Mortgage Information

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 (taking into account current market conditions) 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.

Choosing Security or Flexibility
Mortgages are available closed open and convertible options, with fixed or variable rates. The options you choose will reflect your beliefs about the market – is it going up or down, and your short-term goals and desire for long-term security.

Amortization
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.

For payment comparison over various amortization periods, refer to the schedule of payments.

Schedule of Payments
There Are Ways to Reduce Your Interest Payments

1.  Negotiate a shorter amortization period. (That’s the number of years over which you’ll pay off the total amount of the mortgage. Don’t confuse this with the term of the mortgage, which can run for 6 months to 10 years and must be renegotiated). A shorter amortization period will mean higher monthly payments, but you’ll be paying more principal with each payment. Consider this:

Let’s say you borrowed $100,000 at 10% interest. (I’m using round numbers for ease of illustration assuming a constant bank rate. You know that today, you’ll certainly be able to get a lower rate. 

Amortization Period

Monthly Payment

Total Payments

Total Interest Paid

25 Years

$895

$268,500

$168,500

20 Years

$952

$228,240

$128,480

15 Years

$1,063

$191,340

$91,340

10 years

$1,311

$157,320

$57,320

5 Years

$2,148

$128,880

$28,880

2.  Accelerating your payments. Opt for a weekly or biweekly payment schedule. More payments per month means less overall interest.

Let’s go back to your $100,000 loan at 10% interest for 25 years. 

Payment Schedule

Amount

Total Interest

Mortgage-Free

Monthly (12)

$895.00

$168,500

25 Years

Biweekly (26)

$447.50

$118,927

18 Years, 10 Months

Weekly (52)

$223.75

$118,111

18 Years, 9 Months

3.  Put lump sum payments toward your principal.  When negotiating your mortgage, ask how frequently you can make a lump sum contribution. Most financial institutions allow a percentage of your overall mortgage to be contributed on your annual mortgage anniversary date. Depending on the type of mortgage you select, you may also be able to negotiate additional monthly, or even weekly payments. These payments will rocket you towards mortgage freedom.

OK, here’s another illustration assuming you have an $80,000 mortgage at 8% with a 25-year amortization, and you’re able to put an additional $2,000 lump-sum payment toward it every year.

No Lump- Sum Payments
$2,000 Annual Payments Mortgage-Free 25 years14.8 years Total Interest paid$103,165 $55,549

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 is 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.

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.

Additional Costs
Before you calculate the amount of you down payment and determine what you can afford, it’s a good idea to set aside a few thousand dollars to cover the extra costs that seem to spring out of nowhere. Here is an overview of costs you could encounter. The good news is that not all of them will apply.

Property Taxes
If the Vendor has paid a portion of the taxes in advance you will be responsible for reimbursing the vendor on closing. Plus, if you have a high-ratio mortgage, your lender may require that you have your property taxes added to your mortgage payments.

Utility Fees
Utility fees are calculated through a meter so you will be responsible for paying what you have used up on the meter.

Land Transfer Tax
This applies in most provinces and ranges from 1% to 4%. For instance, in Ontario, you’ll pay 1% of the first $55,000-$250,000 and up to 2% of any amount over $400,000.

Survey Fee
Your lender will require an up-to-date survey. You can make it a condition of the Offer to Purchase that the Vendor will provide a survey, or you will have to have one done. If there is no survey available, you may purchase “Title Insurance” in lieu of a survey which saves you about $500-$700.

Appraisal Fee
A basic appraisal usually costs under $250.

Property Insurance
Your lender will insist that you have insurance on your property because your home is used as security for the mortgage.

Service Charges
You’ll be charged for telephone, cable, and a variety of other services that you hook up at you new home.

Lawyer (Notary) Fees
Each real estate transaction requires the assistance of a legal professional to review the Offer to Purchase, search the title, draw up the mortgage documents and take care of the details on the day of closing. Lawyers fees range widely depending on the complexity of the transaction. Ask your RE/MAX sales representative to recommend a lawyer. And remember, fees can be negotiated.

Mortgage Loan Insurance Premium and Application Fee
Mortgage loan insurance will be necessary if you have a high-ratio mortgage (less than 25% down payment). The application usually costs $75 with a valid appraisal, otherwise it’s $235. The actual insurance premium will range from .5% to 3.75% of the purchase price and is added onto the mortgage.

Mortgage Broker Fee
Some brokers may charge as much as 2% of the total mortgage to find you a lender. In most cases though, the broker is paid by the lender. Buyers with good credit should not have to pay a fee.