Whether this is your first foray into the Real Estate Market or you are looking at your options down the road, questions inevitably come up regarding Mortgages and what rates and terms are best. Everyone can benefit from the best rate, but when it comes to terms, knowledge is everything.
Question:
How can I get the lowest interest rate on my mortgage?
Answer:
You can do this by comparing the rates on mortgages that are available through banks, trust companies, credit unions, caisses populaires, mortgage loan companies, mortgage brokers and government lending institutions. Ask about the terms and conditions, and compare similar types of mortgages to find the mortgage that suits you best. Also, don't be afraid to ask for a lower rate than the one that is quoted on the mortgage, since the rates that are "posted" are only guidelines and not necessarily the actual rate you will pay. A simple question could save you thousands of dollars.
It's also a good idea to shop around for quotes from different mortgage brokers and institutions to ensure you are getting the best deal. Before signing a service agreement with a broker, make sure you understand your responsibilities and the commitments you are making.
Question:
Can my financial institution refuse to provide me with a copy of my mortgage appraisal, even though I've paid for it?
Answer:
Yes. The financial institution can refuse to provide you with a copy of your mortgage appraisal. The financial institution obtains the appraisal report for the purposes of underwriting the mortgage. It is meant for its own internal use.
Question:
I've heard that some financial institutions are now offering 30- and 35-year mortgages. What are these and how do they work?
Answer:
These types of mortgages — 30- and 35-year mortgages — refer to the amortization period, which is the length of time you have agreed to repay your mortgage. Longer amortization periods are fairly new in Canada. Until 2006, the longest amortization period offered by financial institutions was 25 years.
Since your mortgage payments might be lower with 30- and 35-year mortgages, this could make it possible for you to purchase a home sooner. However, because of the long amortization period for these types of mortgages, you will end up paying a lot more interest over the lifetime of the mortgage.
The following table illustrates how much interest you would pay, if you were making monthly payments on a mortgage of $150,000, with a fixed annual interest rate of 6.45 per cent.
|
Amount of the mortgage |
Amortization |
Monthly payments |
Total amount of interest paid |
|
$150,000 |
20 years |
$1,106 |
$115,553 |
|
$150,000 |
25 years |
$1,000 |
$150,058 |
|
$150,000 |
30 years |
$935 |
$186,537 |
|
$150,000 |
35 years |
$895 |
$224,793 |
Before choosing a longer amortization period, you should determine whether or not your income will remain constant in the coming years and if you will be able to continue with the same payments in 30 or 35 years. You will also need to decide whether or not — over the lifetime of your mortgage — you are willing to pay a lot more interest than you would have had to pay with a shorter amortization period.
If you decide to take a mortgage with a long amortization period, there are some things you can do to reduce the amount of interest you will pay, and to shorten the length of time required to repay the mortgage. Every time you renew your mortgage, you should consider increasing your payments and shortening the amortization period. Rather than making monthly or semi-monthly mortgage payments, another option is to make accelerated biweekly payments. This means that you would make a payment that is equal to half of your monthly payment every two weeks.
The following table shows how much time and money you could save by making accelerated biweekly payments rather than monthly payments, on a mortgage of $150,000, with a fixed annual interest rate of 6.45 per cent and a 35-year amortization period.
information provided by Financial Consumer Agency of Canada
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