Choosing Your Mortgage Amortization

General Martin D. Krell 25 Mar

Choosing Your Mortgage Amortization 

Selecting the length of your mortgage amortization period – the number of years it will take you to become mortgage free – is an important decision that will affect how much interest you pay over the life of your mortgage. 

While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 35 years. 

The main reason to opt for a shorter amortization period is that you will become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced. 

A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value. 

While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you. 

Your mortgage professional will be able to help you choose the amortization that best suits your unique requirements and ensures you have adequate cash flow. If you can comfortably afford the higher payments, are looking to save money on your mortgage or maybe you just don’t like the idea of carrying debt over a long period of time, you can discuss opting for a shorter amortization period. 

Advantages of longer amortization

Choosing a longer amortization period also has its advantages. For instance, it can get you into your dream home sooner than if you choose a shorter period. When you apply for a mortgage, lenders calculate the maximum regular payment you can afford. They then use this figure to determine the maximum mortgage amount they are willing to lend to you. 

While a shorter amortization period results in higher regular payments, a longer amortization period reduces the amount of your regular principal and interest payment by spreading your payments out over a longer timeframe. As a result, you could qualify for a higher mortgage amount than you originally anticipated. Or you could qualify for your mortgage sooner than you had planned. Either way, you end up in your dream home sooner than you thought possible. 

Again, this option is not for everyone. While a longer amortization period will appeal to many people because the regular mortgage payments can be comparable or even lower than paying rent, it does mean that you will pay more interest over the life of your mortgage. 

Still, regardless of which amortization period you select when you originally apply for your mortgage, you do not have to stick with that period throughout the life of your mortgage. You can always choose to shorten your amortization and save on interest costs by making extra payments when you can or an annual lump-sum principal pre-payment. If making pre-payments (in the form of extra, larger or lump-sum payments) is an option you’d like to have, your mortgage professional can ensure the mortgage you end up with will not penalize you for making these types of payments. 

It also makes good financial sense for you to re-evaluate your amortization strategy every time your mortgage comes up for renewal (at the end of each term of your mortgage, whether this is three, five, 10 years, etcetera). That way, as you advance in your career and earn a larger salary and/or commission or bonus, you can choose an accelerated payment option (making larger or more frequent payments) or simply increase the frequency of your regular payments (ie, paying your mortgage every week or two weeks as opposed to once per month). Both of these features will take years off your amortization period and save you a considerable amount of money on interest throughout the life of your mortgage.

Buying Versus Renting

General Martin D. Krell 18 Mar

Buying versus renting

 At some point in their lives, most Canadians have probably asked themselves whether it is better to buy or rent a home. And purchasing a home is one of the biggest decisions most people ever make.

 Ultimately, the decision is a personal choice, but it helps to look at the pros and cons of buying to determine whether home ownership is right for you.

 

Some advantages of buying a home

Owning a home is generally considered to be a sound, long-term investment that can provide satisfaction and security for you and your family.

 Each month when you make your mortgage payment, you are building equity in your home.

Equity is the portion of the property that you actually build through your monthly payment versus the portion that you still owe the lender. 

At the beginning of your mortgage, more of your payments go toward paying off the interest and less toward paying off the principal. But the longer you stay in your home and the more mortgage payments you make, the more principal you pay off and the more equity you accumulate. 

Most mortgages also offer you the option of making additional monthly or annual payments to reduce your principal faster. Some prepayment privileges, for instance, enable you to pay up to 20% of the principal per calendar year. This will also help reduce your amortization period (the length of your mortgage), which, in turn, saves you money. 

There is also a tax advantage. If your home is your principal residence, any profit you make when you sell it is tax-free. A home can appreciate – or increase in value – as time passes, building more equity. As you build up equity, it’s usually easier to upgrade to a more expensive home in the future thanks to the profit you’ll make when selling your current home. 

As an owner, you can also decorate and improve your home any way you like. Ownership tends to give you a sense of pride and can offer you and your family stronger ties to the community. 

