A Guide to Real Estate Mortgages

Many people struggle with the decision to buy or lease a home. It’s important to know if you want to own a home before getting yourself entrenched in the process of a real estate mortgage.

But once you determine that you’re ready for homeownership, the next step is to choose a home you can afford. With each mortgage payment, you will be building equity in your own place. It’s essential to consult a mortgage professional to help you determine how much mortgage you can carry comfortably. This will help you evaluate your financial position and set achievable goals concerning the repayment timeline.

Whether you’re a first-time homebuyer or you want to ensure that you’re ready for your next property purchase, here’s a simple guide for the real estate mortgage process:

How much debt can you afford?

A mortgage has four components that affect the affordability of a property and the mortgage, namely: principal, interest, taxes, and insurance. The principal is the total worth of the property for which you hope to be financed. This is usually about 80% of the property’s value. The interest refers to the amount of money you pay the lender for financing your mortgage loan. Property taxes are paid in perpetuity, depending on the location of your home. Insurance is also a lifetime cost that depends on the value of your property.

Lending institutions and mortgage insurers use a formula to determine whether you can afford a mortgage. It can be assessed based on your gross debt service (GDS), which includes your total homeownership costs discussed above, including mortgage payments, property taxes, and other fees. The second measure is your total debt service (TDS), which includes the GDS and debt payments (credit cards, loans, lines of credit), relative to your income. In order to qualify for mortgage insurance, the maximum permitted GDS ratio is 39%, and the maximum allowed TDS is 44%.

How soon can you get the down payment?

For many Canadians, your home is the biggest single purchase you’ll ever make. Getting a mortgage allows you to stretch the payments out over a few years, so you don’t have to save the full $500,000 (national average home price) before moving into your own home. The minimum down payment required for a home is 5%, which translates to about $25,000.

Get Your Mortgage Pre-Approved

You must get a mortgage pre-approval before you can start looking for your new house. A pre-approved mortgage implies that the lending institution has already vetted you for a specific mortgage amount after investigating your financials, including credit rating and income. You will know how much you can spend, your interest rate, and even your monthly payments.

Mortgage pre-approval is the first step in your mortgage approval process and will allow you to move fast and place an offer, which is crucial in a competitive housing market. This, however, doesn’t mean that your mortgage is guaranteed. But if you make an offer on a home you’re interested in, the lender will assess its value to ensure it’s reasonably priced, update your application with specific figures from the property, and re-verify your financials before giving their final approval.

If you can’t put up at least 20% of the down payment, then you must get mortgage insurance. The final mortgage will then be signed off with the approval of the mortgage insurer.

Final Note

The mortgage pre-approval locks in the lender’s mortgage rate for a specific period of 60, 90, or 120 days while you look for a house. So, rising interest rates won’t affect the agreed rates during the period. Also, keep in mind that federal mortgage rules require all borrowers to pass a financial stress test of 200 basis points above the contracted rate (the 5-year Bank of Canada Benchmark) to qualify for a mortgage.

For more information on real estate mortgages, call Northwood Mortgages at 866-307-0747 or contact us here.

source: northwoodmortgage.com

How Monthly Payments Work for a 30-year Fixed-rate Mortgage

When looking for mortgage solutions, the number of options at your disposal can be daunting. For instance, some people may opt for a second mortgage, while others may opt for a 30-year fixed-rate mortgage instead. In Canada, the 30-year fixed-rate mortgage is more popular than the second mortgage option, and accounts for roughly 80% of all home purchases; its popularity has not waned since its inception. Here, we will focus on how monthly payments work for a 30-year fixed-rate mortgage.

What is a fixed-rate mortgage?

A 30-year fixed-rate mortgage is a loan issued by a financial institution that has an interest rate that is fixed for the duration of the loan. It usually has a repayment term of three decades, although the homeowner can refinance or sell their home before the 30-year term ends if they wish. The interest rate is determined when the loan is first issued to the homebuyer.

