the rate usually increases with the length of the term.
A variable rate mortgage is a mortgage where the interest rate is tied to and floats with the bank’s prime rate. If the prime rate goes up, then your rate goes up. If the prime rate goes down, then your rate goes down. Variable rate mortgages usually offer the lowest available rate because you are taking the risk that rates may rise.
There are many different options available for variable rate mortgages. Your mortgage professional will help you review all of your options.
The Mortgage Term
The term of the mortgage is the contractual life of your mortgage loan. The term represents the length of time that you and the financial institution are obligated to each other with respect to your mortgage. As you choose your mortgage, the term is one of the decisions you will need to make. The term of the mortgage is usually shorter than the actual life, or amortization of your mortgage. Once the term has expired, the mortgage is completely open for renegotiation. At that time, you have the right to find a new lender if you wish and your financial institution has the right to re-qualify you before renewing your mortgage. In practice, as long as your mortgage is current and all payments have been made as agreed, financial institutions will often automatically renew your mortgage, and not require that you re-qualify.
Short Term vs. Long Term
A short term mortgage is usually for three years or less. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. A long term mortgage is generally for three years or more. Long term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. This is often important for first time homebuyers. The key in choosing between short and long term is to feel comfortable with your mortgage payments.
Most lenders allow several options for payment frequency (how often you make your mortgage payments). Most will allow you to make payments either weekly, bi-weekly (every two weeks), semi-monthly (twice a month) or monthly. Choosing which type of payment to make will be a matter of convenience, but there may be advantages to paying more frequently than monthly. When you increase the payment frequency, you reduce the principal faster, pay less interest and pay off the mortgage sooner. Contact Mortgages for Less to discuss the options that will work best for you.