If you do decide that home ownership is right for you, it’s important to choose a home you can afford. If you can’t afford to buy your dream home, purchasing a more modest home can be a great place to start building equity that one day may allow you to buy the home of your dreams. 

Since we’re currently in a buyer’s real estate market and interest rates have been dropping, now may be an ideal time to enter into home ownership for the first time.

 

Some disadvantages of buying a home

Since it’s easy to get caught up in the excitement of buying a home, it’s important to remember that home ownership has some additional responsibilities as well. 

For one thing, a home can be expensive. Chances are, your monthly payments will be more than what you are currently paying in rent when you factor in such things as your mortgage, property taxes, repairs and general maintenance. 

Owning a home ties up some of your cash flow and is likely to reduce your flexibility to move to a new location or change jobs. 

While your home might increase in value as time goes by, don’t expect to get a big return quickly. There are no guarantees that your home will increase in value, particularly during the first few years. In the beginning, you could actually lose money if you sell because your home may not have appreciated enough to cover the real estate fees, and moving, renovation and other selling costs. 

Real estate is, however, usually considered a good investment over the long term. 

When making the decision about whether to buy or rent, it’s important to carefully choose a home you can afford, and then weigh the pros and cons. Millions of people enjoy the rewards of home ownership but, ultimately, it’s a personal decision based on your own priorities. 

If you’re thinking of buying your first home, your Dominion Lending Centres mortgage professional – Martin Krell can answer all of your mortgage-related questions.

Buying the Best Home for You

General Martin D. Krell 11 Mar

Buying the Best Home for You

 Before you begin searching for a home, it’s always helpful to think about your needs both now and in the future. And if you have any questions about the home-buying process or different types of real estate, you can always ask your mortgage professional or real estate agent for input.

Following are some things to consider when you’re deciding which type of home to buy: 

  • Location. Do you want to live in a city, town or in the countryside? How long will your work commute be? Where will your children attend school and how will they get there? Are you close to amenities?
  • Size requirements. Do you need several bedrooms, more than one bathroom, space for a home office, a two-car garage?
  • Special features. Do you want air conditioning, storage or hobby space, a fireplace, a swimming pool? Do you have family members with special needs? Do you want special features to save energy, enhance indoor air quality and reduce environmental impact?
  • Lifestyles and stages. Do you plan to have children? Do you have teenagers who will be moving away soon? Are you close to retirement? Will you need a home that can accommodate different stages of life?

 

New Versus Resale Homes

When thinking about your ideal home, the first thing you should consider is whether you want a previously owned home (often called a resale) or a new home. Here are some characteristics that may help you decide:


New Home

  • Modern design. A new home has an up-to-date design that takes into account the latest trends, materials and features.
  • Personalized choices. You may be able to upgrade or choose certain items such as siding, flooring, cabinets, plumbing and electrical fixtures.
  • Up-to-date with the latest codes/standards. The latest building codes, electrical and energy-efficiency standards will be applied.
  • Maintenance costs. Maintenance costs will be lower because everything is new and many items are covered by a warranty. You should still set aside money every year for future maintenance costs.
  • Builder warranty. This is a warranty that may be provided by the builder of the home. Be sure to check all the conditions of the warranty. A homebuilder’s warranty can be important if a major system such as plumbing or heating breaks down.
  • Neighbourhood amenities. Schools, shopping malls and other services may not be complete for years.
  • Extra costs. You may have to pay extra if you want to add a fireplace, plant trees and sod or pave your driveway. Make sure you know exactly what’s included in the price of your home.

 

Resale Home

  • You can see what you are buying. Easy access to services. Probably established in a neighbourhood with schools, shopping malls and other services.
  • Landscaping is usually complete and fencing already installed. Previously owned homes may have extras like fireplaces, finished basements or swimming pools.
  • No GST. You don’t have to pay the GST unless the house has been substantially renovated, and then the taxes are applied as if it were a new house.
  • Possible redecorating and renovations. You may need to redecorate, renovate or do major repairs such as replacing the roof, windows and doors.

