Frequently Asked Questions and Answers about British Columbia Mortgages or
BC Mortgages
- I have a 5 year term with my British Columbia mortgage
what does this mean?
- At the end of the term of my British Columbia
mortgage is the BC mortgage lender obligated to renew my
BC mortgage?
- Does
a BC mortgage lender charge a renewal fee?
- Should I take short-term
BC mortgages or long-term BC mortgages?
- What is amortization?
And what is the best amortization period to seek?
- What is a fixed
rate British Columbia mortgage?
- What are variable interest rate
British Columbia mortgages?
- What can I do if I have variable
interest rate BC mortgage and interest rates start to rise?
- What
is an open mortgage British Columbia?
- What is a closed mortgage British Columbia?
- Is there ever a
good time to break my closed BC mortgage and pay the prepayment
penalties?
- Are there always penalties when I switch my British
Columbia mortgage to another BC mortgage lender?
- If I see a dramatic
change with a higher interest rate posted by banks should
I immediately lock into a fixed rate British Columbia
mortgage?
- It is possible to negotiate a BC mortgage rate from
a British Columbia lender?
- O.K. so there is many reasons to use
a British Columbia mortgage broker, but what does that cost?
- Is
there any other reason to use BC mortgage brokers?
- What is a
high ratio or insured British Columbia mortgage?
- When making
a BC mortgage payment is it better to pay weekly or monthly?
- Is it important to insure my BC mortgage with life insurance
and disability insurance?
- Well, would it not be easier to buy
my insurance direct from the bank when I obtain my mortgage
British Columbia loan?
- If I have extra cash should I pay off my BC mortgage
or buy a RSP?
- Does it make sense at my next British Columbia
mortgage renewal to increase my loan amount to buy RSPs?
Q I have a 5 year term with my BC mortgage what does this mean?
A Every BC mortgage has a start date and an end date. The end
date is referred to the maturity date. The duration between
the end
date and start date is the term of your British Columbia
mortgage. You can choose terms of just 6 months, 1, 2, 3, 4,
5, 7, 10
or even a 25-year term. At the end of the term you can either
pay
off your BC mortgage or accept the lender's invitation to
renew it for another term period of your choice.
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Q At the end of the term of my BC mortgage is the lender
obligated to renew my British Columbia mortgage?
A No. The lender is not under any obligation to renew your
BC mortgage. It does not 'automatically' renew. In fact if
you have
'missed'
or been late with any payments the BC mortgage lender could
use this as an excuse not to renew with you. A loss of a
job or a
divorce may be another reason. But, in truth, no excuse is
necessary for
the BC mortgage lender to call your loan.This can not be
understated. For example, it is common for businesses to
find their commercial
mortgages NOT renewed for any reasonable reason at the end
of term. And this may be no fault of the business that paid
their
mortgage
payments on time. A bank could refuse to renew because they
don't like the economic climate of a particular geographic
area or
even a type of industry a business operates in. Think about
the hardships
suffered! For this reason alone it is critical for businesses
and homeowners to obtain a quote from a British Columbia
mortgage broker
60 to 90 days before their current mortgage matures. This
way if your current BC mortgage lender does not offer you
a renewal
you
have a backup lender in the wings. If you use a British Columbia
mortgage broker you will often benefit with a lower
BC rate anyway.
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Q Do BC mortgage lenders charge a renewal fee?
A Often a British Columbia mortgage lender will attempt to
charge a renewal fee or tempt you to renew without a fee
if you sign
within a certain 'time offer' at their posted rates. Please
keep it mind
that if you use a British Columbia mortgage broker it is
very, very rare for you to ever pay a renewal fee. For all
conventional
residential BC mortgages there will not be a fee because
the BC mortgage broker will shop the market for you and find
a
lender that doesn't charge a fee AND will beat your current
BC mortgage
lenders renewal rate!
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Q Should I take a short-term British Columbia mortgage or
a long-term British Columbia mortgage?
A When interest rates are low you should take as long of
a term as you can afford. When the interest rates are high
you
should
take the shortest term and renew every 6 months or 1-year.
Whenever the interest rate spread between short term and
a long-term BC
mortgage rates are significant it is always better to take
the shortest term possible. The difference in savings could
be invested
elsewhere i.e. paying down your mortgage BC principal, investing
in segregated funds or for topping up your RSP contributions.
Currently, with such low rates most people are locking in
for terms of 5 or
even 10 years.
SEE MORTGAGE CALCULATOR!
