Mortgage Products
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A Variable Rate Mortgage has a fluctuating interest rate based on the lender’s Prime Rate. When the Bank of Canada adjusts its Overnight Lending Rate, it influences the banks’ Prime Lending Rates, which in turn affects your mortgage rate. Typically, your mortgage rate will fluctuate in the same direction as changes to the Overnight Lending Rate. Think of it as a chain reaction driven by broader economic conditions.
Key features:
Fixed Monthly Payment: While your mortgage payment amount remains fixed, the portion of the payment that goes toward principal versus interest will vary as the interest rate changes.
Lower Rates: Variable rate mortgages generally offer lower initial rates than fixed-rate mortgages.
Convertibility: You can convert a variable rate mortgage to a fixed-rate mortgage at any time during your term without penalty.
Penalties for Early Payout: If you choose to pay off your variable rate mortgage before the end of your term, you’ll be subject to a penalty equal to three months' interest.
Closed Terms Only: There is no open variable rate mortgage option. Therefore, if you plan to pay out your mortgage within a few years, a variable rate may not be the best choice. -
This is the most stable type of mortgage, due to its predictability and ability to allow borrowers to confidently budget. This is because the interest rate is fixed throughout your mortgage term and payments are set in advance. Even if the Bank of Canada makes an Overnight Lending Rate adjustment or your lender makes a Prime Rate change, your interest rate remains unchanged. This provides the borrower with the security of knowing the amount of each mortgage payment allocated to paying the interest portion and outstanding principal balance. At the end of your term, you can either renew at a new fixed rate, switch lenders, or convert to a Variable Rate Mortgage.
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Commonly mistaken for a Variable Rate mortgage, the Adjustable-Rate mortgage also fluctuates based on your Lender's Prime Rate (Which in turn is connected to the Overnight Lending Rate). The main difference is that your monthly payment amount actually changes month-to-month. As a result, your monthly contribution toward your principal remains the same, but the amount toward interest will change. Either, increasing or decreasing your monthly mortgage payment. The main benefit of choosing an Adjustable Rate is you will always be paying your mortgage down at the correct pace, regardless of rate changes.
What makes these mortgages attractive is their low interest rates and flexibility to lock into a fixed rate without penalties.
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A Closed Mortgage is a type of loan that is accompanied with restrictions on early mortgage payout. Meaning, if you are locked into a closed mortgage and wish to pay off more than allowed, refinance, or break your mortgage contract earlier than your set term, you’re subject to what’s called an interest rate differential (IRD) or a 3-month payout penalty. These penalties can be quite pricey and sometimes make the early payout not worth it.
Prepayment options are normally limited to a certain percentage of your initial mortgage amount, commonly 10-20% per year. Any additional equity exceeding the limit is subject to penalties. Because of these set restrictions, Closed mortgages typically have low interest rates to make them more attractive to borrowers.
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If you’re planning on paying out your mortgage before the end of your term or amortization, an open mortgage may be for you! An open mortgage allows you to pay down your loan at any time without the weight of prepayment penalties. This may be the loan in its entirety or smaller lump-sum payments without a limit.
Open Mortgage terms are often shorter and interest rates are set higher.
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A high-ratio mortgage is a term for a mortgage that has a down payment less than 20% of your home’s purchase price. You can find out if your mortgage is considered a high-ratio mortgage by calculating the loan-to-value ratio (LTV). A mortgage with a loan-to-value exceeding 80% indicates you will be required to obtain Mortgage Default Insurance. This is an added premium to your monthly payments to compensate for the added risk to the lender. Mortgage Default Insurance can be provided through Sagen, Canada Garuentee or, CMHC.
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A Conventional Mortgage is the opposite of a High- Ratio Mortgage. A Conventional Mortgage means you’ve provided a minimum down payment of 20% of your home’s purchase price. A conventional mortgage does not require Mortgage Default Insurance, saving you a substantial amount of money, but at the expense of a larger down payment. To qualify, you must obtain a LTV of 80% or less, have manageable Loan-to-debt services, stable income, and be able to pass the Mortgage Stress Test.