 

Deciding Which Type of Home to Buy

There are many types of homes to choose from and each has its advantages and disadvantages. Think about your needs before making a decision, and don’t forget to look beyond the interior walls. The environment surrounding your home
can be as important as the environment within.

Following are some different types of homes from which to choose:


Single-Family Detached –
A home containing one dwelling unit that stands alone and sits on its own lot, thereby offering a greater degree of privacy.

 Semi-Detached – A single-family home that is joined to another one by a common wall. It can offer many of the advantage of a single-family detached home and is usually less expensive to buy and maintain.

 Row House or Townhouse – Many similar single-family homes, side-by-side, separated by common walls. They can be freehold, condominiums or rental units. They offer less privacy than a single-family detached home but still provide a separate outdoor space. These homes can cost less to buy and maintain but they can also be large, luxury units.

 Link or Carriage Home – Houses joined by garages or carports, which provide access to the front and back yards. Builders sometimes join basement walls so that link houses appear to be single-family homes on small lots. These houses can be less expensive than single-family detached homes.

 Condominiums or Stratas – A condo or strata is a form of ownership, not a type of construction. They can be high-rise residential buildings, townhouse complexes, individual houses and low-rise residential buildings.

 

-Questions, please fee free to call – Martin Krell – Prince George Mortgage Broker 250-562-8622

Budgeting Towards Homeownership

General Martin D. Krell 4 Mar

 

Transitioning from renter to homeowner is one of the biggest decisions you’ll make throughout your lifetime. It can also be a stressful experience if you don’t plan ahead by building a budget and saving prior to embarking upon homeownership.

Budgeting is a core ingredient that helps alleviate the stress associated with money issues that can sometimes arise if you purchase a home without knowing all of the associated costs – including down payment, closing expenses, ongoing maintenance, taxes and utilities.

The trouble is, many first-time homeowners fail to carefully think about their finances, plan a budget or set savings aside. And in this society of instant gratification, money problems can quickly escalate.

The key is to create a realistic budget based on your goals. Track your spending and make your dollars go further by sticking to your budget once it’s in place. Budgeting offers a step-by-step formula for figuring out how to best save your hard-earned money to invest in homeownership.

Start by listing your household income, then your household expenses, and review your spending habits. All of this can be done on a pad of paper or on a computer spreadsheet.

Keeping receipts for everything that you purchase will enable you to accurately keep track of where your money is going each month so that you can review and make necessary changes to your plan on an ongoing basis.

Examine all areas of your life from entertainment to the type of food you buy, where you buy your food and clothes, and how and where you travel. Also look at your spending personality and make necessary adjustments. Are you a saver, a splurger, a spontaneous shopper or a hoarder? Become smarter with your money and avoid impulse buying.

If you find you’re spending a lot of money in one area, such as entertainment for instance, set aside a reasonable amount each month and prepare to stop spending money in this area once your budget has been exhausted.

Budgeting provides you with the opportunity to re-evaluate your needs and wants. Do you really need the magazine subscriptions, the gym membership and all the other things you may spend money on each month? Although everyone needs some “me time” to wind down, could you not get that by taking a walk or reading a good book you borrowed from the library?

If you can set your budget solidly in place before you head out home or mortgage shopping, you will be far more prepared to purchase your first home.

