Mortgage Insurance FAQ

Q What is a High Ratio Mortgage?
A Any mortgage that requires the mortgage applicant to purchase mortgage insurance. This occurs primarily when the loan to value ratio of the property is more than 75%. For example the property is worth $400,000.00 and the mortgage applicants require financing of 75%, $300,000.00 or more.

Q Is there a government provided mortgage guarantee?
A Yes, but for the lender only on mortgages that are insured by CMHC, Canada Mortgage and Housing Corp. This means that if the borrower defaults on the mortgage that the lender will be reimbursed for any losses.

Q Which is better short term or long term?
A This depends on the buyer’s individual and financial circumstances at the time of purchase. If you were purchasing a rental income property, you may be better off with a long term rate to fix this part of the expenses for a longer period. However, if you were planning to move in the next 2 to 3 years, a short term mortgage would make more sense to avoid the early payout penalty.

Q Are all lenders the same?
A Not necessarily! The borrower’s financial situation and what they are purchasing will usually make a difference. Some lenders will provide better terms and rates to borrowers who have a high net worth. Why? Because they may be looking for clients who can afford to purchase other investment products. Some lenders will offer financing to first time buyers who can not save a down payment but have good income and credit rating, etc.

Q How can I adjust my mortgage payments?
A This depends on the lender’s pre-payment privileges which may range from 10% to 25%. It also depends on the lenders guidelines concerning these pre-payment privileges. For example, some lenders will allow you to increase (or double-up) your payments several times per year up to a maximum amount while others may only allow this once per year. Some lenders will allow you to decrease your payments back to the original amount prior to the increase while others will not once you have increased them, etc. You can adjust your payments by refinancing your mortgage if interest rates have decreased; however you may be subject to a penalty, plus legal and/or an appraisal fees.

Q Should I go for a fixed or a variable rate mortgage?
A When deciding on whether someone should take a variable or fixed mortgage they should ask themselves the following questions. Do you like knowing what your payment will be over a longer period of time? Do you want to avoid the need to constantly watch rates? Do you have less than 25% down? If you answered yes to most or all of these questions a more conservative fixed rate mortgage may be the better choice for you?

Q Are all variable rate mortgages the same?
A No some calculate interest monthly while others calculate it less frequently. Some allow only a monthly payment schedule whereas others allow other options such as weekly, bi-weekly, or semi-monthly. Some are closed versus open meaning that if paid out early you will be charged a large prepayment penalty, etc.

Q How does a commercial mortgage differ from a residential mortgage?
A The main difference is that the lending guidelines are different. For example depending on the type of commercial property the lender may not lend as much money because of the higher risk involved such as a warehouse property which is only suited for certain uses. A home on the other hand is more of a necessity which is why lenders will lend more money on these.

Q What are private mortgage providers and are there risks?
A Private mortgage providers are anyone who is not regulated such as a commercial bank. The majority of risk in dealing with a private lender is that they charge higher interest rates and usually have shorter mortgage terms such as a year.

Q When is a full appraisal required when purchasing or refinancing my property?
A A full appraisal is usually only required when the financing is conventional which is 75% or less and above 60%. In some cases, depending on the lender, an on-line or a drive-by appraisal may be sufficient.

Q What is the property purchase tax and who pays it?
A The property purchase tax is a property transfer tax levied by the provincial government when a property is purchased in the province of BC. A first time buyer who has never owned a property (subject to guidelines) may be exempt on all or a portion of this tax depending on the purchase amount. The tax is 1% of the first $200,000.00 purchase price of the property and 2% of the balance of the purchase price. For details see: http://www.sbr.gov.bc.ca/business/Property_Taxes/Property_Transfer_Tax/about.htm

Q What is title insurance and who needs it?
A Title insurance is an insurance that protects the lender and/or the purchaser against property defects such as Fraud and Forgery, errors in existing surveys, unpaid taxes by the vendor, etc. It is usually a requirement of the lender, but that is paid for by the purchaser. Often, it is required when a survey can not be found or is to costly to do so.

Q What is the Home Buyer’s Plan?
A This is a Federal Government Plan that allows first time Home Buyer’s Pan (HBP) to withdraw up to $20,000.00 from their RRSP Savings ($40,000 per couple) to be used as a down payment without triggering taxes; if they meet the plans guidelines. For details see: http://www.cra-arc.gc.ca/tax/individuals/topics/rrsp/hbp/menu-e.html

Q When should I go to a mortgage broker?
A Someone should seek the services of a mortgage broker under the following situations: (1) They don’t have the time or expertise to evaluate all the current options available to them from all the banks, trust companies, insurance companies, credit unions, etc.; and (2) They have a unique situation such as they are self-employed, impaired credit, small down payment, property purchases other than residential, etc.

Q What should I expect from a mortgage broker?
A An honest and unbiased evaluation and recommendation as to the best financing options for the applicant’s current situation.

Q How do I get a mortgage quotations and information outside of my usual bank?
A Contact Ken MacCoy, CHS to arrange an appointment with the Manulife Banking Consultant in your area.