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Mortgage Tips British Columbia Mortgage Tip: How To Choose A Mortgage Term When you're looking at mortgage terms and mortgage interest rates, look at the terms of mortgage payment amounts because nobody has a crystal ball and it's impossible trying to predict when mortgage interest rates are going to rise or fall. Alot of things can affect how Canadian interest rate go up and down. Even the best economists in the world can't predict this, so how can a mortgage specialist? When mortgage rates dropped to their lowest in 35 years in the early 1990's, nobody thought that they would ever get to be that low again but mortgage rates did. It's a very good possibility that mortgage rates will go to double digits again. Trying to predict when interest rates go up and down is nearly impossible so people that try do that should keep a very close eye on the mortgage market. If you think that mortgage rates are almost as low as they can go and you don't think that mortgage rates won't go any lower then you might want to guarantee and take advantage of that low mortgage rate for as long as you can. So in that case it's best to go with a long term 5 year, 7 year or 10 year. If interest rates begin to rise, you should try to take advantage of a lower mortgage rate for as long as possible. If you sell your home or property, your mortgage is transferable to your new home or property take it with you or have someone assume the mortgage. An assumable mortgage loan at a lower mortgage rate compared to current mortgage rates if they are higher at the time could be a huge selling point to a potential home buyer. If mortgage interest rates begin falling and you think that they are goin to further go down, you might want to choose a flexible shorter term like a 6 month convertible mortgage or variable rate mortgage to lock in to longer mortgage term at anytime just in case the mortgage rates start to rise again. Fixed Rate Mortgages vs. Variable Rate Mortgages On fixed rate mortgages, the interest rate for that mortgage is a set amount throughout term of the mortgage so that the monthly mortgage payments including both principal and interest remains the same for the entire mortgage term. Even if mortgage rates go up or down, you'll always know exactly how much your mortgage payments will be. If a mortgage rate is low, it's probably a really good idea to take advantage of that with a longer mortgage term. That fixed-rate mortgage will protect you just in case mortgage interest rates rise. A variable rate mortgage loan (adjustable rate mortgage loan) provides more flexibility and is an advantage to have when interest rates are going down. The mortgage rate is based on prime and mortgage payments can be changed monthly to keep up with current mortgage rates. In this case, the mortgage payment is still constant, but the ratio between interest and principal changes. You'll pay less mortgage interest and more to mortgage principal when interest rates are falling. You'll pay more mortgage interest and less to mortgage principal if mortgage rates are rising and if mortgage rates go up quite a bit, the original mortgage payment might not cover interest and principal combined. Any portion of that mortgage that isn't paid will still be owed or you'll most likely be asked to increase your monthly mortgage payment. Your variable rate mortgage must be open or convertible so that you can change it to a fixed rate mortgage at any time just in case mortgage rates start to rise, that way you can lock in and take advantage of your mortgage rate for the most popular mortgage terms like 3, 5, 7 or 10 year mortgage terms. BC Mortgage Tip: Closed Mortgages & Open Mortgages - What's the Difference? Open mortgage gives the mortgage consumer the flexibility to repay the mortgage without having to pay a penalty at any time. Open mortgages are shorter term mortgages and are usually only 6 months or 1 year and the mortgage interest rate is higher than a closed rate mortgage by as much as a minimum of 1% more. These types of mortgage are most often used if you're planning to sell your home or property or if you're going to pay off the whole mortgage loan. Closed mortgage offers a piece of mind with fixed payment for mortgage terms of 6 months to 10 years. The mortgage rates are considerably lower than open rate mortgages. A closed mortgage usually offers 20% - 25% prepayment of the original mortgage principal which is more than most people can pay every year. If you want to pay off the full mortgage amount before maturity, a penalty would be charged to you. The penalty is usually 3 months interest, or interest rate differential. BC Mortgage Tip: Buy a home first or sell a home first? If you choose to buy a house before you have sold your current house, make sure that the offer to purchase your new home is conditional or subject to the sale of your current home so that if you sell your house, both deals can move forward but just in case you don't sell your current home, you can back out of the deal and you won't be stuck with two homes at once, paying for two mortgages Selling your home first puts you in the drivers seat by allowing you to negotiate the purchase by having a bit of an upper hand, since unconditional offers or offers without subject clauses are more attractive with home sellers. Real Estate and mortgage market conditions are another important consideration when it comes to deciding on buying or selling. In a seller's real estate market, you'll probably have a bigger financial gain when selling after you've bought, but in a buyer's real estate market, it makes more sense to sell your home for hopefully a larger profit. CMHC insured mortgages! Little Hidden Benefits When mortgage rates fall, borrowers sometimes want to renegotiate their mortgages but can't unless their mortgages are fully open or unless they want to pay an early penalty which is sometimes worth it depending on if mortgage rates have dropped substantially. If you have a longer term mortgage loan that's insured by CMHC (Canada Mortgage & Housing Corporation), you can pay a penalty which is usually 3 months interest. That could end up being alot cheaper than the IRD (interest rate differential), which is the difference between your signed mortgage rate and current mortgage rates, on the remaining balance for the rest of the mortgage term. If you have an insured mortgage, the premium amount you paid on the mortgage is now transferable to another home or property. BC Mortgage Tip: Amortization Periods What's an amortization period? It's the number of years it would take to pay off the whole mortgage amount including interest based on a set of fixed mortgage payments. You'll pay more interest over the life of the mortgage with a longer amortization period. When it comes time to choose the amortization period, you must employ careful planning to stay in touch with your financial situation or needs. Amortization can be shortened after the mortgage closing, but once you register the mortgage, it can only be increased with by a lawyer and several hundred dollars in legal fees. BC Mortgage Tip: How do I become Mortgage Free Faster by making Monthly, bi-weekly, or weekly payments? Once you've decided on the mortgage amount, mortgage rate and amortization period, your monthly mortgage payments are ready to be calculated. Then you must decide on how often you want to make your mortgage payments, because you could save thousands of dollars on your mortgage. The shorter the mortgage amortization period along with making bi-weekly mortgage payments will shorten the life of your mortgage and minimize the amount of interest you pay on your entire mortgage. When you make bi-weekly mortgage payments, you are making 26 payments per year as opposed to only 12 monthly mortgage payments. Of course when you make the bi-weekly mortgage payments, they are roughly half of the payment size as a monthly mortgage payment but you get an extra two payments in per year which makes a big difference. Making weekly mortgage payments as opposed to bi-weekly mortgage payments doesn't make that much of a difference because you get the same number of mortgage payments in per year. Bi-weekly mortgage payments are less stressful and easier to manage when it comes to budgeting. If you're self-employed or employed with a commission salary, your income might vary from week to week or over the course of a month so it might be more convenient to make monthly mortgage payments and use your mortgage prepayment privileges to reduce the amortization period. BC Mortgage Tip: Prepayments - Making extra Mortgage Payments against Mortgage Principal This is a very important mortgage feature when it comes time to get a mortgage loan. With mortgage prepayment privileges, it could mean a difference of saving thousands of dollars in interest over the entire length of your mortgage loan. All financial institutions or lenders offer some type of mortgage prepayment privilege. The prepayment privilege amount and how you can apply it will vary from one lender to another. Most mortgage prepayment privileges range from 10% - 20% per year and some offer mortgage prepayment privileges once per year on the mortgage anniversary date while others of mortgage prepayment privileges at anytime during the whole year as long as the total mortgage payments made aren't in excess of 20%.It's much to your benefit to use your prepayment privilege as often as possible during the calendar year. Accumulating money to make that one large prepayment isn't the best way to go. Small, consistant mortgage prepayments will get your mortgage paid down much more quickly. Slow and steady always wins the race. Mistakes are made by consumers because most mortgage shoppers only look at mortgage rates rather than this mortgage interest savings feature. Let BC Mortgage Loans find you the lowest mortgage rates with the best mortgage features to suit your needs so that you can take advantage of that. BC Mortgage Tip: Should I increase My Regular Mortgage Payment? If you're in a good financial position to increase your mortgage payments, any increased mortgage payment amounts that are made goes directly to pay down the mortgage principle, which saves you thousands of dollars because the mortgage interest isn't compounding on your mortgage loan amount for the entire time that you have your mortgage loan. This varies from bank to bank or mortgage lender to mortgage lender. Some mortgage lenders allow you to increase you mortgage payment by up to 10% while other mortgage lenders allow you to increase you mortgage payment by up to 25% per year. And some mortgage lenders allow up to 15%, but only once during the mortgage term. You can go back to your original mortgage payment schedule at any time. Let one of our mortgage consultants make some mortgage recommendations for you. BC Mortgage Tip: Should I Double Up on Mortgage Payments? There are mortgage lenders that will allow you to double up on your mortgage payments so that the extra mortgage payment goes straight to paying down the principal on the mortgage loan. If you're making monthly mortgage payments and double up just one time during the year, you've accomplished the same benefits as having a weekly or bi-weekly mortgage. This is a great feature for someone who wants to take advantage of setting up monthly mortgage payments but wants to save money just as if they were making weekly and bi weekly mortgage payments. There are some mortgage lenders that will allow you to skip a mortgage payment if you've doubled up on a previous mortgage payment. BC Mortgage Tip: What about the Early Mortgage Renewal Option? This is a perfect mortgage feature to have when interest rates are rising. If you have a locked in mortgage term that doen't mature for months or years and mortgage rates are going up, this mortgage feature will allow you to renew your mortgage with a better or lower mortgage rate before maturity without having to pay a mortgage penalty. BC Mortgage Tip: Portable or Transferable Mortgage Are you looking to take your mortgage with you when you move because you have such a great mortgage rate or deal? Well you can if your mortgage clause states that your allowed to do so. This mortgage option allows you to keep saving money by taking advantage of the lower mortgage rate that you've been enjoying even if current mortgage rates are higher and you'll be able to avoid paying any mortgage penalties. If you need to increase your mortgage amount for the new property, that's not a problem but legal fees may apply. BC Mortgage Tip: Assumable Mortgages If you're moving and decide that you aren't going to take your mortgage with you or you are just selling a home without buying a home, an assumable mortgage feature allows the new home buyer or home buyers of your property to take over your existing mortgage, provided that they meet and qualify with that particular lender. There are no mortgage penalties to pay because you're not breaking your mortgage contract. So if your mortgage interest rate is lower than current mortgage rates at the moment, your assumable mortgage is a great selling feature for your home or property. If the new homebuyer assumes your mortgage, it doesn't always mean that you're off the hook for as far as responsibility goes. The Mortgage Company needs to release you from the mortgage so that you're no longer liable. Some mortgage lenders or companies will automatically offer a release while with other lenders, you sometimes need to put in a request through a lawyer. BC Mortgage Tip: Mortgage Insurance Please visit BC Mortgage Insurance Ready For A FREE Mortgage Quote? WE WORK FOR YOU ABSOLUTELY FREE!!!
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