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Q What is amortization? And what is the best amortization
period to seek?
A Your amortization is the total length of time it will take
you to pay off your mortgage. Often when you first get a
mortgage it
is amortized over 25 years. If you make your mortgage payments
over 25 years your mortgage will be paid off. However, your
amortization period will not stay constant because different
borrowing terms
at each renewal vary the amount of interest charged over
your amortization period. The length of time to pay off your
mortgage
will be determined
by the interest charge, the loan amount and the amount of
payment you make. You should first qualify for a 25-year
amortization
and then change the amortization down to 15 years by making
a larger
monthly payment. A 15-year amortization is a great goal for
everyone. A good rule of thumb is to pay down your mortgage
by at least
1% each year from the original amount. Make your monthly
payment and
add in this "top up" amount. It is the amount of
'extra' payments that you make that reduces your principal,
which saves
you, interest charges. Another rule of thumb, when interest
rates are low, is to make your mortgage payments as large
as possible
in your monthly budget. If interest rates rise by next renewal
keep your mortgage payments the same and ride out the high
rates by taking shorter renewal terms. This way you will
get in the
habit of making the same larger mortgage payment over time
and by doing
so will save thousands in interest charges.
SEE MORTGAGE CALCULATOR CANADA!
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Q What is a fixed rate British Columbia mortgage?
A It simply means that for the term of your British Columbia
mortgage the interest rate charged is a fixed amount and
does not change
during the term of your BC mortgage. If you look at our rate
comparisons you will see this distinction between fixed and
variable BC rates.
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Q What is a variable interest rate BC mortgage?
A Compared to a fixed rate BC mortgage a variable interest
rate 'floats'. Although the BC mortgage payment amount may
stay the
same the actual interest charged may change on a monthly
basis. A drop in interest rates is great news for you and
it will
mean that more of your British Columbia mortgage payment
will go towards
reducing your mortgage principle. If interest rates rise
then less money will be used for reducing your principle
and will
instead
be used for paying higher interest costs. If you think interest
rates will fall over the next 3 to 5 years then purchasing
a variable BC mortgage makes a lot of sense. With BC mortgages
you pay a price
for certainty. You generally pay more for a fixed rate BC
mortgage because the lender is taking the risk as to what
the rates
will
do by fixing the rate for you. You generally pay less for
a variable rate mortgage because it is you that is taking
the
risk of uncertainty
as to how interest rates will move - up or down. With low
interest rates variable interest rate BC mortgages have become
popular.
Often it is possible to get a rate just over or under the
bank prime rate!
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Q What can I do if I have variable interest rate British
Columbia mortgage and interest rates start to rise?
A Most variable British Columbia mortgages give you the right
to change to a fixed rate at any time. If you think the interest
rise
is not just a short-term fluctuation but will be a long-term
trend then 'lock into' a fixed rate immediately. There is
usually no
charge for this great benefit.
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Q What is an open British Columbia mortgage?
A An open British Columbia mortgage gives you the most flexibility
in making extra payments towards your mortgage principal
and even lets you pay off your mortgage entirely whenever
you wish
to. If
you have uncertainty in your life such as a serious illness,
a looming separation or a possible job transfer to another
city it
is better to have an open mortgage. This way if you 'have
to move' you can pay off your British Columbia mortgage without
any penalty.
This could save you thousands in prepayment penalties. Warning!
Not all-open BC mortgages are created equal. Check with a
British
Columbia mortgage broker to see just how 'open' your British
Columbia mortgage is!
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Q What is a closed British Columbia mortgage?
A Compared to open a closed British Columbia mortgage offers
little to no privileges in paying off your mortgage early.
You can not
pay off your British Columbia mortgage without attracting
penalties, called prepayment penalties, from the lender.
Warning! Not
all closed British Columbia mortgages are created equal check
with
your British Columbia mortgage broker as to how your prepayment
penalties are calculated. The difference between one lender
definition of penalty to another lender is enormous. Only
people with very
predictable lives should pick closed British Columbia mortgages
with long terms. And really, whose life is that predictable
these days? Avoid long term-closed British Columbia mortgages.
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Q Is there ever a good time to break my closed BC mortgage
and pay the prepayment penalties?
A Yes! A good rule of thumb is whenever making a change will
result in a 2% - 3% interest rate saving. This is so popular
that it is
even has a name - the 'break and run' strategy in the lending
industry. The improved rate change will absorb any prepayment
penalty over
the next 5 years in any switch when the spread between the
old rate and the new BC mortgage rate is great enough. Check
with
a BC mortgage broker as often he or she can find additional
incentives or deals that reimburse some or all of your prepayment
penalties.
