MORTGAGE OPTIONS
The mortgage you choose will form the foundation for your financial stability…
CONVENTIONAL:
Regulations under The Bank Act prohibit lenders from lending in excess of 75% of the purchase price or the appraised value of a property without obtaining Hi-Ratio Insurance. A loan for up to 75% of the purchase price of a property is a conventional mortgage.
HIGH RATIO:
This is your only option if your down payment is less than 25 per cent of the purchase price. A high-ratio mortgage is more expensive than a conventional mortgage because you must pay for mortgage loan insurance, which protects the lender if you default on the mortgage. Payment for this insurance can usually be rolled into your regular mortgage payments.
A loan for up to 95% of the purchase price of a property.
High ratio mortgages must be insured through CMHC (Canada Mortgage and Housing Corporation) or GENCOR (G.E. Capital Corporation). These Insurers guarantee the risk of lending to home buyers who need a high ratio mortgage. An insurance premium is paid by the borrower on behalf of the lender . The insurance premium that is paid to CMHC is to protect the lender in the event that the mortgage is not paid. This is not life, disability, or job loss insurance.
The insurance premium is calculated as a percentage of the mortgage amount, depending on the loan to value, and may be added to the mortgage amount.
The premiums are as follows:
|
Loan to Value |
Premium |
|
75-80% |
1.25% |
|
80-85% |
2.00% |
|
85-90% |
2.50% |
|
90-95% |
3.75% |
Other high ratio financing costs include an appraisal of approximately $235.00 plus 8% PST on the insurance premium.
REPAYMENT OPTIONS
How you pay your mortgage has a dramatic effect on the amount of interest you pay…
AMORTIZATION:
The gradual repayment of a debt by means of partial payments on the principal at regular intervals. The amortization period is the time required to repay the debt completely.
The amortization period has a dramatic effect on the amount of interest paid over the length of the mortgage.
Consider the following example:
$150,000 mortgage with an interest rate of 8.00%*
|
Amortization |
Monthly |
Savings |
|
25 |
$1144.82 |
|
|
20 |
$1242.54 |
$45,236.40 |
|
15 |
$1,422.23 |
$87,444.60 |
* The example assumes the interest rate will remain constant through out the whole amortization period.
PAYMENT SCHEDULES:
Most mortgages have very flexible payment alternatives. Weekly, bi-weekly, or monthly payments are most common. These choices also have a great effect on the overall interest payments.
Consider the following example:
$150,000 mortgage with an interest rate of 8.00% over a 5 year term.
|
|
Payment |
Remaining balance |
|
Weekly |
$ 286.21 |
$130,987.21 |
|
Bi-weekly |
$ 572.41 |
$131,057.47 |
|
Monthly |
$ 1,144.82 |
$138,203.66 |
* The example assumes the interest rate will remain constant throughout the whole amortization period