• 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 your 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.

• 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.

• 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.

• 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 of identity 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; insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly 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.

• 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.

Mortgages in Canada are generally amortized between 25 and 30 year terms. While this seems a long time, it does not have to take anyone that long to pay off their mortgage if they choose to do so in a shorter period of time.

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• Making mortgage payments each week, or even every other week. Both options lower your interest paid over the term of your mortgage and can result in the equivalent of an extra month’s mortgage payment each year. Paying your mortgage in this way can take your mortgage from 25 years down to 21.
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• When your income increases, increase the amount of your mortgage payments. Let’s say you get a 5% raise each year at work. If you put that extra 5% of your income into your mortgage, your mortgage balance will drop much faster without feeling like you are changing your spending habits.
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• Mortgage lenders will also allow you to make extra payments on your mortgage balance each year. Just about everyone finds themselves with money they were not expecting at some point or another. Maybe you inherited some money from a distant relative or you received a nice holiday bonus at work. Apply this money to your mortgage lender as a lump-sum payment towards your mortgage and watch the results.

By applying these strategies consistently over time, you will save money, pay less interest and pay off your mortgage years earlier! 

About: Limor Friedman is the owner of Vancouver In The Box, packing services.  The company provides 1 day packing for your move, and serve clients in Metro Vancouver area. vancouverinthebox.com

Home prices in the Lower Mainland continue to be very high relative to both incomes and savings, making it difficult for buyers to find homes that suit their needs.  Many of the homes that are for sale are in need of substantial renovation work, including such things as new flooring, roofing, or landscaping.  Still more homes can be made more liveable by improving them with upgrades like the addition of a basement suite, or a new kitchen or bathroom.

Unfortunately, because prices are so high, many Borrowers struggle with down payment and cannot afford the additional immediate cost of renovations.  Thankfully, the mortgage market has created a product called “Purchase plus Improvements” to address this very issue.

Lenders will typically require a down payment of at least 5% of the Purchase Price, which is too often most (or all) of the Borrowers’ savings, leaving little left over for renovations or improvements. Under the Purchase plus Improvements program, lenders will allow the cost of Renovations to be added to the Purchase Price – the required down payment is only 5% of the total.

In order to qualify for Purchase plus Improvements, a firm quote from a qualified professional must be received and approved by the lender prior to subject removal. The steps involved are a little more complicated than with a standard mortgage, and vary a little between Lenders. If you are looking to purchase a home and renovate right away, contact your licensed mortgage broker to guide you through the process.

• Most lenders enable lump-sum payments and increased mortgage payments to a maximum amount per year (as much as 20% of the original borrowed amount). 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. 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.

• There are several things you can do to ensure your credit remains in good standing. Check out my previous post on credit scores and my 5 step plan on how to improve them: What’s your credit score and how do you improve it? 

• 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 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.

As credit has become more and more abundant in our society, your credit report, and thus your credit rating, has become more important in your daily life. Your credit rating affects all aspects of your financial activities when it comes to borrowing money. Your credit rating also has the ability to affect the job you get, the apartment you rent, and even the ability to open a bank account.

Your credit report itself is simply a listing of all of your mortgage and consumer debt. Here in Canada, the two main credit reporting agencies are Equifax and Trans Union. Both agencies have a credit history file on anyone who has ever borrowed money. Every time you borrow money or make a payment on a loan or credit card, the lender then reports the information about the transaction to these two agencies. In addition to credit information, you will also find liens and judgments on your credit report as well as your address and possibly your work history. The accumulation of all of this information is called your credit report.

The information on your credit report varies based on your creditors and what they have reported about you. Potential lenders and others, such as employers, view your credit history as a reflection of your character. Whether we like it or not, our financial habits have a lot to say about the way in which we choose to live our lives. The credit score, or beacon score, is a number which gives mortgage lenders an idea of your lending risk.

