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Mortgage-Matters

The best mortgage term

Most borrowers focus on finding the best interest rate when they are shopping for a mortgage.

That is, of course, important as it determines what amount you will be paying for your monthly payments, but you need to look beyond the interest rate to the length of your mortgage contract (the term) as that will have the most impact on your overall costs.

The term of your mortgage, how long you have before you need to renegotiate your mortgage, should be your primary concern, as that will affect the flexibility you have with your mortgage.

We have mortgage terms available from six months to 10 years, so many options available with many different lenders.

Let’s take a look at three of the more common mortgage term lengths in Canada.

Three year fixed term

This mortgage term is chosen by approximately 20% of mortgage borrowers as it offers the flexibility of a shorter term mortgage.

This is great option if you are uncertain about what the future might hold as long-term plans may not be firm. It offers a great interest rate for a reasonable period of time and, at the end of the term, you can reconsider your options.

It might take a little more comparison of lenders to find the best three-year rate as the low promotional rates are not available quite as often with this product but the rates are generally lower than a five year fixed term mortgage at most times.

Five year fixed term

This is the most popular mortgage term in Canada. More than 50% of borrowers commit to a five-year, fixed-term mortgage.

Why? Because it’s the term that is pushed most by the big banks. And why do banks push five year fixed term mortgages — it’s a great investment for a bank. They lock you in for a long period of time and if you break the mortgage early, they can charge you a penalty.

They are counting on you to stay with them for five years and if not they are going to penalize you.

The reality is that close to 60% of borrowers who have a five-year, fixed-term mortgage break their mortgage early either:

  • To refinance to access equity
  • There’s a marriage break up and the home needs to be sold
  • There’s a lower rate available at another lender and they want to switch lenders.
  • Any number of reasons.

Rates on five-year, fixed-term mortgages tend to be slightly higher than shorter-term mortgages unless a lender happens to be promoting a rate special but it’s a good midpoint for a rate hold.

10 year fixed term

This is the least popular mortgage term in Canada, but it’s an option that should be considered more when making a decision for your mortgage term.

It’s a fairly safe choice if you have no plans to sell your home and move in the next 10 years. It gives you the security of knowing that your mortgage payment will not increase for a long time.

This one is for the long-term planners who are staying put.

If you break your mortgage term within the first five years on a 10-year term, you could be facing massive penalties, but if you go past the first five years, then the maximum penalty that can be charged is three months interest.

A potentially lower penalty than if you had taken a five year, fixed term then renewed for another five-year term and then break your mortgage before the end of the second renewal term.

Rates are slightly higher than other terms but today’s rate at one my lenders is offering 3.04% for their 10-year term. Historically speaking, this is a great rate.

My best advice is to consider more than just a five-year, fixed-term mortgage when you are choosing your mortgage term.

As your mortgage broker, I will review both your long term and short term plans so you can make your best decision. There are so many options available so don’t get stuck on a five-year, fixed-term because you believe it has the lowest rate.

Your term needs to fit both your long-term and short-term goals to work for you.

Please give me a call if you would like to discuss further at 1-888-561-2679 or email [email protected]. Let’s put your mortgage to work for you rather than vice versa.



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B.C. vacation properties

It’s looks like we will be spending another summer close to home this year, so rather than COVID-19 slowing down the real estate market, due to pent-up demand or the desire to get away from crowds, the vacation property market is hot.

Retirees and baby-boomers are driving vacation property purchases, but here in B.C., professional couples and families are also buying vacation homes.

The average price for a vacation home in British Columbia is expected increase by 13% in 2021, according to a survey from Royal LePage. The biggest challenge is extremely low inventory and high demand.

Are you dreaming of a summer cottage on the water or a cabin in the woods for weekend getaways or to get away from the crowded city during this pandemic?

The first step is always going to be a mortgage pre-approval but, let’s take a look at some of the options for mortgage financing.

