Cree ee GARIBALDI MORTGAGE Mortgage FAQs > What is the difference between a fixed and variable rate mortgage? ‘A fixed rate mortgage will have the same interest rate for the time you choose as the “term? of the mortgage. Available terms usually range from 6 months to 10 years. A variable rate mortgage will fluctuate with the Canadian prime rate. While often lower than the fixed rates at the time you arrange financing, there is more risk involved with this mortgage as the rate is not guaranteed. The rate will float depending on the upward or downward pressure of the prime rate. The Canadian prime rate is reviewed every 6 weeks. > IF go with a fixed rate mortgage, how do I choose the term? Because fixed rate mortgages are “closed” and have prepayment penalties to pay off early, i is important you choose the right term. Canadian interest terms are closed interest rate contracts ~ closed for the term you select, ie 1 to 10 years. The maximum amortization available is 35 years. The penalty to break the interest rate contract prior to the maturity date is the greater of 3 months interest, or the IRD (interest rate differential). The IRD is the bank's, loss of interest for the time remaining in the term. So if you take a 5 year fixed and pay it off after 3 years, either from your own resources, or by sale, the bank will calculate the IRD by ‘comparing your rate, with the current rate for 2 years, and charge that on the balance to the end of the term. The estimate for 3 months interest is approximately 2 months worth of payments. ‘Additionally worth noting is that in the Bank Act, the maximum penalty that can be charged after the Sth anniversary is 3 months’ interest — so this is applicable for terms longer than 5 years. When a“term" expires or matures, we say that itis“up for renewal.” At the renewal date, you can pay off as much as you like without any penalty or restriction. ‘Sometimes a guide for the term you choose, is picking one that coincides with how long you think you may own the property. Sometimes it is chosen to time with a maturing investment. LT the Mortgage Centre INANE) We work for you, notte lenders.MORTGAGE FAQs Dru > What is the difference between a “term” and the “amortization?” The amortization is the length of time the mortgage payments are calculated over. The term of the mortgage is the length of time the interest rate remains the same. Or, in the case of a variable rate mortgage, it is the length of time that you receive either prime plus +_%, or prime minus -_%. > What options do | have with a variable rate mortgage? Variable rate mortgages are either “open” or “closed.” You would normally choose an open variable rate mortgage if you knew you were going to be selling or paying off your mortgage within a certain time frame. A closed variable rate mortgag 3 months’ interest to pay off early. usually registered as a 5 year term, and has a penalty of The benefit of taking the closed variable rate mortgage, is that usually you receive a better rate. You pay a higher rate for the privilege of have the mortgage “open.” Usually there is a “lock in” provision that comes with the variable rate mortgage that allows you to convert to a fixed rate mortgage at any time without penalty. The bank will often have ‘a minimum term that they want you to lock into, or they will want you to honor the original 5 year commitment; ie if you have been floating your rate for 2 years and then want to lock in, you make have to take a minimum term of 3 years. The rate you “lock” into will be at the Prevailing interest rates. Once you have “locked in” you are then subject to the usual fixed rate penalty clauses. > What happens when the mortgage is up for renewal? If you do not need to borrow extra money; ie refinance, and you are just renewing the balance with the existing lender, the renewal should be an easy process. You just choose a new term at whatever the prevailing interest rates are. As long as all payments have been made as agreed, the bank will not ask you to re-qualify, or have the home re-appraised. There are no legal fees involved in a straight renewal of the existing balance. Ifyou decide that you want to take some equity out of your home, then the renewal date may be a good time to look at refinancing. A new application is required, and you will be asked to provide updated income confirmation. An appraisal may or may not be needed depending on the circumstances. Many of our clients contact us at renewal to get confirmation of what the best available rates are.>If | sell my home before the term expires, what options do | have? Usually, mortgages are “portable” or “assumable” with qualification. This means that if you sell your home before the term matures, you can transfer your mortgage balance and rate to the new property you are buying. As long as you still qualify and the new property meets the bank's guidelines, you should be able to transfer your mortgage without penalty. If you need to borrow additional funds, the banks can usually accommodate you by increasing your first mortgage and “blending” the rate, or giving you a separate segment for the new money at the prevailing interest rates. The “assumable” portion means that if you are selling and not transferring your mortgage to a new property, the purchaser of your home may want to take over your mortgage. If you have a lower rate than what is available on the market at the time, this could be an attractive selling feature. The person assuming your mortgage would have to qualify for the financing > Am | able to make extra payments against the principal? Yes. The banks offer different pre-payment privileges that range anywhere from 10% to 25% per year. This percentage is based on the original amount borrowed, and is either allowed once a year, or cumulatively throughout the year. Often, the annual percentage allowance also accompanied by a “double up” feature or a percentage increase in your payments. MORTGAGE FAQs DruMORTGAGE FAQs >What is CMHC’s role? OD ves By law, financial institutions require that all mortgages with a loan to value ratio greater than 80% be insured against default. CMHC provides mortgage loan insurance to approved lenders in the event that the home owner defaults on their mortgage. Depending on the situation, a lender may also request that a conventional mortgage be insured through CMHC. The insurance premium is a one time fee for as long as you own the property. It can be paid up front from your own resources, or added to the mortgage. This high ratio insurance is only available for applicants filing taxes premium table below is based on the property being owner occupied. Canada, and the Tash-Out Refinance, Loan to Value Ratio. Purchase Premium ‘Tye Lesser of Promum 38% of ‘otal Losn Amst ‘TeB Up Portion Up 65% ‘50% af he morgage 0.50% 0.50% 05.01- 75% 0.65% of the morgage 0.65% 225% 75.01 80% 100% ofthe morgage 100%) 275% 80.01 85% 175% ofthe mortgage 175% 3.50% 35.01 90% 2.00% ofthe morgage 2.00% 425% 90.01 85% 2.75% ofthe morgage : : BOgT aS" 2.90% ofthe mortgage : : Pe ofthat for extended amartzations, CMHC will ad .20 for avery 8 years beyond a 25 year amortization. So, or @ 38 year ‘amortzaton, there i 2-40 premium surcharge added. This premium surcharge applies no matter which high ratio ineurance program you ‘18 applying under.