Mortgage Definitions

What is a High Ratio Mortgage?

A high ratio mortgage is a mortgage for the purchase of a home that exceeds 80% of the purchase price or appraised value of the property. This type of mortgage must be insured as mandated by the government of Canada.

What is a Conventional Mortgage?

A conventional mortgage is a mortgage for the purchase or refinance of a home that is up to 80% of the purchase price or the value of the home. Depending if the mortgage is for a refinance or a purchase and the percentage and amortization (length of time to fully pay off the mortgage amount) of the loan (loan-to-value), the interest rate will vary. Typically, the lower the amount borrowed, the lower the interest rate.

What is a Fixed Rate?

A fixed rate mortgage provides the borrower with a guaranteed interest rate for a specified period of time. In Canada, fixed term mortgages typically range from 6-month terms to as long as 10-year terms, depending on the lender and the products they offer. 

What is the Difference Between an Adjustable Rate and a Variable Rate?

The adjustable rate or variable rate mortgage provides a lot of flexibility, especially when interest rates are on their way down. The rate is based on prime sometimes with a discount. With an adjustable rate mortgage, the mortgage payments change with the interest rate. When interest rates are falling, your payment lowers accordingly. When rates increase, so does your payment. With a variable rate mortgage, your payments are fixed and stay constant. When rates are declining, more of your payment goes to principal. But in a climate of rate increases, the original payment may not cover both the interest and principal. Any portion not paid is still owed and you may be asked to increase your monthly payment. The interest rate at the time this happens is referred to as your "Trigger" rate.

Is an Interest Only Mortgage Right for You?

Make a principal payment or pay only the interest on your mortgage. It’s up to you for the length of the interest-only term. Now that’s flexibility.

What is a HELOC?

A HELOC is a mortgage that allows you to borrow large sums of money by using your house as a line of credit. You can only borrow up to 65% of the value of your home for a HELOC. Be sure to give us a call to ensure the use of the loan will offset these repayments and make for the best financial decision for your financial future.

A HELOC has:

  • The ability to borrow large sums of money
  • No specification on what that money is used for
  • Benefits when trying to consolidate debt at low interest rates
  • Interest only payments

Here is a summary outline of the key qualification criteria for Alternative Lending mortgages in Canada (formerly known as subprime mortgages):

  • Minimum down payment of 20% is required
  • Debt servicing ratios are as much as 35% higher than triple-A lenders (this means applicants can qualify for more mortgage)
  • Income qualification criteria is far less demanding than triple-A lender qualification guidelines
  • Very flexible to applicants who have a weak/damaged credit history
  • Accommodating to newly established self employed applicants
  • Higher rates, shorter terms…"band-aid" or "transitory" mortgages
  • Expect a fee of 1-2% on the full mortgage balance

The Alternative Lending mortgage arena does not necessarily lead to a slam dunk mortgage approval, but rather a pathway to more lenient lenders who are more flexible and rational in their adjudication.  That flexibility and rationality is directly priced into the mortgage itself through a higher interest rate and associated fee.  Therefore, it is important to approach this pathway with a realistic expectation – expect a higher interest rate and prepare to potentially pay out-of-pocket for a lender and/or broker fee.   The key to being at peace with a higher interest rate mortgage is to focus on the monthly payment and your ability to maintain it.  For example, a $500,000 mortgage priced competitively from a triple-A lender at 2.74% will equate to a monthly payment of $2,300.  With an Alternative Lender, that same $500,000 mortgage will amount to a monthly payment of $2,400 with a 2 year fixed rate of 3.14%.  At the end of the day, for many that embark on the Alternative Lending pathway, a $100/month differential is a small premium to pay in exchange for home ownership at a time where prices continue to remain elevated and show no real signs of significantly correcting.  The true essence of alternative lending is to award mortgages to applicants that have proven their ability to "make good" on payments based on unconventional and common sense qualification criteria.

What is Private Lending?

Private mortgages are a type of home loan that is provided by an individual or group of investors, rather than through a traditional A or B mortgage lender. Private mortgages are generally short-term, ranging in length from 1 to 3 years. Borrowers typically only pay the interest on these loans, without any going toward the mortgage’s principal balance.Private mortgages are not for everyone, but they can provide an option for borrowers who don’t otherwise qualify according to the conservative lending guidelines used by banks and conventional mortgage lenders. These guidelines, which are based on income, debt requirements and credit health, exclude many individuals who are, in fact, able to pay back their mortgage loan, but have an extenuating circumstance such as being self-employed or having a low credit score.Private lenders will look beyond this traditional borrowing criteria and, most importantly, will take into account a property’s overall value and marketability as opposed to simply the borrower’s credit history – but the trade-off is a much higher interest rate than a traditional mortgage, extra fees, and potentially fewer protections for borrowers.

Why would I use a private mortgage lender?

You would use a private mortgage under any of the following circumstances:
  • You want to purchase an unconventional property that a prime lender or bank won’t finance.
  • You need fast financing and don’t want to wait for a long approval process.
  • Your bad credit history means you are being turned down by conventional lenders.
  • You only need a short-term loan.
  • You have non-confirmable income that is preventing you from obtaining a traditional mortgage.

Is a Reverse Mortgage Right for You?

If you are 65 or older, you may qualify for a reverse mortgage. More and more seniors are taking advantage of this program because it can eliminate their monthly mortgage payment as well as help tap into some unused equity to offset the increasing cost of living, do home projects, and help accomplish some of the goals that they have for retirement. When on a fixed income, it can be challenging to have money left over at the end of the month once your bills get paid. By eliminating your monthly mortgage payment, the reverse mortgage can free up your income so you can allocate it elsewhere to improve the quality of your life and your retirement. You maintain sole ownership of your property and your heirs may still inherit the property when the last borrower passes. For more information, inquire today to see if you qualify for one of our reverse mortgage programs so you can begin living the retirement you deserve. To learn more about Reverse Mortgage loans call (604) 970-9419
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