What Type of Mortgage Should I Choose?

How to pick the perfect type of mortgage.

type of mortgage

With record low interest rates, more people are getting into real estate than ever before.  While many people believe that mortgages are more of less the same.  I can assure you, they are not.

It’s tempting to choose the mortgage with the lowest interest rate.  It’s attractive because the lower the rate, the less interest you will end up paying and the faster you can pay off your mortgage.  However, picking a mortgage is more than just interest rates.  There are other factors to consider to be mortgage free faster. 

So what are the considerations when determining the right type of mortgage for you?

Fixed or Variable Rate?

Fixed Rate Mortgage: The mortgage interest rate and your payments will stay consistent for the term of your mortgage.

Variable Rate Mortgage:  The mortgage rate will change with the prime lending rate set by your lender. 

When interest rates are low, a variable mortgage usually offers lower rates than a fixed rate. 

Which one should you choose?  This has become one of the most common questions I am asked by clients.  Historically, variable rate mortgages have fared better in the long run.  However, with record low interest rates, and the Bank of Canada suggesting that they are only going to go up. (The million dollar question is when, and how much).  There is no easy answer. 

For most mortgages you have to choose one.  Which type of mortgage will be best when your term expires is impossible to predict with any certainty. 

The Term of Your Mortgage:

A Mortgage term is the length of time you are committed to a mortgage rate, lender, and conditions of the mortgage.  The term can vary between 1-5 years. 

Which one you choose will have a direct effect on the interest rate, with shorter terms historically having a lower rate. 

When the term expires, you will then have to renew your mortgage for the remaining principle, for the interest rates available at the end of the term.

Flexibility – Pre Payment Privileges:

A Prepayment privilege is the ability to prepay a portion of the mortgage principal before it is due and without penalty. Each individual mortgage has varying rules regarding whether it allows additional payments, when you can make these additional payments and the amount of additional payments.  For example, a mortgage may provide that 15% of the principal can be paid annually without penalty.

Often, limited prepayment privileges offer a better interest rate. 

Summary

As you can see, picking the right type of mortgage for you is about more than just choosing the lowest interest rates.  It’s about determining what works best for your family. 

Please try our Instant Calculator to give you a general idea of how much your mortgage will cost you monthly.

 

     

    *The calculator contained on this page is for estimation purposes only. The actual payment amount must be obtained from your lender. Frost Law, Professional Corporation assumes no liability for the accuracy of the calculator.

    Ontario Consumer Minister proposes increased transparency in the real estate bidding process

    We are all familiar with the scenario of someone coming in to make an offer on a property, and suddenly, there is another “better” offer.

    Ontario’s consumer services minister’s is considering increasing the transparency of the bidding process by eliminating “phantom bids”

    A recent Toronto Star Article called Ontario moves to protect consumer in real estate deals , written by Susan Pigg discusses a scenario where last year a purchaser bid $90,000 over asking on an almost million dollar home, under the impression that there were other offers on the table.  When the agent later found out they were the only offer, the sellers agreed to accept $45,000 instead.

    Scenarios such as these are not an anomaly.  It is all too easy to fall victim to the pressures of a bidding war when finding your “perfect property”.

    The old adage caveat emptor or buyer beware is still the law of the land.  Exercise caution when you are told of sudden interest in a property.  Especially when it has sat on the market for some time.

    It’s about time that consumers are protected from misleading and deceptive practices.

    Collateral vs Standard Charge Mortgage

    Collateral vs Standard Charge Mortgage:

    and How It Can Affect You

    CongratulationsCollateral v. Standard Charge Mortgage, you purchased a home.  Now it’s time to obtain a mortgage.  Many people only consider the interest rate and amortization period without really considering the type of mortgage they are signing up for.

    As many lenders are moving to collateral charge mortgages it’s becoming increasingly important to understand the differences between a collateral or standard charge mortgage. Both types of mortgages have advantages and disadvantages; understanding which one right for you depends on your down payment, future needs, and long-term goals.

    Collateral vs Standard Charge Mortgage:

    With a standard charge mortgage, you agree to the terms of the mortgage:  the amount you are borrowing, the interest rate and the term.  For example, if your home is valued at $500,000 and you put $100,000 down, then your mortgage is $400,000.  The mortgage is registered at $400,000.00.  If for example you wanted a credit line or to refinance, you would have to reapply.

    On the other hand, a collateral mortgage registers the loan on your property between 100%-125% – regardless of the initial amount borrowed from the lender.  For example: if your home is valued at $500,000, and you borrowed $400,000, a mortgage could be registered against your home for up to $625,000.  The thinking behind this is that if you want to borrow money in the future, there is an understood global limit.  The advantage to the borrower is that there will be no additional legal fees to refinance.  The reality is that the lender ensures that their customers do not move their mortgage business elsewhere.