Following are Martin Krell’s three top tips to help you prepare for the purchase of your first home:

    1. Set up a savings account. You can deposit a predetermined amount into this account each pay period that you will not touch unless it’s absolutely necessary. This will enable you to put money aside for a down payment and cover closing costs, as well as address ongoing homeownership expenses such as maintenance, taxes and utilities.
    2. Save up for big-ticket items. As you accumulate money in your savings account, you will be able to also save for specific purchases to help furnish your home – avoiding the buy now, pay later mentality, which can have a negative impact on your credit when you’re seeking mortgage financing.
    3.  Surround yourself with a team of professionals. When you’re getting ready to make your first home purchase, enlist the services of a licensed mortgage professional and a real estate agent. These experts are invaluable to you as you set out on the road to homeownership because they help first-time buyers through the home purchase and financing processes every day. They will be able to answer all of your questions and set your mind at ease. A mortgage professional has access to multiple lenders, and can help you get pre-approved for a mortgage so you know exactly what you can afford to spend on a home before you head out house hunting, while a real estate agent will be able to match your needs with a house you can afford. Both parties will negotiate on your behalf to ensure you get the best bang for your buck. And, best of all, these services are typically free. They will also be able to refer you to other reputable professionals you may need for your home purchase, including a real estate lawyer and home appraiser.

 

Of course, if you have questions along the way, feel free to call me at 250-562-8622 or stop by our mortgage office on the corner of 4th and Vancouver!

 -Martin, Your Prince George Mortgage Broker

Advice for credit challenged clients by Prince George Mortgage Broker Martin Krell

General Martin D. Krell 24 Feb

Advice for credit challenged clients by Prince George Mortgage Broker Martin Krell

In today’s economic climate of tighter credit requirements and increased unemployment rates taking their toll on some Canadians, there’s no doubt that many people may not fit into the traditional banks’ financing boxes as easily as they may have just a year ago.

Your best solution is to consult your Prince George mortgage professional to determine whether your situation can be quickly repaired or if you face a longer road to credit recovery. Either way, Martin has solutions to every problem.

Mortgage professionals, like Martin Krell, who are experts in the credit repair niche can help credit challenged clients improve their situations via a number of routes. And if the situation is beyond the expertise of a mortgage professional, they can help you get in touch with other professionals, including credit counsellors and bankruptcy trustees.

In recent years, properties in PG have appreciated, so if you have some equity built up in your home and still have a manageable credit score, for instance, you can often refinance your mortgage and use that money to consolidate debts and pay off high-interest credit card debt. By using a home equity loan to clear up this debt, you are freeing up more cash flow each month.

In the current lending environment, with interest rates at an all-time low, now is an ideal time for you to refinance your mortgage, consolidate some debts and possibly save thousands of dollars per year, enabling you to pay more money per month towards the principal on your mortgage as opposed to the interest – which, in turn, can help build equity quicker and pay off your home sooner!

Following are five steps Martin Krell suggests to help attain a speedy credit score boost:

1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so you’re only using 30% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on.

2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month.

3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders may view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you.

Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards.

The best bet is to pay your balances down or off before your statement periods close.

4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. You should use these cards periodically and then pay them off.

5) Don’t let mistakes build up. You should always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

If, however, you have repeatedly missed payments on your credit cards, you may not be in a situation where refinancing or quickly boosting your credit score will be possible. Depending on the severity of your situation – and the reasons behind the delinquencies, including job loss, divorce, illness, and so on – Martin Krell, your Prince George Dominion Lending Centres mortgage professional can help you address the concerns through a variety of means and even refer you to other Prince George professionals to help get your credit situation in check.  

10 Most Commonly Asked Questions – answered by Martin Krell, Prince George Mortgage Broker

General Martin D. Krell 18 Feb

1. What’s the best rate I can get?

  • Your credit score plays a big part in the  interest rate for which you will qualify, as the riskier you appear as a borrower, the higher your rate will be. Rate is definitely not the most important aspect of a mortgage, however, as many rock-bottom rates often come from no frills mortgage products. In other words, even if you qualify for the lowest rate, you often have to give up other things such as      prepayments and porting privileges when opting for the lowest-rate product.