If you switch and keep your BC mortgage loan amount the same
there
are usually no legal fees involved - just a simple 'no fee'
switch with the new lender.
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Q Are there always penalties when I switch my BC mortgage
to another British Columbia mortgage lender?
A No. If you switch from one BC mortgage lender to another
at your renewal date there will not be any penalties whatsoever.
If you
switch before your maturity or renewal date there may be
a penalty.
If you have an open BC mortgage there probably will not be
any charge. If you have a closed mortgage you will most likely
have
a cost. It is important to consult with a British Columbia
mortgage broker so that you can determine whether or not
a 'break and
run' strategy will work for you. Often your penalties can
be minimized
when a BC mortgage broker finds a new lender anxious for
your business. A new BC mortgage lender will often assist
with incentives
to lure
you over to them. Sometimes the incentive can be as high
as a 3% cash back offer that can be used towards any prepayment
penalties.
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Q If I see a dramatic change with a higher interest rate
posted by banks should I immediately lock into a fixed rate
BC mortgage?
A Absolutely not. Do not chase newspaper headlines but do
ask yourself why a change is occurring and whether or not
it appears
to be a
long-term trend or a short term 'blip'. For example, it is
not uncommon to see a dramatic interest rate jump due to
a constitutional
referendum or a fear of a heated economy. But it is short
lived. Ask your BC mortgage broker or another advisor such
as certified
financial planner for an opinion on this matter.
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Q It is possible to negotiate a British Columbia mortgage
rate?
A Yes! This is the whole point of using a BC mortgage broker.
When you shop the market you will look at your newspaper
for current
mortgage rates or use ‘Ask an Expert’ of this site
for a more complete summary of best-posted mortgage rates. This
is what the BC mortgage lenders are posting as their best rates
available. However, it is possible to then negotiate a further ½ %
to a full 1% off the posted rate! If you try this yourself
get it in writing. If you don't get your rate guaranteed
in writing
you may find out that a lender has 'amnesia' just before
renewal and you may get stuck with a poor renewal rate. Ask
for a letter
of commitment to secure your rate. If you wish to shop to
more than one bank it is wise to use a BC mortgage broker.
When
you use a BC mortgage broker there is only one credit report
done.
When you shop around at various lenders they all do one and
this will effect your credit rating. Further, a BC mortgage
broker
knows where the deals are and the particular lending habits
of the different
BC mortgage lenders that would best suit your needs. He or
she will find the best-posted rate and then negotiate to
better your
rate even further. The BC lenders know that when a BC mortgage
broker is involved the deal will get placed and so they will
actively bid to get it before a competitor does.
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Q O.K. so there is many reasons to use a British Columbia
mortgage broker, but what does that cost?
A For conventional residential BC mortgages there is no fee
paid by you. Instead the lender pays a finders fee to the
BC mortgage
broker. For commercial properties a mortgage broker will
charge fees but will always put this in writing before any
work is
commenced. In any case, ethics and laws bind a BC mortgage
broker to state
to you whether or not any fees will be charged and to put
it in writing before any work is commenced.
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Q Is there any other reason to use a BC mortgage broker?
A It is less stressful for you. BC mortgage lenders like
to pretend that British Columbia mortgages are complex and
can
not be understood
by ordinary people. People feel intimidated and rarely feel
courageous enough to play hard ball with negotiation on prepayment
penalties,
open versus closed options, rates and flexibility for repayment.
A BC mortgage broker plays hard ball for you with the lender
and designs the best BC mortgage for you - and rarely charges
you a
fee for his or her services. What could be easier?
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Q What is a high ratio or insured British Columbia mortgage?
A Whenever you need a BC mortgage loan that is 76% or greater
of the current market appraised value of your home it is
considered a high ratio or insured BC mortgage. If you are
a first time
home
buyer then you can borrow up to 95% value and only need to
come up with a 5 percent minimum down payment. The Canada
Mortgage and Housing Corporation (CMHC) insures the BC mortgage
lender
in case
you default on your loan. You must pay for this insurance
premium which is usually tacked on top of your loan. If the
BC mortgage
lender feels that you are still a risk for default even though
you have paid more than 25% down the lender can insist that
you
insure the mortgage anyway. However, in this situation a
British Columbia mortgage broker would probably shop this
mortgage
to a BC lender that didn't insist on insuring. The fees for
CMHC
can
be as high as 2.5% of the British Columbia mortgage principal
but is often not noticed by a borrower because of being added
to your
mortgage principal. Rates for a high ratio loan vary widely
between BC mortgage lenders so it is best to use a BC mortgage
broker
to explore the best options for you.
