Over the course of your amortization period, you may have many different mortgages. The term is simply the length of time that interest rates, payment schedules and obligations to the lender exist. When the term comes to a close, you will have the option to renew your mortgage at your current or new lending institution. You can also put a lump sum toward the principal without restriction, or pay off your entire mortgage without penalty. If you wish to change the structure of your agreement during the term you may have to pay a substantial fee to the lender.
Open, Closed and Convertible Mortgage?
Mortgages are available with open, closed and convertible options, with fixed or variable rates. The options you choose usually reflect whether you believe interest rates are going up or down. It may also reflect whether you are financially a risk taker or conservative.
- Open Mortgage
This type of mortgage offers a great deal of flexibility, as it can be repaid in part or full at any time without penalty. This is a great mortgage if you believe interest rates are moving down or if you plan to move in the near future. The term may be limited to six months or one year. The more flexible the mortgage often means higher the interest rate.
- Closed Mortgage
Here the interest rate is fixed for the full term of the mortgage, and you will have to pay a penalty to change the agreement conditions. This type of mortgage is ideal for buyers who suspect that interest rates will rise and who are not planning to move in the near future. This type of mortgage is usually available in a wide variety of terms.
- Convertible Mortgage
With this mortgage, you’ll enjoy the same peace of mind as a closed mortgage, plus the flexibility to convert to a longer closed mortgage at any time without penalty. If you think rates will drop, this will allow you to wait until you feel they have hit bottom, or if rates rise, you can lock in.
This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over 15-, 20-, or 25-year periods. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.
What is CMHC Mortgage Loan Insurance?
Mortgage loan insurance is typically required by lenders when homebuyers make a down payment of less than 20% of the purchase price. Mortgage loan insurance helps protect lenders against mortgage default, and enables consumers to purchase homes with a minimum down payment of 5% — with interest rates comparable to those with a 20% down payment.
To obtain mortgage loan insurance, lenders pay an insurance premium. Typically, your lender will pass this cost on to you. The premium payable is based on a percentage of the home’s purchase price that is financed by a mortgage. The premium can be paid in a single lump sum or it can be added to your mortgage and included in your monthly payments.
Mortgage loan insurance is not to be confused with mortgage life insurance which guarantees that your remaining mortgage at the time of your death will not be a burden to your estate.
Land Transfer Tax
Click here for the: Land Transfer Tax Calculator
Some Government Plans for First Time Buyers:
Use your RRSP’s as a Down Payment with the Home Buyers Plan (HBP)
This is a government program that allows home buyers to use their RRSP savings as a down payment.
The basics of the program are:
- Use up to $25,000 per person. So if you have a spouse or partner you could use up to $50,000
- Must be used for purchase of your principle residence & you must be a Canadian resident
- Eligible to first time buyers not living in a house that you own in the last 5 years
- If you are disabled and need special housing or related to someone who is you are eligible
- Pay back to your RRSP account over 15 years. $25,000 / 15 = $1,667.66 per year. If you don’t pay it back then it is included in income for that year and is taxable.
For full information visit http://www.cra-arc.gc.ca and search Home Buyer Plan
Save on Income Taxes with First Time Home Buyers Tax Credit
- You are eligible for a non-refundable tax credit, meaning the amount of federal tax you owe will be reduced up to a maximum of $750.00
- If you owned a home in the year of purchase or the proceeding 4 years you are not eligible
To claim tax credit simply enter the eligible amount into line 369, Schedule 1 of your Federal Tax Return
For further details refer to www.cra.gc.ca/hbtc
Land Transfer Tax Rebate
- First time home buyers are eligible to receive rebates for both the Provincial & Toronto Land Transfer Tax (LTT)
- All properties are eligible for the Provincial rebate of up to $2,000 which is equivalent to the LTT payable on a $227,500 property
- Toronto LTT is only payable on properties in the City of Toronto. Eligible rebate of up to $3,725 which is equivalent to LTT payable on a $400,000 property
Easy to use LTT Calculator is www.landtransfertax.com
Buying your first home may be overwhelming. With our knowledge and expertise we can guide you through this process and alleviate much of the stress. If you are unsure what you are looking for you are not alone. Many people feel the same way but that is why “Experience matters”. We will guide you through the process.