Many are accessing equity in their primary residences to make these purchases but there is also a great insured mortgage program available to make your dream of owning a vacation property a reality with a little as a five per cent down payment required.

Here are the types of properties that can be covered under this program.

Type A properties:

  • Must be owner-occupied or occupied by an immediate family member
  • Located in good marketable areas with evidence of re-sale demand.
  • The property value must be less than $1 million
  • The maximum mortgage amount allowed is $600,000 for most of Canada
  • Maximum of one unit
  • For properties valued up to $500,000 a minimum down payment of five per cent is required.
  • For properties valued over $500,000 and less than $1 million – five per cent down payment is required up to $500,000, with an additional 10% down payment on the portion of the home value above $500,000

As a side note, this program can also have other uses. Perhaps you are considering a place for your children to live while they attend university, a condo in the city to avoid the hectic commute or to help buy a home for your elderly parents who are on a fixed income. This is possible as long as the family members are living there on a rent-free basis.

Type B properties:

The same details are required for these properties as above except for the following:

  • The property does not need to be winterized
  • Seasonal access is permitted (road not plowed during the winter)
  • A minimum of a 10% down payment is required for these types of properties.
  • Properties located on an island must have year-round bridge or ferry access.
  • The maximum mortgage amount is $350,000.

Up to 95% financing is available for owner occupied properties all across Canada including hotel condo units but these units must be high ratio insured.

There are many financing options available through a wide range of lenders. The requirements for mortgages on secondary and vacation home properties can vary greatly from lender to lender so you will want to make yourself aware of all of the choices available in the mortgage marketplace.

You’ll want the best possible financing options for your new real estate investment.

Instead of waiting many years to save enough to purchase a vacation home, you may be able to access the equity in your principal residence to finance the purchase.

This involves a cash-out refinance of your property and there again are many options available. Other down payment options may include a second mortgage on your current property, personal savings or gifted funds (Type B property purchases do not allow for gifted down payments.)

With our current interest rates very low, now might be the time to get serious about your dream to own a vacation property.

If you would like to explore your options so you can enjoy a new vacation home this summer please give me a call to discuss at 1-888-561-2679.



Step 1 is pre-approval

The real estate market is on steroids right now so is a mortgage pre-approval important?

The short answer is yes and the long answer is yes.

It is definitely important, so you have the confidence to move forward with your house hunting. A pre-approval is for you and not the lender.

The 60-second mortgage app you used online is not a pre-approval and can loosely be called a
pre-qualification.

The term pre-approval is somewhat misleading as we cannot guarantee that you are 100% approved for your financing because there are many variables that will factor into your final mortgage approval including the lender reviewing the property you are purchasing.

(Please read that again if you are considered an unconditional offer on a property.)

A mortgage pre-approval can give you the confidence to know that you fit within the guidelines of a mortgage lender and also a mortgage insurer if you require an insured mortgage for your purchase. It will also establish a realistic budget for your new purchase.

We are going to review your income documents and confirm the source of your down payment funds. You will know if there are any areas of concerns and we will discuss a plan to move forward.

Here are the benefits of getting pre-approved.

  • You will know your price range before you start house hunting.
  • Your realtor will know exactly what type of property you should be looking at so that can save you both time and also narrow down your home search.
  • Being pre-approved can give you an edge over other buyers as you may be able to close quicker and that might be important to the seller.
  • There aren’t going to be any surprises as you will already know how much you require for a down payment, closing costs and how much your monthly mortgage payments are going to be.
  • A pre-approval also gives you the benefit of securing your interest rate for up to four months. This is a great benefit especially if interest rates are predicted to increase.

Here’s another tip – you don’t have to wait for an appointment at your bank to obtain a mortgage pre-approval. The first request I often receive is for a meeting and I am always happy to accommodate my clients, but an in-person meeting is not required for a mortgage pre-approval.

Most are happy to find out that we can complete the process via a secure online client portal, telephone and email including collecting the required documents.