 

2. What’s the maximum mortgage amount for which I can qualify?

  • To determine the amount for which you will qualify, there are two calculations you’ll need to complete. The first is your Gross Debt Service (GDS) ratio. GDS looks at your proposed new housing costs (mortgage payments, taxes, heating costs and 50% of strata/condo fees, if applicable). Generally speaking, this amount should be no more than 32% of your gross monthly income. For example, if your gross monthly income is $4,000, you should not be spending more than $1,280 in monthly housing      expenses. Second, you will need to calculate your Total Debt Service (TDS) ratio. The TDS ratio measures your total debt obligations (including housing costs, loans, car payments and credit card bills). Generally speaking, your TDS ratio should be no more than 40% of your gross monthly      income. Keep in mind that these numbers are prescribed maximums and that you should strive for lower ratios for a more affordable lifestyle. Before falling in love with a potential new home, you may want to obtain a pre-approved mortgage. This will help you stay within your price range and spend your time looking at homes you can reasonably afford.

 

3. How much money do I need for a down payment?

  • The minimum down payment required is 5% of the purchase price of the home. And in order to avoid paying mortgage default insurance, you need to have at least a 20% down payment.

 

4. What happens if I don’t have the full down payment amount?

  • There are programs available that enable you to use other forms of down payment, such as from your RRSPs, a cash-back product, or a gift.

 

5. What will a lender look at when qualifying me for a mortgage?

  • Most lenders look at five factors when determining whether you qualify for a mortgage: 1. Income; 2. Debts; 3. Employment History; 4. Credit history; and 5. Value of the Property you wish to purchase. One of the first things a lender will consider is how much of your total income you’ll be spending on housing. This helps the lender decide whether you can comfortably afford a house. A lender will      then look at your debts, which generally include monthly house payments as well as payments on all loans, credit cards, child support, etc. A history of steady employment, usually within the same job for several years, helps you qualify. But a short history in your current job shouldn’t prevent you from getting a mortgage, as long as there have been no gaps in income over the past two years. Good credit is also very important in qualifying for a mortgage. The lender will also want to know that the house is worth the price you plan to pay.

 

6. Should I go with a fixed- or variable-rate mortgage?

  • The answer to this question depends on your personal risk tolerance. If, for instance, you’re a first-time homebuyer and/or you have a set budget that you can comfortably spend on your mortgage, it’s smart to lock into a fixed mortgage with predictable  payments over a specific period of time. If, however, your financial situation  can handle the fluctuations of a variable-rate mortgage, this may save you      some money over the long run. Another option is to opt for a variable  rate, but make payments based on what you would have paid if you selected a fixed rate. Finally, there are also 50/50 mortgage options that enable you to split your mortgage into both fixed and variable portions.

 

7. What credit score do I need to qualify?

  • Generally speaking, you’re a prime candidate for a mortgage if your credit score is 680 and above. The higher you can get above 700 the better, as you will qualify for the lowest rates. These days almost anyone can obtain a mortgage, but the key for those with lower credit scores is the size of the down payment. If you have a sufficient down payment, you can reduce the risk to the lender providing you with the mortgage. Statistics show that default rates on mortgages decline as the down payment increases. 

 

8. What happens if my credit score isn’t great?

  • There are several things you can do to boost  your credit fairly quickly. Following are five steps you can use to help attain a speedy credit  score boost: 1) Pay down credit cards. The number one way to increase your credit score is to pay down  your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on. 2) Limit the use of credit cards. Racking up a  large amount and then paying it off in monthly instalments can hurt your credit score. If there is a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may      have paid the balance off the next month. 3) Check credit limits.  If your lender is slower at reporting monthly transactions, this can have      a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s  on hand. The problem is, if you consistently charge the same amount each      month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula      and, therefore, may not be as valuable – even though you have had the      cards for a long time. Use these cards periodically and then pay them off.  5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

 

