Pre-Payment Privileges

You can join thousands of Canadians taking advantage of pre-payment privileges on their mortgage. That’s right – you have options to pay your mortgage rate down sooner and get you closer to financial freedom. Learn how to use these benefits that are available to you by following these 3 simple steps.

Taking Advantage of Pre-Payment Rate Options

Consider The Fees

First things first, check with your lender to see what the penalties are if you decide to increase your mortgage payments or pay off your mortgage in full. In some cases, there may not be a fee at all or just a small fee in which the rewards may far outweigh the penalty amount itself. Talk to a professional mortgage advisor who can help you do the calculations and present you with all the options available to you.

Find The Right Pre-Payment Privilege For You

  • Monthly Pre-Payment

With a prepayment option you get the flexibility to increase your monthly mortgage payments to pay off your debt sooner. The way it works is that you will be entitled to a percentage increase on your original monthly allowance. Depending on the rules set by your lender, your percentage allowance could go up to 100% which is the equivalent of double your monthly payments.

  • Lump Sum Payments

You may prefer a lump sum payment, which is a provision that will allow you to put a certain amount of money towards your mortgage principal. Your lender will provide you with an annual percentage limit that you are permitted to make towards paying down your mortgage. For example, your mortgage contract may allow you to make one lump-sum payment per year that is no more than 10% of what you owe. If you want to put more money down you may have to pay a pre-payment penalty. So talk to an advisor first about what’s best for your financial situation.

  • Bi-weekly Payments

Simply by switching your monthly payments to bi-weekly payments you can accelerate the rate at which you pay your mortgage by adding 2 extra payments per year. It’s a fantastic way to chip away at your principal payments, paying your mortgage back much quicker than through the traditional method.

Enjoy The Advantages

One of the biggest benefits of making a pre-payment to your mortgage is that it will reduce your amortization period, as well as your interest due, freeing up money for you sooner. So, once you have found the right pre-payment option for you it’s now time to use the pre-payment privileges to your advantage. This extra money can be put to beneficial use like adding a new addition that will allow you to generate rental income or contribute to your RRSP and use the tax savings to add a further contribution towards your mortgage.

Talk to a mortgage advisor today at Financial Forum, we can help you create a better mortgage plan so you can start taking advantage of pre-payment privileges today!

 

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Often times when arranging a new mortgage a client will ask or be asked; fixed or variable rate mortgage (VRM)? The answer to that is really dependent on a few different factors, and while a variable mortgage may be good for one client, the exact same scenario may be opposite for another. So what exactly are the differences between the two and how can you decide what is best for you? Here are a few points that may help you understand better:

calculator mortgage

How they work:

The obvious answer is in the names themselves; one rate is fixed and one is variable, meaning that a variable rate mortgage can fluctuate over your term. What exactly is the variable? The variable that you are given is your variance to the prime rate, which will be locked in over your term. For example, your VRM today would look something like Prime -0.25%. Prime today is at 2.70%, which means your rate today would be a NET 2.45%. The variance you are given when you sign up for your mortgage does not change over your term, similar to a fixed mortgage it is locked in. What changes would be your NET rate as it relates to PRIME, which can fluctuate. If prime were to rise by 25 bps or 0.25% up to 3.05%, then your new rate would be 2.80% (3.05% less 0.25%). As prime changes so does your rate, which means your payment and amount paid toward principal changes as well.wallet 1

Flexibility:

A variable rate mortgage is a little bit more flexible than its fixed counterpart. If you were to break your mortgage prior to expiry, your penalty while on a VRM would likely only be 3 months interest. On a fixed rate, your penalty would be the greater of 3 months interest and interest rate differential (IRD), which can get quite pricey if you are only a couple of years into your mortgage.

Who Should Consider a Variable Mortgage?

Someone who is considering going with a variable rate mortgage is typically more comfortable with a bit of risk and the possibility of fluctuation payments. Also, as explained above with the different penalty types, if you are planning to sell your home or pay it off in full within the next couple of years, then you may want to consider a VRM to get that flexibility when it comes time to break it. A client who has a very fixed budget and income would not likely benefit from going with a VRM mortgage, as the possibility of changing rates can throw a wrench into budgets and plans. In today’s lending market, fixed rates are not much higher than the variable at all. So in a case where a client is financing a family home and intends to live there for the foreseeable future, they may be better to take advantage of the low fixed rates and lock in.

Is the Mortgage Process Different? Are There Added Closing Costs?

The closing costs will be the same whether you are getting a fixed rate or a variable rate mortgage, there are no added fees or extra steps in selecting a VRM. The only real difference in the application process comes in qualifying your deal, or in other words, the income used to support your payments. Due to the volatile nature of a VRM, lenders need to ensure you can handle the payments should rates increase. To do this, they will use a qualifying rate from the Bank of Canada as the interest rate when calculating the payments and see if your income is able to support the payments at that level. This gives a buffer in case rates go up. For example, a VRM would be around 2.45% right now, but you would be qualified using a rate of 4.64%. This does not mean you need to pay 4.64% on your mortgage it is only used during qualification.

Benefits vs a Fixed Mortgage:House tiny

Again, this depends on some of the factors listed above. But using today’s market, a VRM is less than a fixed rate mortgage right now by a little bit. This means that you would be paying more towards your principal and less towards interest on your monthly payments. However, should prime rate increase you could end up on the other end of the scenario.

