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FAQS About BC Mortgages
or British Columbia 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.
For the best mortgage
broker British Columbia has to offer, use Gregory Stanley AMP CFP
today, CLICK HERE
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