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Q When making a mortgage payment is it better to pay weekly
or monthly?
A It is not really the frequency that makes a real difference
but how much you pay. An actuary could do the math and say
that by
paying weekly you are 'slightly' better off when comparing
12 monthly payments versus 52-week payments. There is a lot
of advertising
out there that promotes weekly but the difference is really
not that significant. What is important is whether or not
you are
making
an extra payment towards your principal with whatever frequency
that you choose. Any extra payment towards your principal
dramatically improves your amortization period. In fact a
10% increase in
your payment amount may knock off almost 8 years in your
mortgage. That
is nearly ONE HUNDRED less monthly mortgage payments! Just
imagine 100 mortgage payments that you don’t have to
make! Think of the vacations you could go on! Think payment
amount not frequency
of payment.
SEE MORTGAGE CALCULATOR!
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Q Is it important to insure my BC mortgage with mortgage
life insurance and disability mortgage insurance?
A Yes. If one spouse dies, without coverage, the BC mortgage
lender often will ‘call the mortgage‘, and that may mean losing
the family home. It is hard enough to lose a loved one … but
to also lose your home that you shared with your loved one?
That is just too cruel. For a very small premium each month
you can
prevent a financial hardship situation from occurring.
OBTAIN
AN INSURANCE QUOTE!
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Q Well, would it not be easier to buy my mortgage insurance
direct from the bank when I obtain my British Columbia mortgage?
A We could go on and on about ‘why’ one should buy
mortgage insurance from someone who offers coverage that can be ‘portable’ in
the future whenever you switch BC lenders. But, instead, our first
comment is ‘just get mortgage insurance now … if you
don’t have it .. .protect yourself and your family from this
preventable financial hardship that is created by death’.
And please do it now. But for more information … instead
of purchasing creditor insurance from the bank it is better to
purchase private insurance from a licensed insurance agent or with
group creditor insurance that includes a ‘portability‘ feature.
Meaning, you can take your mortgage insurance with you … anytime
in the future … even if you switch BC lenders. From a BC
mortgage broker point of view, we are very concerned when your
insurance is tied to your BC mortgage lender. What do you do if
you want to switch to a more competitive British Columbia mortgage
lender at your next mortgage renewal? When you switch you will
lose your creditor insurance. If you are unhealthy you may not
qualify for another insurance plan elsewhere! This means you may
be stuck staying with a lousy interest rate with the old BC mortgage
lender just because you need to keep your mortgage insurance. This
is poor planning that could cost you thousands of dollars. Keep
the BC mortgage lender and your mortgage insurance separate from
each other. Also, with creditor insurance once your BC mortgage
is paid off it ceases to exist. There are many reasons why you
may wish mortgage insurance coverage to continue for estate purposes
and with ‘portable’ mortgage insurance you will
have that option.
OBTAIN AN INSURANCE QUOTE!
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Q If I have extra cash should I pay off my British Columbia
mortgage or buy a RSP?
A Assuming that you are already making a British Columbia
mortgage payment 10% greater than necessary and you still
have extra
cash then we would answer the following way 1: if interest
rates are
high then pay off your BC mortgage more with additional payments
2: if your investment returns are 2% lower than your BC mortgage
rate then pay down your mortgage more 3: if you are in a
low tax bracket then pay off your BC mortgage. And if you
are part
of the
investment fund craze seeking higher investment returns consider
purchasing segregated funds over mutual funds for similar
returns but better financial safety. Or, invest in safe second
mortgage
investments (where the loan-to- value is not greater than
75% of the appraised value of the property)
SEE MORTGAGE CALCULATOR!
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Q Does it make sense at my next British Columbia mortgage renewal
to increase my loan amount to buy RSPs?
A Absolutely. If you are in a high tax bracket and have not taken
advantage of your RSP room it is an excellent opportunity for you
to buy a large amount of RSPs and obtain a large tax refund. Your
new RSP portfolio could even be used as an income splitting tool
to transfer wealth to your spouse with a spousal RSP. You would
get the deduction and your spouse would get investments accruing
in his or her name. At retirement, you and your spouse would both
draw out pension income that would taxed at a lower rate than if
being claimed by only one pensioner. Finally, you could use the
tax refund to pay down your British Columbia mortgage even further.
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