Dawn Taylor Re/Max -Vernon, British Columbia

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If you would like some basic questions answered about mortgages, please read the following.

What is a mortgage broker?
    A mortgage broker is a licensed mortgage specialist who can tell you whatís available in the marketplace from banks and lenders across Canada and can guide you through the mortgage process. Mortgage brokers are also able to pass volume discounts directly on to you because of the high quantities of mortgage products they acquire.

Mortgage agents can describe their job as educating the consumer on exactly what theyíre signing. Their role is to create a buffet of products and help the consumer make a choice.  They do a needs assessment and make sure the clients clearly understand the flexibility and features of the mortgage that will enable them to make a decision as soon as possible.Ē

Mortgage brokers are an origination service. That means that the  mortgage broker originates your mortgage financing for you, but a bank or financial institution provides the money and services your mortgage after the closing.    

Whatís the difference between a mortgage broker and a mortgage agent?
 Mortgage brokers can have agents working underneath them. Each agent has to work under the license of a mortgage broker. The brokerage is accountable for the agentsí work.
How are mortgage brokers paid?
   Their commission is paid by the bank or lender providing the mortgage product based on how much money the consumer borrows. Mortgage brokers arenít compensated on the interest the bank makes, so they donít receive a higher commission if the client chooses a higher rate. It varies a bit, but the commission generally works out to an average of $80 per $10,000 of the consumerís loan.  

Whatís a fixed mortgage rate?

ĎFixedí means your interest rate and regular payments will be the same for the duration of your mortgage term, whether rates rise or fall. It offers you stability and the least financial anxiety. But if interest rates drop significantly, you may be stuck paying a higher rate for the duration of your term, depending on the flexibility and features of your mortgage.

Whatís a variable mortgage rate?
Your mortgage payments will go up or down with the fluctuations in the Ďprime rateí, which is the market interest rate. The danger here is that a significant increase in the Ďprime rateí increases your interest payable as well. But if it decreases, youíll pay less.
WhatĎs better? Fixed or variable?
While over 60 percent of Canadians opted for a fixed mortgage rate in 2011, variable rates tend to be cheaper over time. Conversely, you may sleep better knowing youíre not subject to interest rate fluctuations. Making the right choice depends largely on the current rates at the time youíre taking out your mortgage. When interest rates are low and arenít expected to drop further, locking into a fixed rate may be your best option. However, if experts are projecting that interest rates may fall, youíre probably better off with a variable rate, especially if thereís a significant difference between the fixed and variable rates.  

Whatís a closed mortgage rate?

A closed mortgage can be fixed or variable. Closed mortgage rates are popular because theyíre lower than open mortgages rates but unlike an open mortgage, youíre restricted on how much principal you can pay down annually and there will be a penalty to pay a closed mortgage out early. Terms range from six months to 10 years. Despite their low rates and relative stability, there are disadvantages so read the fine print before signing.

  Some banks have introduced fully closed mortgages where during the term, other than an arms-length sale [meaning the sale canít be to a friend or relative] of the home, you canít get out of the contract. Even if you win the lottery and want to pay them out, you canít.

Whatís an open mortgage rate?

An open mortgage can also be fixed or variable. The interest rate will be higher than for a closed mortgage but itís more flexible. Generally, you can pay an open mortgage off anytime or make additional payments without penalties. Terms range from six months to five years so you canít lock in for as long as a closed mortgage. If you want to get rid of your mortgage quickly, or think you may be selling or moving in the near future, this is a good option.

Why are mortgage rates so different?
Rates vary according to institutions. All of the banks have completely different products which is why their pricing is different.  The price you pay depends on what features you want on that mortgage.  Prepayment features are huge. The ability to give additional lump sums of money as often as you can is important because it all goes to the principal. You can get a 2.99 five-year fixed but itís only available on a 25 year max amortization, has limited prepayment privileges, itís closed to term so there are issues with it. The highest is going to have all the bells and whistles but you may not need all those features. Once you understand each rate and each product, youíll choose whatís best for you Ė probably somewhere in the middle.

What is CMHC?
Canada Mortgage and Housing Corporation (CMHC) is a Crown corporation that mainly provides mortgage loan insurance to residential home buyers. It was originally set up in 1946 to arrange post-war housing for veterans. Today it helps Canadians who canít easily afford buying a house through their mortgage default insurance program.

What is mortgage default insurance?

Itís a type of mortgage insurance thatís mandatory in Canada if your down payment for a residential property is less than 20 per cent. The major provider of this insurance is the Canada Mortgage and Housing Corporation.

The insurance costs you between 1.75 per cent to  2.95 per cent of your mortgage amount and you have to buy and pay for this insurance on top of your mortgage. It protects the banks and the money lenders if a home owner defaults on their mortgage but doesnít protect the homeowner. However, lenders do offer lower mortgage rates because their risk is decreased.

If there is any other information you require, please contact me.