|
Navigate |
||||||||||||||
|
||||||||||||||
During his fifteen years as a Calgary real estate agent, Len has established himself as a market leader selling hundreds of homes each year. Len's extensive experience has helped him consistently rank in the top One Percent of Canadian RE/MAX realtors. His team are currently #1 in Calgary, with 96 million dollars in real estate sold in 2006. Len and his team work hard to ensure that their clients benefit from the latest innovations in real estate technology. So if you have a Calgary home for sale, they will create a marketing strategy that will sell your home for the amount you deserve, in a professional and timely manner. Contact Len:
|
|
Types of Mortgages |
Conventional and High-Ratio Mortgages
From a lender's perspective there are two very basic types of mortgages; those with a loan-to-value ratio under 80% (conventional), and those with a loan-to-value ratio over 80% (high-ratio). If a mortgage is high-ratio it is considered too high-risk for the lender to take on themselves, so the mortgage must be backed with mortgage insurance (traditionally by CMHC, but there are now several private insurers as well). This means that you, the borrower, must pay a premium if your mortgage is more than 80% of your property value.
|
 |
First and Further Mortgages
A first mortgage, as the name implies, is the first mortgage to be registered at the Land Titles Office for a property. If a lender wishes to pull more money out of their property they will typically try a refinance (see below), but if the lender does not want to take on more risk than the borrower will need to get a second mortgage.
A second mortgage is in second position to the first mortgage, and as such will have a higher interest rate. If the borrower defaults on the loan the second lender assumes the first mortgage and is responsible to pay it. If the property value has gone down, the second lender essentially loses that money - which is why there is so much more risk in mortgages past the first position. A borrower can go on to take a third, forth, etc., mortgage if they can find lenders willing to take the risk, property values are moving in the right direction, and they are prepared to pay the high rates of interest.
A wraparound mortgage is a complex form of a second mortgage. A second lender assumes the first mortgage, and instead of the borrower paying both lenders, they just pay the second lender a payment which includes what is owed to the first lender, and is thus a higher payment with higher interest payments. |
|
Refinancing, also known as equity take-out, can occur for two reasons; to gain a more favourable interest rate, or to pull more money out of a property. This can be done if your property value has gone up substantially, and/or if a good portion of your mortgage has been paid down over the previous years. The result is a greater principal value of your mortgage, and thus higher payments, but a larger capital base for you to draw on for your own purposes.
|
|
Variable vs. Fixed & Open vs. Closed
It's important to know the differences between these very different programs.
Variable rate mortgages are tied to prime, and as the Bank of Canada adjusts their rates your interest rate and mortgage payments will increase or decrease in direct relation. Fixed rate gives you the stability of knowing what your payments will be for the term of your mortgage. Thus, if you think rates are likely to decrease you should go with a variable rate product, but if you think they will go up or are unsure it is usually best to go with a fixed rate.
A closed mortgage is a mortgage that cannot be paid off before the end of the term without a penalty. However, you are usually able to pay down up to a certain percentage of your mortgage on each anniversary, depending on the lender and product. Open mortgages are less common, and will cost you a premium, but allow you the flexibility of paying down/off your mortgage at any time.
|
|
Renewal and Assumable Mortgages
When the term of your mortgage is up you have the right to pay down a portion or all of your mortgage. The part you do not payoff must be renewed at the current rates of interest. This can be done with the same bank, or you can choose to bring your business to a different bank at this time with no penalty. This is called a "switch," and is something you might do if you find a more favourable interest rate or program at a different bank. If you want to switch banks during the term of your mortgage (i.e. within 5 years in a 5 year term, 25 year amortized mortgage) you will have to pay a penalty which is typically about 3 months' payments.
An assumable mortgage is one that can be passed on to the purchaser of your property should you decide to sell it. Alberta is the last province in Canada to not require that the purchaser qualify, although this is quickly changing. Many banks in Alberta now require the purchaser to qualify before the mortgage is assumed.
|
|
Home Equity Line of Credit
A HELOC is a flexible alternative to a traditional mortgage which lets you pay back as much or as little of your "mortgage" as you'd like. First the bank loans you up to 80% of the value of your home, depending on how you qualify. You then pay it back as you would a regular mortgage, but as you pay it back your available credit increases, and you can make withdrawals as you would from other revolving credit, such as a credit card.
This has two very clear advantages to the consumer. First there are no penalties for paying off your whole mortgage as early as you would like, much like an open mortgage. Secondly you can use your house like an ATM and draw down against it as you see fit.
|
|
Agreement for Sale and Rent-to-Own
An Agreement for Sale (AFS) is an unconventional mortgage where the seller agrees to sell their property when certain conditions have been met, and payments have been made by the purchaser. The property title stays with the seller, but mortgage payments are made by the buyer under the AFS. This is sometimes used when the buyer cannot find conventional financing.
For all practical purposes rent-to-own is the same as an agreement for sale. The seller keeps the rights to the property and "rents" it, with a certain portion of the rent going towards the buyers down payment on the property. The buyer then takes possession of the house 2-5 years later, using the proceeds set aside as down payment. This is used by buyers with poor or no credit.
|
|
|
Interim/ bridge financing
Interim financing is a short term loan that is secured by property. It can be used during construction (see below for other options in this case), or during the re-financing interim, or simply as a short term loan. It's important to note that interest rates are often higher on this type of mortgage because of the short term and higher risk for the lender.
|
|
Builder's loan and umbrella mortgages
A builder's loan is a mortgage that is given in stages to finance the construction of a property. As the property is built the progress is monitored and the lender provides financing in pieces as they see their collateral coming together.
An umbrella mortgage is taken when a builder is building multiple properties and needs financing for the whole project. As properties are sold the umbrella mortgage is paid down and partially discharged.
|
|
Resources
|
||||||||
|
||||||||
After finishing his Finance degree at McGill University Chris obtained his mortgage brokering license here in Calgary. He has since worked with several of Canada's top brokers, and has quickly gained a reputation as the "go-to" agent for many of Calgary's realtors. Chris attributes his ability to take complicated scenarios and turn them around in record time to the talented team he works with, and his relationships with over 40 different lenders. "If you have any questions on the current Calgary housing market, your ability to finance your next home, or just need a mortgage put together quickly at a great rate, give me a call!" Contact Chris:
|
