Mortgage & Insurance Information

Mortgage Terms

The length of time for which the interest rate is fixed is called the term. Most mortgages have terms of six months to five years. 

Open versus closed term

An open mortgage is one which allows payment of the principal, in part or in full, at any time without penalty. Open mortgages tend to be for a short term - usually six months or one year. Since open mortgages offer greater flexibility than closed mortgages, they usually have a higher interest rate.

A closed mortgage requires you to maintain a specific payment schedule. A penalty usually applies if you repay the loan in full before the end of the term.

Convertible Mortgages

A convertible mortgage allows you to renew your mortgage at any time without penalty for a longer term, closed mortgage.

Short versus long term

When interest rates are either high or falling, there is a tendency to choose a shorter term mortgage. This strategy pays off if you can renew at a lower rate six months or one year later.

You may want to consider a longer term mortgage if interest rates are rising, if you have limited income or if you want to keep your mortgage payments the same for a few years.

Your Down Payment

A minimum cash down payment from your own resources is generally required because mortgage lenders are reluctant to advance the entire purchase price of a property. Your minimum down payment would normally be 5%, however, several lenders are willing to allow well qualified purchasers to borrow 100% of the purchase price of a home in return for a higher interest rate and a fixed borrowing term.. It's to your advantage to maximize your down payment (20% or more would be ideal), so you will be able to reduce or even avoid paying the mortgage insurance premium. The larger your down payment, the easier it will be to arrange a mortgage and carry it comfortably. The smaller your loan, the lower your interest expense will be, and the more equity you will have in your home. Equity is equal to the value of your home minus the amount of your mortgage. 

The Canadian Government also offers programs that can help. Speak to a mortgage broker to find out if you qualify for any government mortgage programs.

Insurance Information 

When you insure your home, you should insure your home for the total amount it would cost to rebuild your home if it were destroyed. 12 Ways to Save Money on Homeowners Insurance Friends, family, the phone book and Internet are some of the sources you can use to find homeowners insurers. Get a wide range of prices from several companies. But don't consider price alone. 

Private Mortgage Insurance (PMI) 

Private mortgage insurance is a type of insurance that helps protect the mortgage company against losses due to foreclosure. This protection is provided by private mortgage insurance companies and allows mortgage companies to accept lower down payments than would normally be allowed. PMI Cancellation Mortgage insurance can usually be canceled by the home buyer after he or she has at least 20 percent equity in the home. Borrowers should contact their servicer to find out the procedure for canceling mortgage insurance when they think they have achieved 20 percent equity.