How Principal and Interest Payments Work

When you make your monthly mortgage payments, a part of the amount will be put towards the interest on the loan, while a portion will be invested towards the principal amount. During a conventional 30-year fixed-rate mortgage, you would be paying mostly interest payments during the first few formative years of your mortgage. As such, you are likely to struggle to reduce the principal by any significant amount during the first few years of the mortgage.

However, as time persists the financial tables turn, and the composition of your monthly payments will flip, as less money will go towards the interest and more is applied towards reducing the principal amount that you borrowed. As you enter the later years of your 30-year fixed-rate mortgage, more of your monthly payment will be put towards paying back the principal, which will allow you to build equity at an accelerated pace.

Your Monthly Payment Remains Constant

While the composition will change over the lifespan of your mortgage, in terms of the payment charges, the actual total amount that you will be expected to pay will not change whatsoever. Moreover, the interest rate that you are expected to pay will also not change. It is for this reason that this mortgage solution is referred to as a 30-year fixed-rate mortgage, as the rate amount remains constant.

Another option that some Canadians may decide to take is an adjustable-rate mortgage. As the name implies, the interest rate may fluctuate throughout the loan, which makes it a riskier option for many Canadians, while the fixed-rate mortgage option is arguably the safer of the two.

To learn more about fixed-rate and variable mortgages, call Northwood Mortgages at 888-492-3690 or contact us here.

source: northwoodmortgage.com

What Happens After Your Mortgage Is Paid Off?

Fixed rate mortgages, variable rates, mortgage terms, payments schedules—these will all be things of the past when your mortgage is paid off. However, you can’t just make your final mortgage payment and forget about it entirely. There are steps to take when finishing paying off your mortgage. So, what happens after your mortgage is finally paid off?

 When Last Payment Is Done

After you’ve made the last payment on your mortgage, you’re still not home free. No matter the type (fixed rate mortgage, variable mortgage, etc.) making the last payment doesn’t clear your debt until the appropriate paperwork is filled out. You’ll also need to pay a discharge fee to the lender to fully rid yourself of the mortgage. The discharge fee removes the legal registration of the burden from the land titles from the lender. Depending on the lender the discharge fee can vary but it’s usually in the $350 range.

There is no law saying you have to pay the discharge fee immediately after making your last mortgage payment but you should do it within months. Without paying the discharge fee you will not be able to sell your home, transfer its title or obtain another mortgage.

Once the Mortgage Has Been Discharged

The lender will send a document to the registry office letting them know that your title is now clean and there is no longer a lien on your property. This means that if you sell your home, all the equity is fully yours. Then, you’ll need to look over your mortgage statement. Fixed rate mortgages, variable mortgages, all mortgages in fact, come with a statement. This is a document that is sent out twice yearly to show the balance, insurance rate, monthly payments and balance of tax account (if the taxes are paid with the loan) of the mortgage. When you receive this statement after making your final mortgage payment make sure it shows zero balance.

You’ll also need to verify that your credit report no longer contains your mortgage. Keep in mind that this could take a few months. Furthermore, if you had mortgage insurance with your loan, this will expire the moment the mortgage is paid off, so you don’t need to worry about it any longer.

The Final Steps

When you’ve paid off your mortgage in full, you are still required to pay property taxes. If your taxes were rolled into your mortgage, you’ll have to call your city and arrange to make the payments on your own. Now, it’s up to you whether you wish to borrow against the home again. You don’t have to take out fixed rate mortgages or traditional mortgages, you can take out a line of credit instead.

source: northwoodmortgage.com

Fixed Rate Mortgages: Should You Choose A 15-Year Or A 30-Year?

Once you’ve decided that you want a fixed rate over a variable rate mortgage, you then have to determine if you want 15 or 30 years. Taking on a loan for 15 years may seem impossible to some people, while others may think that’s just the right amount of time needed to pay it off. Generally, Canadians opt for anywhere from 25 to 30 years for their mortgages, but that doesn’t mean you have to too.