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A Draw Mortgage and a Completion Mortgage are two ways to finance a home construction. The main difference being, when the builders are paid and when financing will be released.
Draw
A lender will advance funds in stages called a ‘draw schedule.’ The schedule is based on the construction progress. These released funds will be sent to the builder on behalf of the borrower. There are typically 3-4 draw stages.
When the foundation has been poured
When framing is complete
When the interior has been completed
When the construction project has finished and is ready for ownership
An appraiser or inspector will confirm when each stage has been completed and give the lender the ‘go ahead’ to release the funds.
Completion Mortgage
A completion Mortgage is a type of mortgage that allows a lender to not advance funds until the newly constructed home is 100% completed. Most builders will request a down deposit of 5-10% to begin the construction and then accept the final lump sum amount at the final stage.
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This unique financing option is for homeowners looking to buy a new property using the equity from their current home before it sells. You may access up to 95% of your current home’s equity for a Bridge Loan. These loans normally have shorter terms, 6 months to 1 year, and traditionally high interest rates. You can think of Interim Financing as a ‘bridge’ until long-term financing is approved. How does this work? A lender will loan you temporary funds to cover the down payment on your new home or pay builder deposits. You’ll then be required to repay the lender once your current home sells and closes, or when your new mortgage is funded.
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An Assumable Mortgage is a special kind of mortgage that allows a borrower to ‘assume’ the seller’s mortgage terms, amortization, and interest rate. This can be an attractive type of mortgage as a previous homeowner’s interest rate may be substantially lower than today’s rates. This mortgage CANNOT be facilitated by a Mortgage Broker, only directly through the seller’s lender is this mortgage possible. Assumable mortgages are very complex and can be difficult to attain. The Buyer must re-qualify for the assumed mortgage rate and any underlying qualifications that the lender has, including paying the difference between the original mortgage loan and sellers the remaining balance. This can be facilitated with a cash payment or a second mortgage with today’s higher rates.
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So, you’ve found a home that’s almost perfect for you. Well, a Purchase plus improvement mortgage may be the best route for you. This kind of mortgage allows you to purchase a house while also financing renovations, all in one payment.
This loan is obtained by first finding your ‘almost’ perfect home. Then, you’ll need to get a quote from a licensed contractor for the renovations you wish to have completed. These must be detailed written estimates showing all work to be done and the associated costs, no rough guesses. Using these quotes, you’ll need to be approved by the lender for the mortgage amount plus the improvements. Keeping in mind that your new down payment will be based on your new loan amount.
You’ll have to initially pay for the renovations out of pocket or through a line of credit. Your lender will send the improvement funds and mortgage amount to your lawyer where the purchase transaction will take place with the seller. The lenders’ improvement funds will be held back in trust by the lawyer until renovations are finished. After closing, the renovations typically take 90-120 days to complete. A lender will request receipts, photos, and possibly an appraisal to be completed to show the renovations have been properly finished. Once verified, the improvement funds held by your lawyer will be released to you to reimburse yourself for the previous out-of-pocket expenses, and the improvement funds will be added to your mortgage loan.
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A Reverse Mortgage is a loan only available to borrowers, 55 years or older (this applies to all title owners). This loan allows you to turn equity in your house into cash, all while not selling your property or making installed payments. The amount of equity you’re allowed to take out is based on your age, your property’s condition, location, and type. You may be eligible to receive up to 55% of your property’s value in tax-free cash. Additionally, there is no income or credit qualification to obtain this mortgage.
While this mortgage seems payment-free, there is an interest charge, which can be paid monthly, in a single lump sum at the end of the loan, or it can even be added to the loan amount itself. A Reverse Mortgage must be repaid upon the sale of the property, or if the home is no longer the main residence.