Credit scores range from 300 to 900, the higher your credit score the better. The mortgage products and interest rate that you will qualify for are often determined by your credit score.

One thing that many people do not know is that you have the legal right to obtain a copy of your credit report. A mortgage professional can help you obtain a copy of this report and go through it with you to verify that all of the information is true and correct.

The good news is that your credit report is a working document. This means that you have the ability over time, to repair any damaged credit and increase your credit score. At Primex Mortgages, we have devised a 5-Step plan to improve your credit score:

1. 1. Ensure Your Information is Accurate: Request a copy of your credit report at least once a year to ensure your information is correct. When you request your own credit report, it does not affect your credit score. Solution: Contact Equifax immediately to ensure all of your information is correct. 

2. 2. Stop Applying for Credit: Every time you apply for credit it reduces your score by approximately 5 points. People are mistaken when they think that simply applying for credit can’t hurt them and often think if they are denied the credit that others will know. The biggest factor that affects your score is the inquiry not the decision. Solution: Only apply for credit if you need it for a specific purpose. 

3. 3. Pay Down or Pay Off Your Balances: If you have a balance over 75% of the account limit, it is reported negatively each month even if you make your payments on time. This allows creditors to think that you are relying on your credit card and puts you at higher risk. Example: if you have a credit card with a $1,000 limit and the balance is $750 or higher, it gets reported negatively each month, which in turn lowers your overall score. Solution: Consolidate your debts if you can to one account and ask for an increased limit so that balance does not exceed 75% of the limit amount. 

4. 4. Pay Your Bills On Time: Having a late payment is recorded to the credit bureau if you are 30 days beyond the due date. Solution: PAY ON TIME, while rebuilding your credit it is crucial to pay your bills on time. If for some reason you cannot, contact the credit company prior to the due date and advise them of when the payment will be made so they can put a note in your file. In this case, they may not report to the Bureau as a late payment. Lenders are on your side when they see good intentions of paying your debts.

5. 5. Only Charge What You Can Afford: Intend on paying your credit card off each month. Only spend what you can afford. Getting in to this habit will leave you with a high credit score for the future as you become disciplined in managing your credit. People often stop using their credit out of fear however you must use credit in order to build it. Use it wisely. Solution: Create a monthly expense budget and use your credit card for small purchases that can be paid off each month. THIS IS THE FASTEST WAY TO INCREASE YOUR CREDIT SCORE.

The decision to choose a fixed or variable rate is not always an easy one. It should depend on your tolerance for risk as well as your ability to withstand increases in mortgage payments. You can sometimes expect a financial reward for going with the variable rate, although the precise magnitude will ebb and flow depending on the economic environment.

Fixed rate mortgages often appeal to clients who want stability in their payments, manage a tight monthly budget, or are generally more conservative. For example, young couples with large mortgages relative to their income might be better off opting for the peace of mind that a fixed-rate brings.

A variable rate mortgage often allows the borrower to take advantage of lower rates — the interest rate is calculated on an ongoing basis at a lenders’ prime rate minus a set percentage. For example, if the prime mortgage rate is 3.00%, the holder of a prime minus 0.50% mortgage would pay a 2.50% variable interest rate.

Over the past several years, variable rate mortgage holders have consistently outperformed fixed.  In 2000, prime rate was as high as 7.50%, but has declined pretty steadily and has sat at 3.00% since October 2010. Historically speaking this is incredibly low, so variable rate holders should reasonably expect rates to rise over time … that said, nobody is expecting an increase to 1980s-era rates and the consensus opinion seems to be that 3.00% will hold in the short-to-medium term.

If you do decide to go with variable rate, keep an eye on the financial markets – in general, a stronger economy leads to inflation, which leads to higher interest rates.  As the federal government attempts to manipulate the economy through various policy applications, higher Bond Yields will cause Fixed rates to rise, and increases to the Bank of Canada “overnight lending rate” will cause Prime rate to rise.