FAQ

It may come as a surprise to some exploring the world of mortgages for the first time, but mortgages in Canada can be,by federal rule,insured. Ottawa has a role in the mortgage market through its Crown corporation, the Canada Mortgage and Housing Corporation. Meanwhile, insurance is also offer by Genworth, a private company.

The goal of such insurance is to protect those offering mortgages from loan defaults, covering loans with a loan-to-value greater than 80 percent.(Or, seen as another way, the insurance is mandatory for mortgages with down payments of less than 20 percent).

This, of course, means premiums have to be paid on the insurance by the recipient of the mortgage (the premiums are tacked onto the total mortgage cost). These premiums can range from under 1 percent to more than 5 percent. Meanwhile, insurance is also offered by Sagen and Canada Guaranty Insurance

Yes, your estate could liquidate your assets, but how much are they worth? If your family sold everything you own would they make that much? For most of us, our estates are not that valuable and few people have those dollars in the bank.

Mortgage Life Insurance and Disability Insurance Policies offer living benefits to make your mortgage payment in case of disability and critical illness. In addition, it is possible to get all your money back at the end of the policy.

Before the maturity date, you can receive a guaranteed interest rate. This offer means you can renew the mortgage up to four months before its maturity date, so long as you’re not seeking a higher loan amount. To sweeten the deal, they often also will cover the mortgage transfer cost.

The benefit of this is that it can ease concerns about the possibility that interest rates may be higher at the maturity date than months before that point.However, some lenders are themselves flexible and will adjust this early-offer rate if that change does occur.

But keep in mind that this advance-offer rate may not be the best deal possible from a lender, and instead be their normal posted rate. That means that a lower rate may be possible through a bit of back-and-forth dealing with them (something we will help you with to land the best possible mortgage renewal).

Work benefits are great, but they are controlled by your employer and end when you leave your job, regardless of the reason. Do you know how much protection your employer provides? Would it pay-off your family’s debt and home mortgage if you died? If not, Northwood Mortgage has options.

This is another query at the top of the most-asked list. Just how long should I set my mortgage term for?

If keeping an eye on monthly changes in mortgage rates is too much of a hassle, then consider going for a longer term, perhaps between five and 10 years. This way the rate you sign up for remains the rate you pay for the life of the mortgage.

But if you’re looking to take swift advantage of changing mortgage rates, a shorter term may be what you’re looking for. This gives you more flexibility in landing a lower-cost mortgage, as you can switch your mortgage plan for one with a possibly lesser rate (meaning less money paid on the loan’s interest).

Still a bit confused? Here’s some more detail.

The duration of a mortgage can stretch from as short as six months to 10 years. The thing to remember is this: shorter terms have lower interest rates, while longer terms have higher ones.

For many people, choosing a mortgage term comes down to how open they are to taking on risk. In other words, those who take shorter terms are forgoing certainty about the loan’s interest rate, meaning they prefer to roll the dice that the market interest rate will fluctuate downward by the time it’s up for them to renew their mortgage or find a new one.

Other factors at play in the mortgage-length decision include whether you intend to put your new home on the market in the foreseeable future to take advantage of rising home prices (in this case, a short mortgage is preferred); and whether you expect interest rates to drive upwards or plunge downwards from their level at the time the mortgage is initially signed.

As an example here, if interest rates are at or near historic lows (as we’ve seen in the past few years) then a longer-term mortgage may be more attractive; while if those same rates are seen as being at historic highs, then the flexibility of a shorter term may be more appealing.

Your mortgage may be a new financial obligation you did not have when you acquired your existing life insurance, so you may not have enough benefit to pay off the mortgage in a case of disability, critical illness or death.

In addition, work disability protection typically covers 50-70% or less of your gross income. Will half of your salary cover your annual bills?

Just because your mortgage has a set life span doesn’t mean you can’t pay it off ahead of time. Remember, the longer a mortgage runs the more it accrues in interest payments, so wiping out the loan out early can result in significant savings. And thankfully it’s not impossible to do.

Some good ways to wipe out a mortgage early include:

• Making payments more frequently. Don’t just accept the payment schedule given to you at the start of the mortgage, but tweak it to shorten the time between mandatory payments. One thing to think about here is making payments equal to the monthly amount every two weeks instead of every four.
• “Double-up” your monthly payments. You have the option of paying an additional set amount on your regular mortgage payments. This money will go straight to paying off the loan’s principal – shortening its lifespan and the overall mortgage cost.
• Annual prepayments. Lenders will also give you the option of making a special once-a-year payment that goes to the loan’s principal. They will have rules about how big this can be, but it can normally be up to 10 percent of the original principal amount.
• Choosing a shorter loan period when a mortgage is renewed. This gives you some flexibility when it comes to taking advantage of changing interest rates, with any drop in the rates lowering your financial hit from the mortgage.

This is one of the most commonly heard questions – just what exactly is the difference between a fixed rate and variable rate mortgage?

For fixed rate mortgages, the interest rate is locked in for a pre-set amount of time – between half a year to a decade. The benefit of fixed rate mortgages is that you have complete knowledge of the amount you will be paying for your mortgage term.

And then there’s variable rate mortgages.

This type of mortgage involves payments that are fixed for a specific period, usually a year or two. During this time, while your payment remains the same the interest rate on the mortgage may go up and down as market rates shift and fluctuate. What this means for your payment is this: if interest rates take a nose dive, then more of your payment is used to reduce the loan principal, lowering your total costs. Meanwhile, if rates shoot upwards, then a bigger chunk of your monthly payment is used to pay for the interest, adding to your mortgage cost.