9. How much will I have to pay for closing costs?

  • As a general rule of thumb, it’s recommended that you put aside at least 1.5% of the purchase price (in addition to the down payment) strictly to cover closing costs. There are several items you should budget for when it comes to closing costs. Property Transfer Tax is charged whenever a property is purchased. The tax will vary from jurisdiction to jurisdiction, but I can help with the calculation. GST/HST is only charged on new homes, and does not affect homes priced at less than $400,000. Even homes that exceed the price threshold are only taxed on the portion that exceeds $400,000. Certain conditions may apply. Please contact you lawyer/notary for more detailed information. Your lawyer/notary will charge you a fee for drawing up the mortgage and conveyance of title. The amount of the fee will depend on the individual that you use. The typical cost is $900. If you’re purchasing a single-family home, you’ll need to give your lender a survey certificate showing where the property sits within the property lines. Some exceptions are made, however, on low loan-to-value deals and acreage properties. A survey will cost approximately $300-$350, but the lender will often accept a copy of an existing survey. Other costs include such things as an appraisal fee (approximately $200), title insurance and a home inspection (approximately $350).

  

10. How much will my mortgage payments be?

  • Monthly mortgage payments vary based on several factors, including: the size of your mortgage; whether you’re paying mortgage default insurance; your mortgage amortization; your interest rate; and your frequency of making mortgage payments. You can view some useful calculators to find out your specific mortgage payments: www.dominionlending.ca/mortgage-calculators

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage Rule Changes – 09 July 2012

General Martin D. Krell 26 Jun

If you’re considering buying a new home or refinancing/renewing your current mortgage, it would be a wise move to act before July 9th 2012!

The Federal Government announced this morning four new clampdowns on insured mortgages that will quickly come into effect on Monday, July 9th, 2012.

 

These changes include: 

  • Reducing the maximum amortization period to 25 years from 30 years 
  • Reducing the maximum amount of equity homeowners can take out of their homes when refinancing to 80% from the current 85% 
  • Limiting the availability of government-backed mortgages to homes with a purchase price of less than $1 million 
  • Fixing the maximum gross debt service ratio at 39% and the maximum total debt service ratio at 44%

 

The first two changes will have the biggest impact on Canadian borrowers.

 

If you’d like to review your options or if you have any questions, please give me a call or send me an email, and I’ll be happy to discuss how these changes may affect your mortgage situation. It’s my job to ensure you have the best options and strategies available at all times!! 

 

Sincerely,                     

Martin D. Krell

Serving Families Across BC!

 

P.S. Rates are LOW right now. 5 year fixed is at 3.09%ish and 10 year is at 3.99%. This is a great time to switch and lock in!

 

P.S.S. 5 year fixed mortgages can come approved with a $5,000 Visa – Call me for details!

10 Questions Mortgage Borrowers – Martin Krell, Prince George Mortgage Broker

General Martin D. Krell 19 Jun

 

1. If I have mortgage default insurance do I also need mortgage life insurance?

  • Yes. Mortgage life insurance is a life insurance policy on a homeowner, which will allow your family or dependents to pay off the mortgage on the home should something tragic happen to you. Mortgage default insurance is something lenders require you to purchase to cover their own assets if you have less than a 20% down payment. Mortgage life insurance is meant to protect the family of a homeowner and not the mortgage lender itself.

 

 2. What steps can I take to maximize my mortgage payments and own my home sooner?

  • There are many ways to pay down your mortgage sooner that could save you thousands of dollars in interest payments throughout the term of your mortgage. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage). Another way to reduce the time it takes to pay off your mortgage involves changing the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. With accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year. In addition to increased payment options, most lenders offer the opportunity to make lump-sum payments on your mortgage (as much as 20% of the original borrowed amount each year). Please note, however, that some lenders will only let you make these lump-sum payments on the anniversary date of your mortgage while others will allow you to spread out the lump-sum payments to the maximum allowable yearly amount.

 

 3. Can I make lump-sum or other prepayments on my mortgage, or will I be penalized?

  • Most lenders enable lump-sum payments and increased mortgage payments to a maximum amount per year. But, since each lender and product is different, it’s important to check stipulations on prepayments prior to signing your mortgage papers. Most “no frills” mortgage products offering the lowest rates often do not allow for prepayments.