This is generally more convenient for my clients and a great time-saver which can result in the pre-approval being completed in one day most times. It’s a simpler process than most think.

I can complete your pre-approval most likely before you even get to an appointment with your bank.

Once you have a pre-approval in hand you can then start your home hunting with confidence.

Mortgages are complicated these days and the last round of new mortgage qualification rules are making it more difficult for all to obtain financing so it’s better to go through the simple process of a mortgage pre-approval before moving forward with placing an offer on a new home.

It will save you time and stress.

A mortgage pre-approval is recommended not only for first time home buyers but also for current homeowners who may be considering selling and moving to a new property.

I’ve had many clients be surprised that it’s no longer as simple as it once was to obtain mortgage financing. If you are listing your property for sale please speak to a mortgage broker first.

Before you fall in love with a home you should know if it’s within the reach of your finances. The first person you should call before reaching out to your realtor is a professional mortgage broker, so please give me a call at 1-888-561-2679.





Reverse mortgage FAQs

Reverse mortgages are quite often misunderstood and there are always lots of questions.

Here are some of the most frequently asked questions with the answers.

How does a reverse mortgage work?

A reverse mortgage is secured by the equity in your home. Unlike a traditional mortgage in which you make regular payments, no monthly payments are required.

The big advantage with a reverse mortgage is that you do not have to make any regular mortgage payments for as long as you or your spouse lives in your home.

Who is it for?

A reverse mortgage is designed exclusively for homeowners age 55 and older. This age qualification applies to both you and your spouse.

How much can I get and how is it calculated?

You can receive up to 55% of the value of your home. The specific amount is based on your age and that of your spouse, the location and type of home you have, and your home’s current appraised value.

You can contact me and I can quickly give you an estimate of how much you may be approved for.

How do I receive the money?

You can choose how you want to receive the money. A reverse mortgage gives you the option of receiving all the money you’re eligible for in one lump sum advance, or you can take some now and more later, or you can receive planned advances over a set period of time.

Will the homeowner owe more than the house is worth?

The homeowner keeps all the equity remaining in the home.

In my many years of experience, more than 99% of homeowners have money left over when their mortgage is repaid.

The equity remaining depends on the amount borrowed, the value of the home, and the amount of time that’s passed since the reverse mortgage was taken out.

Will the bank own the home?

No. The homeowner retains title and maintains ownership of the home. It’s required for the homeowner to live in the home, pay taxes on time, have property insurance, and maintain the property in good condition.

What if the homeowner has an existing mortgage?

Many of our clients use a reverse mortgage to pay off their existing mortgage and debts.

Should reverse mortgages only be considered as a last resort?

No. Many financial professionals recommend a reverse mortgage to supplement monthly income instead of selling and downsizing, or taking out a conventional mortgage or a line of credit.

What fees are associated with a reverse mortgage?

There are one-time fees to arrange a reverse mortgage such as an appraisal fee, fee for independent legal advice as well as a fee for administration, title insurance, and registration.

With the exception of the appraisal fee, these fees are paid for with the funding dollars.

What if the homeowner can’t afford payments?

There are no monthly payments required as long as the homeowner is living in the home.

If you are interested in more information about a reverse mortgage, please give me a call if you have any questions at 1-888-561-2679 or email [email protected]



More Mortgage Matters articles

About the Author

April Dunn is the owner and a Mortgage Broker with The Red Door Mortgage Group – Mortgage Architects. She has been assisting clients to purchase, refinance or renew their mortgages for over 20 years.

April has experience as a Credit Union manager, a Residential Mortgage Manager with a large financial institution and as a licensed Mortgage Broker. By specializing in Strategic Mortgage Planning she has the tools available to build a customized mortgage plan, with the features and options that meet your needs.

April provides a full range of residential and commercial mortgage financing options for clients all over the province of British Columbia and across Canada through the Mortgage Architects network.

Contact e-mail address: [email protected] or by phone at: 888-561-2679.

Website:  www.reddoormortgage.com



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The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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