Hopefully this helps you to better understand what a variable rate mortgage is and if it is right for you. As always, when seeking a mortgage you should ask all the right questions and have your broker explain all these things to you. If you think a variable rate may be beneficial to you then ask your broker to compare the two over a 5 year term and make an informed decision.

That is basically the ins and outs of buying a home for the first time. There are different ways to make sure you are taking full advantage of these programs and proper ways to apply for them. Make sure you discuss this with your mortgage broker or real estate lawyer so you get what you are entitled to.

Have an idea for an article or something you would like to see posted? Post it in the comments below or on Facebook and we will do our best to produce it for you. Or sign up for our email reports to stay up to date with market news and special rate promotions.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.

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Buying your first home can be an exciting and rewarding experience. Not only does it likely represent the biggest and most important investment you will make, but it can represent so much more; freedom, independence and growth. But outside of the obvious benefits listed above, what are some of the advantages a First Time Home Buyer (FTHB) is entitled to? We’re going to map it out for you in two different scenarios. The first is if the person(s) on title is a first time home buyer and the second is if there are two people buying a home and only one is a FTHB. For example if a couple is buying a house, and one party is not a first time buyer and the other is.

All parties are First Time Home Buyers:

FTHB 1

One of the parties is a First Time Home Buyer and the other is NOT:

FTHB 2

There are basically three different levels to this; Federal, provincial and municipal (Toronto). The Federal aspect is the First Time Home Buyer’s Tax Credit (HBTC) which entitles you to a rebate of $750 on your income tax return so long as you can show $5,000 in expenditures, including LTT. To qualify, neither party buying the house can have lived in a houseBusiness & Finance they owned in the year of your purchase or the previous 4 years. If one of the parties is not eligible, the one who is a FTHB cannot claim this rebate. The other Federal aspect is being able to access your RRSP tax free. When withdrawing funds from your RRSP account, you pay taxes on it. However, if you are a first time home buyer, you are able to use up to $25,000 tax free. Even if one party is not eligible, the one who is can use this benefit.

Next is the provincial land transfer tax rebate. The land transfer tax payable is dependent on the purchase price of the home. You will receive up to $2,000 of this money back, so if your total LTT is less than $2,000 you will get a full refund. If only one party purchasing the home is eligible, you will get half of this rebate. To calculate LTT, use this calculator.

When purchasing a home in Toronto, an additional Land Transfer Tax is payable. A First Time Home Buyer is entitled to a rebate of up to $3,725 and half of that, $1,862.50, when only one applicant is eligible.

That is basically the ins and outs of buying a home for the first time. There are different ways to make sure you are taking full advantage of these programs and proper ways to apply for them. Make sure you discuss this with your mortgage broker or real estate lawyer so you get what you are entitled to.

Have an idea for an article or something you would like to see posted? Post it in the comments below or on Facebook and we will do our best to produce it for you. Or sign up for our email reports to stay up to date with market news and special rate promotions.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.

Best Home Loans & Financing - The Financial Forum

 

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!

The number 1 question customers ask when shopping for a mortgage is and likely always will be “what is the lowest rate I can get?”. While obviously an important aspect of your mortgage, getting the lowest rate isn’t always the be all and end all and we are going to give you some examples of that.Business & Finance

One of the most glaring examples of why you need to look past the allure of the low interest rate is the penalty. Countless times we have had customers come in to refinance or sell their home only to have the efforts crushed by an astronomical penalty associated with breaking their mortgage. When the clients are appalled as to why their penalty is so high above the norm, the answer is often simple; at the time when they were given their mortgage, they were coaxed into signing with a sexy low interest rate, much lower than everything else on the market. What they weren’t told or chose to ignore was that this “special” offer was what is referred to as a “no frills” mortgage. Meaning, that in exchange for a super-discounted rate, the lender does not offer any pre-payment privileges or flexibility and when it comes time to break the mortgage, the penalty is through the proverbial roof!

When shopping for your mortgage, you need to weigh out all of your future plans, goals and of course leave some wiggle room for the unplanned events that life invariably brings our way. If you are planning to sell or renovate in a couple of Business & Financeyears, this should be accounted for. Even if you aren’t, to save 10 bps (0.10%) on your mortgage may not be worth the “no frills” trade off. Make sure you have your bank or broker explain these things to you. A good broker will always go over these things with you anyways.

Another item you may want to consider are costs associated with the mortgage closing as well as services throughout the term. One lender may be offering 2.49% instead of 2.59%, however they require you to pay more upfront on closing and those costs may outweigh any interest savings over your term. Some lenders may not offer online access which may be an important item for you.

The bottom line is you need to look at your mortgage as a whole when choosing the right product for you. It isn’t always about going with the lowest rate or the biggest brand name bank. Have your broker explain your options to you and discuss in detail what your future plans and goals are. Their job is to find you the best possible product for your wants and needs and to ensure you get the best mortgage available to you, and that certainly is not defined solely by rate.

Have an idea for an article or something you would like to see posted? Post it in the comments below or on Facebook and we will do our best to produce it for you. Or sign up for our email reports to stay up to date with market news and special rate promotions.

Have any questions, need any advice? Visit us at www.thefinancialforum.ca. Email us at mortgages@thefinancialforum.ca. Call us at (877) 335-4486.

Best Home Loans & Financing - The Financial Forum

 

VERICO The Financial Forum Ltd.

“Your Connection To A Better Mortgage”

Together, We Make Mortgages Easy!