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A Home Equity Take-out or Refinance Mortgage allows a borrower to access built-up equity in their property by either breaking their current mortgage and replacing it with a larger loan or by topping up their current mortgage (depending on your lender). An Equity Take-Out mortgage is a good option if you have accumulated equity in your home and wish to access extra cash for investments, debt consolidation, education, or renovations. You’ll first have to determine your available equity by an appraisal inspection. Typically, a homeowner can refinance 80% of a home’s appraised value. You’ll need to re-qualify for a top-up or refinance in the same way as any mortgage qualification process; through income, debt ratios, credit analysis, and the mortgage Stress Test. If you decide to refinance, the new mortgage will cover the old one, and the additional funds on the mortgage will be given to you, either as a lump sum or in smaller installments into your bank account. You’ll continue to make regular payments (principal+interest) against the new larger mortgage as usual. Be wary of any penalties for breaking a mortgage term early, legal costs, and appraisal fees.
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A portable mortgage allows borrowers to transfer their existing mortgage, including the balance, term, and interest rate, to a new property. This option helps homeowners avoid breaking their current mortgage, which can lead to costly payout penalties, and may also allow them to retain a lower interest rate with the same lender.
Most lenders provide a window of 30 to 120 days to complete the transfer, or "port," from the sale of one property to the purchase of another.
A common question with portable mortgages is: What happens if the new property costs more than the current one? In this case, you may require what’s known as a "blend and extend." This involves the lender combining your existing interest rate with the current market rate to calculate a weighted blended rate. The original rate applies to the portion of the mortgage being ported, while the new rate applies to the additional amount needed for the more expensive home. Regardless of your previous term length, your mortgage term will reset when the new agreement is finalized.
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A Home Equity Line of Credit (HELOC) is a revolving form of credit secured against the equity you’ve built in your property. It allows you to borrow funds as needed, up to a pre-approved limit, and repay them over time, similar to how a credit card functions.
Typically, a HELOC provides access to up to 65% of your home’s appraised value, or up to 80% when combined with a mortgage, depending on lender policies and regulatory guidelines. The maximum loanable amount is based on the lesser of your property's appraised value or purchase price.
HELOCs generally offer lower interest rates than credit cards or unsecured personal loans, as the loan is secured by your home. Interest is only charged on the amount you borrow, and minimum payments usually consist of interest-only, although you can repay the principal at any time without penalty.
It’s important to note that a HELOC is registered as a lien against your property, and failure to meet repayment obligations could result in foreclosure. While HELOCs offer flexibility and convenient access to funds, responsible borrowing is essential, as overuse or missed payments can put your home at risk.
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Determining your readiness for homeownership involves more than simply having enough for a down payment and monthly mortgage payments. It requires careful consideration of your financial stability, personal circumstances, and long-term lifestyle goals. To help assess whether you're truly prepared to take this important step, consider the following questions:
Do you have a stable income?
Whether you are self-employed, salaried, or earning commission-based income, it's essential to demonstrate a consistent and reliable cash flow. Most lenders require a minimum of two years of stable income documentation to assess your financial reliability and ensure you do not pose a risk of payment default.
Do you have enough saved for a down payment and closing costs?
A minimum down payment of 5% is required for properties priced at $500,000 or less. For homes valued between $500,000 and $1.5 million, there is a minimum of 5% down applied to the first $500,000, accompanied by a minimum of 10% down on the portion exceeding $500,000.
In addition, you should budget for closing costs, which typically range from 1.5% to 4% of the purchase price. These costs may include legal fees, land transfer tax, title insurance, and other related expenses.
Is your debt under control?
Lenders typically expect your Gross Debt Service Ratio (GDSR) to be at or below 32%, and your Total Debt Service Ratio (TDSR) to be under 41%. These ratios help determine your ability to manage mortgage payments alongside other financial obligations. Contact your mortgage broker today to assess where your ratios currently stand.
Is your Credit Score sufficient?
Lenders generally look for credit scores around 650 or higher, as stronger credit ratings significantly improve your chances of mortgage approval. While it is possible to obtain financing with a lower score, applicants with higher credit are more likely to secure better terms. Negative marks such as bankruptcies, missed payments, or accounts in collections can significantly impact your credit score. The lower your score, the higher the likelihood you may be required to obtain mortgage default insurance—or risk being declined for a loan altogether.
Are you ready for the responsibility?