Fixed rate mortgages: 15 years

With 15-year fixed rate mortgages, you have the advantage of paying off the loan faster. Once you’ve paid off your mortgage, you can focus on putting money aside for other things like your retirement, children or grandchildren’s educations, vacations, etc. You’ll also save money on interest since you’ll pay more interest over 30 years than you will over 15. For example, 4% interest on a $200,000 home is $66,288 over the course of 15 years. The same amount of interest on the same property for 30 years is $143,739. Finally, with a 15-year loan you can build up the equity in your home quicker because you’re taking less time to pay off your loan.

Fixed rate mortgages: 30 years 

For fixed rate mortgages at 30 years, you’re looking at increased time to pay back your loan. You’re also looking at a lower monthly payment but, as aforementioned, more interest to pay over the 30 years. However, when you have lower monthly mortgage payments to make, you can save more money to put towards retirement, credit card payments, etc. With a 30-year mortgage you get to keep more cash in your pockets, but you will be putting less towards your mortgage. You can also make extra mortgage payments over the course of the 30 years to reduce the balance, but watch out for prepayment penalties.

Are the monthly payment amounts really that different?

With fixed rate mortgages at 15 years, you’d think that the monthly payments would be double those of 30 years. This isn’t usually the case. Let’s use the same example as before with the $200,000 mortgage at 4% interest. The 30-year monthly payments would be about $950. The same mortgage with the same interest at 15 years would see a monthly payment of about $1,450. That’s less than double with a difference in monthly payments of approximately $500.

Which one is right for you?

When it comes to choosing a 15- or 30-year fixed rate mortgage, you must evaluate your financial situation. Sit down with your mortgage broker and lay everything on the table. Your broker can help you make the decision as to which one is right for you by reviewing your financial situation and explaining in detail what your monthly payments will be, the interest and how you can manage a 15-year vs. a 30-year loan.

source: northwoodmortgage.com

Six Tips For Choosing The Best Mortgage Broker

If you are currently looking for a mortgage and have decided to enlist the help of a mortgage broker, then you’ve made a smart move. The next step is ensuring that you find the best mortgage broker. How do you do this? Gather as much information as possible and ask important questions. Here are some key things you should know about the broker, as well as the ways in which you can find this information.



    Judge by Experience

    The mortgage brokerage industry does have a fairly high turnover rate, so it is important to know how long the broker has been in business. This helps to determine if the mortgage broker is a seasoned professional who has been through hard and good times, as opposed to a newbie who has just come in.

    Ask About Mode of Compensation

    Brokers are generally compensated in two ways: fees and yield spread premiums. Fees are a percentage of the loan amount, while yield spread premiums are direct compensation for signing the borrower up for a higher interest rate than what they would have otherwise opted for. While the latter may be a bit controversial, they are actually suitable for borrowers who cannot afford the upfront costs associated with the loan. If you can’t pay upfront, then you pay over time. Ask the broker about yield spread premiums before signing anything.

    Ask About Rate Locks

    Rate locks are a way for some brokers to speculate on the rise and fall of interest rates—often at the borrower’s expense. Ask the broker about rate locks and how they handle them. However, to prevent the broker from doing any kind of speculation, it is best to get something in writing.

    Ask for References

    Ask your broker for references. If he/she has satisfied clients, then it’s best to ask them directly, and they will give you honest answers.

    Surf the Internet

    Do some background checking on the mortgage brokers. See what their credentials are and whether they are licensed and listed. There should be an online directory for registered brokers.

    Interview At Least Three Brokers

    You should have a shortlist of at least three mortgage brokers before deciding on the best one. Compare them and see which one you feel most comfortable with.

Deciding on a mortgage broker can be a detailed process, but making the effort could save you thousands or tens of thousands of dollars in the long run. If you are in search of a mortgage broker, then contact us today. Our specialists can help you find the best mortgage for you, and we will be more than happy to answer all your questions.

source:  northwoodmortgage.com

The Difference Between Fixed Rate Mortgages And Variable Rate Mortgages

One of the first questions that homebuyers ask when taking out a loan is: Should I get a fixed rate mortgage or variable rate mortgage? It’s not something that should be taken lightly, because the difference between the two loans could translate into thousands of dollars over time. One is not necessarily better than the other. The one you eventually choose will depend on your personal taste, financial situation, and the prevailing economic climate.

