By Ozzie Jurock
For most Canadians, today's mortgage market is bewildering. Product varies from lender to lender; they are under prime, tied to prime, prepaid, cash back, weekly, biweekly, and transferable mortgages ... some throw in a toaster.
Fact is, the mortgage market is very competitive. Banks LIKE to have your mortgage in their portfolio, particularly when it is an insured mortgage (no risk to bank - big cost to YOU!)
There are essentially two kinds of first mortgages:
The lender uses it?s own money - uninsured and will only advance up to 75%. If you have 35% down you need no income or down payment verification - just clean credit. This is also an easy way for an offshore mortgage.
No premium for insurance applies.
The mortgage is insured through either CMHC or GE CAPITAL (may have more flexibility sometimes). The amount then advanced is up to 95%. At great cost!
Premiums apply: YOU pay for the privilege to insure the BANK:
If you have 10% down it is 2.5%
If you have 5% down it is 3.75% or 50% higher
If you have a $200,000 home
5% down $10,000, mortgage amount $190,000, premium: $7,125!
10% down $20,000, mortgage amount $180,000, premium: $4,500!
1. If you are a first time buyer using your RRSP funds and you are around 7% down it is worthwhile to ?top up? your downpayment to get to 10%.
2. Also, if you use your RRSP under the homeownership plan read the story where you can have the government, in certain cases, pay off your mortgage: "Have your cake and eat it too!" (Member's Only)
3. If you have 20% down it pays to scrape up the extra 5% and save the whole insurance fee!
4. Generally if you have a longer term, the lowest rate is better than a lot of the frills
5. Do not be afraid to use a reputable mortgage broker
IV. Different offers:
1. Scotia Bank and Canada Trust offer a new insurance:
Critical illness, life threatening heart attack ... mortgage gets paid off even if you are able to work. Includes regular mortgage insurance
2. Often second mortgages/credit line combinations make better sense then refinancing a large first
3. Lenders are offering all sorts of programs: CIBC below prime rate mortgage intro rate 5.99% for 9 months ... then 1/4% below for 3 years. Locked in. Canada Trust 3% cash bank ... posted rate...
4. Bi-weekly mortgage payments pay off the mortgage faster by 20%
All rates can be beaten.
Under 1 year by half a per cent;
1 - 3 years by 3/4%;
Over 5 years by 1 - 1.25%.
Use your mortgage broker to find out:
The Mortgage Source, Colin Dryer 1-800-465-6275
Nova Financial, John Ribalkin 604-985-9511
Invis, Brad Currie 604-816-5198
But rates aren?t everything - look at fine print ... Sometimes a traditional mortgage (portability, special insurance, cash back) ... all offset the lower rates.
So shop! The lowest short-term rate may be very painful when at renewal you face a much higher rate. Ask yourself, if my mortgage was a $100 higher could I afford it? Otherwise go long ... we are in a rising interest rate environment.
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