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FAQ

Question Answer

WHAT IS A PRE-APPROVAL?

If you are in the process of purchasing a property, most real estate professionals will want you to obtain a pre-approval. Pre-approvals are an initial step in the mortgage process which will determine the amount of financing that you will comfortably afford. Pre-approvals are not mandatory but they do provide you with an advantage if you are to submit an offer on a property. Pre-approvals require a credit check and income verification, no documents are sent to the lender as confirmation until you have an accepted offer in place. They are no risk, no obligation and secure you an interest rate for up to 120 days with most lenders. This provides you with the comfort in knowing that you will retain the lower interest rate should interest rates rise within the 120 days. If rates decrease, we will request a rate change for you.

WHAT IS A FIXED RATE?

A fixed rate is where the interest rate remains the same throughout the entire term of the loan. Interest rates are calculated semi-annually.

WHAT IS A PRE-APPROVAL?

If you are in the process of purchasing a property, most real estate professionals will want you to obtain a pre-approval. Pre-approvals are an initial step in the mortgage process which will determine the amount of financing that you will comfortably afford. Pre-approvals are not mandatory but they do provide you with an advantage if you are to submit an offer on a property. Pre-approvals require a credit check and income verification, no documents are sent to the lender as confirmation until you have an accepted offer in place. They are no risk, no obligation and secure you an interest rate for up to 120 days with most lenders. This provides you with the comfort in knowing that you will retain the lower interest rate should interest rates rise within the 120 days. If rates decrease, we will request a rate change for you.

WHAT IS A FIXED RATE?

A fixed rate is where the interest rate remains the same throughout the entire term of the loan. Interest rates are calculated semi-annually.

WHAT IS A VARIABLE RATE?

A variable rate mortgage (VRM) or adjustable rate mortgage (ARM) is a mortgage loan where the interest rate is periodically adjusted based on the Bank of Canada Prime rate which can be reviewed eight times a year.  Adjustable rates transfer some of the risk from the lender to the borrower.

CLOSED TERM MORTGAGE

The mortgage contract is typically written for terms of 1 to 10 years. Penalties may be triggered if the borrower wishes to end the contract before the term expires (early repayment). 

OPEN TERM MORTGAGE

The mortgage contract is written for a short term (usually 6 months or 1 year). No penalties are triggered if the borrower wishes to end the contract before the term expires.

WHAT IS A QUALIFYING RATE?

Mortgages with variable rates or fixed rates under 5 years typically require you to qualify at a higher rate (called the "qualifying rate"). Qualifying rates are used to ensure borrowers can handle their payments should interest rates rise and are based on the average of  5 year posted rates of the major Canadian banks.

CAN I USE GIFT MONEY AS A DOWN PAYMENT?

Yes, most lenders will accept down payment funds that are a gift from family. A gift letter signed by the donor is usually required to confirm that the funds are a true gift and not a loan.

SHOULD I WAIT FOR MY MORTGAGE TO MATURE?

No. You should contact us up to six months before your mortgage matures so I can secure you the best rate available at that time. Doing this will protect you from any increases before your renewal date. You will also benefit from decreases should they occur. Most lenders send out their mortgage renewal notices only a month prior to renewal, offering existing clients their posted interest rates. The rate you are offered is usually not the best. We will investigate all of your options and find the solution that best suits your needs.

WHAT IS REQUIRED TO OBTAIN A FIRST MORTGAGE?

In order to a mortgage, you'll need to provide us with: 

• Employment verification with proof of income 

• Verification of your source of down payment 

• An online application

WHAT IS THE DIFFERENCE BETWEEN "TERM" AND "AMORTIZATION"?

The term of the mortgage is the period from which your current payment obligations are valid. The amortization of your mortgage refers to the entire length of time that it will take for your loan to be paid off in full. For example, a common term would be 5 years and the standard amortization period is 25 years. After 5 years, we would re-negotiate your mortgage term, provide you with the lowest interest rate on the market that's available and provide you with the overall lowest total cost of borrowing.

WHAT IS A HOME EQUITY LINE OF CREDIT (HELOC)?

This is a loan in which the lender agrees to lend a maximum amount of money within an agreed period (term) where the collateral is the equity in the borrower's home. Because a home often is a consumer's most valuable asset, many homeowners use home equity credit lines only for major items such as home improvements, education and/or medical bills. These credit lines are not usually utilized for everyday spending.

WHAT IS A CONVENTIONAL MORTGAGE?

A conventional mortgage is usually considered one where the borrower has a down payment is equal to or greater than 20 percent of the purchase price. These mortgages typically do not require Mortgage Loan Insurance.

WHAT IS A SECOND MORTGAGE?

A second mortgage typically refers to a secured loan that is subordinate to another loan against the same property. Second mortgages are subordinate because if the loan goes into default, the first mortgage gets paid off prior to the second mortgage. Second mortgages are riskier for lenders and generally come with higher interest rates than first mortgages.

WHAT IS A REFINANCE?

Refinancing refers to the replacement of an existing debt obligation with a debt obligation under different terms. If the replacement of the debt occurs under financial distress, refinancing might be referred to as debt restructuring. Refinancing occurs for many reasons and here are a few options:

  1. Take advantage of a lower interest rate (a reduced monthly payment or a reduced term)
  2. To consolidate other debts into one loan (a potentially longer/shorter term contingent on penalties and fees)
  3. To reduce the monthly repayment amount
  4. To reduce or alter risk (switching from a variable rate to a fixed rate mortgage)
  5. To free up cash for use at your own leisure (renovations, debt consolidation, additional real estate purchases...)

WHAT IS A PRIVATE MORTGAGE?

With private mortgages you are not borrowing from a bank, you are borrowing from another person or business. Interest rates are higher and there may be additional fees involved depending on the risk of the borrower. 

WHAT IS A "B" LENDER?

B lenders are large Canadian institutions offering a variety of lending mortgage products. Clients that fall into the B category would be missing one of the major components that the banks and other A lenders require such as income and good credit. Self employed, recently bankrupt, poor credit or lack of viable income options, may place you in the B lending category provided the A lenders decline your file. B lenders often require a minimum of 15% as a down payment on a purchase or have that amount in equity in your current home to refinance. Interest rates are a bit higher than the A side, often 1-2% more. In addition to the higher interest rates, there are also fees attached to the financing in the range of 2-3%. The borrowers do not pay insurance premiums as these lenders are self insured.  

WHAT IS A COMMERCIAL MORTGAGE?

A commercial mortgage is a loan made using commercial real estate as collateral to secure repayment. A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, non residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. The borrower may be a partnership, incorporated business or limited company. The assessment of the creditworthiness of the business can be more complicated than is the case with residential mortgages. Commercial mortgages are subject to additional broker fees. 

How does a mortgage broker get paid?

MOST Financial Institutions pay a referral fee to the Broker for doing all the legwork and credit research for them (the job of a loans officer). Since this service is valuable, a commission is paid by the lending institution to the mortgage broker. In some rare circumstances, a client's financial requirements, credit, or job situation is more complicated and in these cases fees payable to the Mortgage Broker and/or the Lender may be charged.

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