Fixed Rate Mortgages

Fixed mortgage rates are as the name implies: fixed. The interest that is established when the loan is first taken out is the interest you will pay for the duration of the loan. This is regardless of the prime interest rate, which could be higher or lower than what you are paying on your mortgage.

Advantages: Fixed rate mortgages are a good choice for those who are seeking peace of mind when it comes to their finances. If your income is fairly stable and predictable in the near (and perhaps long-term) future, then you can afford the luxury of knowing that regardless of what happens, your rate won’t change.

Disadvantages: The major disadvantage is that you cannot take advantage of low interest rates and may very well end up paying more than you would if you had taken a variable rate mortgage.

Variable Rate Mortgages

Variable rate mortgages, on the other hand, are not fixed. The interest rates fluctuate according to economic conditions, and this could be above or below what you would be paying on a fixed mortgage. Variable rates do carry an element of risk, but they can be worthwhile if interest rates dip for a prolonged period of time.

Advantages: If interest rates are set to fall in the coming months, then you would be much better off with a variable interest rate. It is good for those who have an appetite for risk and are in a position to pay the current rate in anticipation that it will drop in the coming months. Historically, variable rates have proven to be less expensive over time, but you need to be able to see things from a long-term perspective.

Disadvantages: Rates can go up instead of down, and if you aren’t prepared for the challenges that come with this, then you could be in a difficult position.

You should go over your financial situation as well as the prevailing economic conditions with a qualified financial advisor. At Northwood Mortgage, our agents will be happy to help you make the best decisions in light of your situation.

source:  northwoodmortgage.com

Mortgage PreApproval Benefits [Video]

Getting a Mortgage Pre-Approval is your first step in obtaining a mortgage. In this video, Northwood Mortgage agents Jason Hollingworth and David Steinfeld explain what a Mortgage PreApproval is, how to get one, and why it’s beneficial.

Subscribe to our Youtube Channel for more tips on mortgages!

https://www.youtube.com/c/NorthwoodMortgageLtdToronto

source: northwoodmortgage.com

How Student Loans Can Affect Your Mortgage Application

The latest figures show that almost $30 billion is owed by Canadian students in student debt. With many people going back to school in their adult years, this increasing level of student debt brings with it numerous challenges for the average Canadian student. This is clear when examining how student loans can impact your ability to buy or sell a home. And so within this article, we’ll look at how student loans might impact a buyer during their mortgage application process.

Your Debt to Income Ratio

When buying a home, your lender will calculate your debt to income ratio by adding up your monthly payments, along with your expected mortgage, and dividing the total by your monthly income. To qualify for a loan with most companies, your debt-to-income level should be less than 43%. For those with a $20,000 student loan looking to buy a house for $300,000 or more, this debt-to-income ratio could prevent lender approval.

You May Need a Higher Down Payment

In order to decrease their mortgage amount, and thus the amount they’ll be comparing with their income, buyers might consider using a higher down payment for their property. This might mean waiting a little longer to buy their dream home or selling another asset such as a business or a vehicle in order to increase their down payment amount.

Options to Decrease Mortgage Application Challenges

While student debt can have a significant impact on the mortgage application process, buyers do have numerous options available to help overcome these challenges. Let’s look at several steps buyers can take to mitigate the impact student debt has on their mortgage application:

• Consolidate Loans Into One

For those with numerous loans in addition to their student loan, such as a credit card, it can help to consolidate the loan into one loan repayment. This can reduce the overall cost thereby reducing the debt to income level for the mortgage applicant.

• Choose a Longer-Term Mortgage

Another way a person with student debt can reduce their long-term debt to income ratios is to choose a longer mortgage term. This will provide a longer period to pay off the mortgage, thereby decreasing month-to-month costs.

It’s important not to let student debt prevent you from moving forward on your home purchase! There are multiple avenues towards buying a new home for those with student debt. To learn more, speak with our trusted experts directly today.

source: northwoodmortgage.com