As a homeowner, you’re fully responsible for all repairs and maintenance—there’s no landlord to rely on. Consider whether you’re prepared to handle these tasks yourself or have the financial means to hire a professional when needed. Additionally, be sure to budget for ongoing expenses such as property taxes, homeowners insurance, and, where applicable, condominium or homeowners association (HOA) fees.
Are you emotionally ready to settle?
Homeownership typically involves a long-term financial commitment to one location. Mortgage terms often range from 3 to 5 years, so it's important to plan on staying in the property for at least that duration. The goal is to build equity over time; frequently upgrading or relocating can prevent you from establishing meaningful equity and may lead to significant selling costs.
Relocating can also come with emotional considerations. Moving away from family, friends, and your support network is a major decision—sometimes necessary, but rarely easy. Consider whether you're ready to start fresh in a new environment, or if staying close to your existing community is a priority.
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Monthly (12 equal payments, paid on the first of each month)
Semi-monthly (24 equal payments, paid on the first and 15th of each month)
Bi-weekly (26 equal payments, paid on the same day of every second week)
Accelerated Bi-weekly(26 equal payments, paid on the same day of every second week)
Weekly (52 equal payments, paid on the same day of every week)
Accelerated Weekly (52 equal payments, paid on the same day of every week)
Priority: Aligning Payments with Income Schedule
Best Option: Monthly, Semi-Monthly, or Bi-Weekly (Non-Accelerated)
These payment options are ideal for individuals who wish to coordinate their mortgage payments with their pay schedule.
Consideration: While convenient, they offer limited benefits in terms of reducing interest or shortening the amortization period.
Priority: Smaller, Manageable Payments
Best Option: Non-Accelerated Weekly or Bi-Weekly Payments
These options break payments into smaller, more manageable amounts, which can ease monthly budgeting.
Consideration: This structure does not significantly reduce the total interest paid or accelerate the mortgage payoff.
Priority: Minimizing Interest Costs
Best Option: Accelerated Weekly or Bi-Weekly Payments
These payment plans reduce the amount of interest paid over the life of the mortgage by increasing the frequency and slightly raising the annual total paid.
Consideration: They involve higher and more frequent payments, so a stable and sufficient income is important.
Priority: Paying Off the Mortgage Faster
Best Option: Accelerated Weekly or Bi-Weekly Payments
Ideal for borrowers focused on becoming mortgage-free sooner, these options shorten the amortization period.
Consideration: These are the most demanding in terms of payment size and frequency, requiring careful budgeting and consistent income.
Priority: Payment Predictability
Best Option: Monthly or Semi-Monthly Payments
These options provide consistent, easy-to-track payment amounts and schedules.
Consideration: While predictable, they typically result in the slowest mortgage repayment and the highest interest costs over time.
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Many lenders offer prepayment privileges on closed mortgages, allowing borrowers to pay down their mortgage faster and save on interest. Below are several common options:
Lump-Sum Payments: Typically, borrowers can make an annual lump-sum payment of 15% to 20% of the original mortgage amount, applied directly to the principal.
Double-Up Payments: Some lenders permit borrowers to increase their regular payments up to 100%, effectively doubling the original payment amount. The additional amount goes entirely toward the principal.
Anniversary Payments: On the anniversary of the first scheduled mortgage payment, certain lenders allow a lump-sum payment—often up to 20% of the original mortgage amount—to be applied directly to the principal.
Paydowns at Renewal: At the time of mortgage renewal, borrowers may make a lump-sum payment toward the principal without penalty.
Accelerated Payment Frequencies: Selecting accelerated bi-weekly or weekly payments results in the equivalent of 13 full monthly payments per year.
Making mortgage prepayments allows you to reduce your principal balance faster than scheduled, which in turn shortens your amortization period and significantly lowers the total interest paid over the life of your mortgage. This strategy helps you achieve freehold ownership sooner.
Note: Before making any prepayments, it's important to confirm your prepayment privileges with your mortgage broker or lender. Each lender sets specific limits on how much you can prepay annually without penalty. Exceeding these limits may result in prepayment charges, so it's essential to understand the terms outlined in your mortgage agreement.
