What type of mortgage do you require?

• New Home Mortgage
• Mortgage Renewal/Refinancing
• Second Mortgages
• Mortgage Consolidation
• Mortgage Transfer
• Construction Mortgage
• Commercial Mortgage
• Interalia Mortgage (i.e. one mortgage on two properties)

Fixed Rate or Variable Rate?

Fixed Rate Mortgages retain the same mortgage rate for the whole term and the mortgage payments are consistent during the term of the mortgage.
With a variable Rate Mortgage, the mortgage rate varies with fluctuations in the bank prime rate. The interest charged on the mortgage will vary. As a result, mortgage payments may need to be adjusted during the term of the mortgage.

Closed Term or Open Term?

A closed Term Mortgage contract is written for terms ranging from 6 months to 10 years. Penalties may be triggered if the borrower wishes to end the contract before the term expires (early repayment). This can apply to fixed or variable rate mortgages.
An open Term Mortgage contract is written for a short term (usually 6 months or 1 year). No penalties are triggered if the borrower wishes to end the contract before the term expires.

Conventional or Insured?

Down payments of 25% of more are considered conventional mortgages. A down payment of less than 25% may then require mortgage insurance on the mortgage. An insurance fee premium would be added to the mortgage and depends on the percentage of down payment.

Fixed-rate
6 month, 1, 2 & 3 year (open, closed and closed-convertible) 4, 5, 7 & 10 year closed.

Variable-rate
3, 4 and 5 year (open, closed, closed-convertible and capped)

Split-term
Combination of all possible terms (6 month through 10 years)
Number of portions depends upon lender…3 is most common; 5 is maximum currently available with some financial institutions.

Self-directed RRSP
A specialty mortgage – term optional – rate within CMHC guidelines.
Invest your own RRSP funds into all or part of your home mortgage.

Description of Types and how they apply to you

Short-term risk and Variable

If rates are low and stable, and/ or you have decided to take the “staying short” strategy regardless…you can generally pay a significantly lower rate (by up to 2%). This is achieved by simply rolling over your term every 6 months, or having your rate float against prime – with the option of locking in to a longer term at a later date. This is not for everyone, however, as sudden upward rate movements, can cause severe stress.

Long-term

Any term 3 years or longer is considered “long term” in today’s economy. Because long-term rates are usually higher than short-term rates, many Canadians who have a choice do not select this option. There are many, however, that consider a long term mortgage necessary due to their exposure to rate increases relative to their inability to manage a significantly higher payment.

Split term

A mortgage which allows you to minimize – or hedge – your interest rate risk by splitting your mortgage into 3 to 5 parts. For example: A $150,000 mortgage could be split into five $30,000 segments with terms of 6 months, 1, 2, 3 and 5 year terms negotiated at today’s best rates. The average rate (say, 6.25%) would rise or fall much more slowly than changes in the market, however, as only the shorter terms are affected by even the most volatile rate movements over the first few years.

Capped ”protected” Variable rate mortgage

In 1993 several Canadian Banks introduced the capped variable rate mortgage, which floats at about prime minus 0.50%, and is capped at either above or below of the 5 year posted rate or at 3 year posted rate (depends on the financial institution) It does offer a way to reduce the risk of floating, while preserving an acceptable long-term rate.