 

 4. How do I ensure my credit score enables me to qualify for the best possible rate?

  • There are several things you can do to ensure your credit remains in good standing. Following are five steps you can follow: 1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on. 2) Limit the use of credit cards.  Racking up a large amount and then paying it off in monthly instalments can hurt your credit score.  If there’s a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month. 3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your      maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to  pay your balances down or off before your statement periods close. 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the  company will not amend it, you can dispute this by making the credit bureau aware of the situation.

 

 5. What amortization will work best for me?

  • While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 30 years. The main      reason to opt for a shorter amortization period is that you’ll become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced. A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value. While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

 

 6. What mortgage term is best for me?

  • Selecting the mortgage term that’s right for you can be a challenging proposition for even the savviest of homebuyers, as terms typically range from six months up to 10 years. The first consideration when comparing various mortgage terms is to understand that a longer term generally means a higher corresponding interest rate. And, a shorter term generally means a lower corresponding interest rate. While this generalization may lead you to believe that a shorter term is always the preferred option, this isn’t always the case. Sometimes there are other factors – either in the financial markets or in your own life – that you’ll also have to take into consideration when selecting the length of your mortgage term. If paying your mortgage each month places you close to the financial edge of you  comfort zone, you may want to opt for a longer mortgage term, such as five or 10 years, so that you can ensure that you’ll be able to afford your mortgage payments should interest rates increase. By the end of a five- or      10-year mortgage term, most buyers are in a better financial situation, have a lower outstanding principal balance and, should interest rates have risen throughout the course of your term, you’ll be able to afford higher mortgage payments.

 

 7. Is my mortgage portable?

  • Fixed-rate products usually have a portability option. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current rate. With variable-rate mortgages, however, porting is usually not available. This means that when breaking your existing mortgage, a three-month interest penalty will be charged. This charge may or may not be reimbursed with your new mortgage. While porting typically ensures no penalty will be charged when you sell your existing property      and buy a new one, it’s best to check with your mortgage broker for specific conditions. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods.

 

 8. If I want to move before my mortgage term is up, what are my options?

  • The answer to this question often depends on your specific lender and what type of mortgage you have. While fixed mortgages are often portable, variable are not. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods. As long as there’s not too much time between the sale of your existing home and the purchase of the new home, as a rule of thumb most lenders will allow you to port the mortgage. In other words, you keep your existing mortgage and add the extra funds you need to buy the new house on top. The interest rate is a blend between your existing mortgage rate and the current rate at the time you require the extra money.     

 

 9. What steps can I take to help ensure I don’t become a victim of title or mortgage fraud?

  • The best way to prevent fraud is to be aware of how it’s committed. Following are some red flags for mortgage fraud: someone offers you money to use your name and credit information to obtain a      mortgage; you’re encouraged to include false information on a mortgage application; you’re asked to leave signature lines or other important areas of your mortgage application blank; the seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing; or the seller or developer rebates you money on closing, and you don’t disclose this to your lending institution. Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you’re the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud. Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form ofidentity theft. Following are ways you can protect yourself from title fraud: always view the property you’re purchasing in person; check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable; make sure your representative is a licensed real estate agent; beware of a real estate agent or mortgage broker who has a financial interest in the transaction; ask for a copy of the land title or go to a registry office and request a historical title search; in the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser; insiston a home inspection to guard against buying a home that has been cosmetically renovated rmerly used as a grow house or meth lab; ask to see receipts for recent renovations; when you make a deposit, ensure your money is protected by being held “in trust”; and consider the purchase of title insurance.

 

 10. How do I ensure I get the best mortgage product and rate upon renewal at the end of my term?

  • The best way to ensure you receive the best mortgage product and rate at renewal is to enlist your mortgage broker once again to get the lenders competing for your business just like they did when you negotiated your last mortgage. A lot can change over a single mortgage term, and you can miss out on a lot of savings and options if you simply sign a renewal with your existing lender without consulting your mortgage broker.