    Before making this decision, consider the following: 

    If you want to switch to another lender, you will likely be forced to pay legal and registration fees.  Further, many banks won’t allow transfers because of the other loans tied to the collateral charge.  This makes it harder to leave the lender because all of your debt under this one agreement.  This significantly impacts your negotiating power at maturity.  If the lender knows you can’t move, there is no incentive to offer the best rates.

    What if a few years down the road an investment opportunity comes along, and you need a second mortgage.  Because the mortgage is registered for the full value or more of the property value at the time of the mortgage, there is no ability to put a second mortgage on title as there may not be any room to borrow.   The only option at this point is to determine what the penalty would be to pay out the mortgage and often, the amount is too high.

    So which one is right for you?

    If you feel that there is a very good chance you will refinance to consolidate debt or to extract equity for a renovation or to invest, then a collateral charge mortgage may be a wise decision.

    If you don’t believe that you’ll need to refinance or extract equity, then a regular standard charge mortgage will suit your needs, and will give you the ability to move to another lender at renewal should you want to without incurring legal fees. In other words, it’s easier for you to keep your options open. If need to borrow more with a standard charge mortgage, you have the option of a second mortgage or line of credit.

    Contact your local real estate legal professional at Frost Law, Professional Corporation to discuss which option is right for you.

    Title Insurance – Do I really need it?

    TITLE INSURANCETitle Insurance

    Many of our clients still ask what title insurance covers just as we are about to sign the closing papers for their home purchase.

    Since the late 1990’s title insurance has gained increasing popularity in Ontario. Today, it is now the most frequently-used method of assuring title to property in home purchase transactions.

    What is Title Insurance? 

    It is a form of indemnity insurance, that insures against financial loss in relation to undetected or unknown title defects, for as long as you own your home. Even if you are the rightful owner of a home, there are instances such as real estate fraud, when your title can come into question. Title insurance continues to protect your ownership from the day of closing to the day you sell your home. Coverage is also extended to heirs who receive your home in the event of your death.

    Don’t have an up to date survey?  Title Insurance protects against various problems that may have been revealed by an up to date survey of the property.

    What Does Title Insurance Cover?

    • someone else owns an interest in your title ;
    • existing liens against the title ;
    • violations of municipal zoning by-laws;
    • encroachments onto an adjoining property (other than fences and boundary walls) ;
    • setback violations;
    • realty tax arrears;
    • outstanding municipal utility charges, provided such charges form a lien on title;
    • existing work orders;
    • lack of legal access to the property;
    • unmarketability of the land due to adverse matters that would have been revealed by an up-to-date survey / RPR/ Building Location Certificate ; and
    • fraud, forgery and false impersonation to the extent they affect the validity of title.

    Title Insurance generally excludes:

    • environmental hazards; and
    • defects or problems which you agreed to assume or be responsible for when you entered into the purchase contract or which you knew about but failed to disclose to your lawyer or title insurer.

    Pros and Cons:

    Historically, written lawyer`s opinions on title confirmed that purchasers acquired a good and marketable title.  Title Insurance provides a cost-effective alternative.

    The use of title insurance will often lower your closing costs by eliminating some of the costly “off-title” searches. It also allows you to close your transaction sooner because you no longer have to wait for responses for the off-title searches.

    There is also a cost savings in that title insurance allows a purchaser to close a transaction without obtaining an up to date building location survey, saving between $1,500.00 – $2,000.00.

    That said, title insurance will not necessarily fix any issue that is discovered on title but will often protect an owner from financial loss for issues which may not be discoverable through regular investigations.

    Title insurance is a tool to be discussed with your lawyer to provide you added protection and peace of mind when purchasing real estate.

    Useful Information:

    The Ontario Bar Association has an informative Brochure called “Working With a Lawyer When You Buy a Home“. 

    The Financial Services Commission of Ontario also have an excellent brochure called “Understanding Title Insurance“. 

    The information in those brochures compares the options available to  and provides useful information .  Feel free click on the links above to read through the information.  We would be pleased to discuss them with you and to answer any questions you may have.

    Contact your local real estate legal professional at Frost Law, Professional Corporation to discuss which option is right for you.

    Welcome to Frost Law, Professional Corporation

    High rest PNGPeace of Mind Service

    Stress Free and Cost Effective Legal Services

    Welcome to official blog of Frost Law, Professional Corporation.

    If you are looking for a trustworthy real estate lawyer, you have come to the right place.

    We provide Stress Free legal services, with all costs disclosed up front with no hidden terms or fine print.

    We specialize and can help with:

    • The Purchase or Sale of your home
    • Arranging Title Insurance
    • Mortgages and Refinancing
    • Preparing Powers of Attorney
    • Reviewing Condominium Status Certificates
    • Reviewing your Agreement of Purchase and Sale

    Serving Richmond Hill, Vaughan, Markham, Stouffville, Aurora, Newmarket, King City and the Greater Toronto Area.

     

    Visit Us On TwitterVisit Us On FacebookVisit Us On Google PlusCheck Our Feed