Purchase Power Reduced by 8%

General Martin D. Krell 24 Jan

How will the new mortgage rules impact home buyers and sellers?

 On January 17th Finance Minister Jim Flaherty announced changes to government insured mortgages. These new laws are designed to support long-term stability in Canada’s housing market and support hard-working Canadian families saving through home ownership.

New Mortgage Laws

  • Amortizations are reduced from 35 years to 30 years on insured mortgages above 80% LTV.  This could mean larger mortgage payments.  The idea is to have Canadians pay off their principal mortgage faster while reducing the total amount of interest paid.  This may be advantageous to a great deal of people, but those who are looking to refinance or purchase a home with a limited down-payment will find larger monthly mortgage payments.
  • The amount a mortgage consumer can refinance is changed from 90% LTV to 85% LTV.  If you were to borrow money on an equity basis and your home is worth $100,000.00, the most you’d be eligible to refinance at is $85,000.00.
  • HELOCs (Home Equity Line of Credit) are no longer backed by government insurance.  Loans that are secured by the equity in the consumers homes are no longer to be insured by the government.  This however will not come into effect until April 18, 2011.

How will reducing the amortization from 35 years to 30 years impact home buyers and home sellers?  While not all mortgages are written as a 35 year amortization, it is especially helpful for first time buyers or families starting out who desire the right house and want lower payments.

Lets look for example at a family or individual with a annual household income of $60,000 per year with a vehicle payment of $450 per month, credit card payments of 100 per month and property taxes on the new home purchase at an estimated $1500/year.  

Using 3.89% as a 5 year fixed rate this client would qualify for monthly payments of $1350/month.  The old rules allowed for a 35 year amortization and the client would be able to purchase a $310,000 home.  The new rules allow for only a 30 year amortization, and this client will now be able to purchase a $285,000 home, reducing the purchasing power of the client by 8%

These changes impact both buyers and sellers.  Buyers have had their purchasing power in this example reduced by 8% and the seller now has fewer people in the market that would qualify to purchase their home.

The new rule changes come into effect on March 18th 2011 and given experience from the last mortgage rule change, many lenders will start changing their policies prior to this date.   

New mortgage rules and restrictions

General Martin D. Krell 18 Jan

Mortgage Industry Regulation has Changed

 The Federal Government has changed regulations that affect the mortgage  industry.  On Monday 17 January, 2011 Finance Minister Jim Flaherty announced new rules that will:

 1.)    Reduce the amortization to 30 years from 35 years for government backed insured mortgages.  This amount was previously reduced from 40 years to 35 years in April 2010.

2.)    Ottawa will lower the maximum amount that Canadians can borrow when refinancing their mortgage to 85% from 90% of the value of their home.  15% equity in the home will be required for government backed insured mortgages.

3.)    Ottawa will withdraw government insurance backing on lines of credit secured by homes.

 These new rules do little to address the growing consumer balances of credit card debt or the loosely regulated auto finance industry.  Particularly troubling is the increased equity required for a home refinance.  While household financial prudence should be encouraged, this legislation may hurt many Canadian households.  To note would be the households who secured a mortgage within the last 4 years with a lender that is no longer in the business.  Lenders such as Xceed Mortgage Corp, Wells Fargo, N-Brook, Accredited Home Lenders, GMAC, GE Money and Household Finance to name a few.

 These households find themselves with an “orphaned” mortgage because their lender is no longer doing business in Canada and they are not being given a renewal option by the lender.  Under these new mortgage rules, this household now needs 15% equity in order to find a new mortgage lender.  Therefore the options available to them are; to put money down in order to refinance (and keep their home), sell the home or face foreclosure.  This portion of the mortgage market may notice the mortgage changes the greatest.

 Mr. Flaherty said at a new conference in Ottawa that the new measures will encourage Canadians to save more though home ownership and will reduce the exposure of Canadians to financial risks.

 If you have any questions about the information contained in the release, please do not hesitate to call Martin Krell – your Prince George Mortgage Broker at: 250-562-8622.