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Dec 17 2011

by L. Nelson

CURRENT MORTGAGE RATES

For current more rates, major banks post their current NEGOTIABLE mortgage rates as well as other useful mortgage tools (mortgage payment calculators, on-line pre-approval forms, etc.) on their websites:

Bank of Montreal

Royal Bank

Scotiabank

TD Canada Trust

CIBC

GOVERNMENT PROGRAMS

Homebuyers' Plan (HBP)

The HBP is a Government of Canada program which allows you to withdraw up to $20,000 from your registered retirement savings plans to buy or build a qualifying home.

Canada Mortgage and Housing Corporation (CMHC)

Mortgage Loan Insurance is required when a mortgage loan is more than 75% of the purchase price of a dwelling. With CMHC insurance, home buyers are able to purchase a property with as little as 5% down.

MORTGAGE BASICS

CLOSED VS. OPEN MORTGAGES - A closed mortgage offers a lower rate of interest than an open mortgage of the same term. An open mortgage lets you pay off ("prepay") as much principal as you want at any time but you pay a higher interest rate for this privilege. If you're likely to only make regular payments, the closed mortgage is usually preferable. A closed mortgage normally includes limited prepayment privileges (for example, 10% of the principal amount per year without penalty).    

CONVERTIBLE VS. OPEN MORTGAGES - A convertible mortgage offers a lower rate than an open mortgage of the same term. It gives you certain rights to change to a closed term or another convertible term.

FIXED VS. VARIABLE INTEREST RATES - A fixed rate mortgage maintains a constant interest rate throughout the term and may be preferable if you believe rates will rise or if you don't want to take any chances with interest rates. A variable rate can save you money if rates drop. Payments remain constant, but if rates decline, more of the payment is applied to reducing the principal. Conversely, if rates go up, more of your payment is applied toward the interest and less to principal.

SHORT-TERM VS. LONG TERM - If stability of mortgage payments is important to your budget, you may prefer a longer term (3 to 10 years). Shorter terms may be attractive if you believe interest rates will drop.

CONVENTIONAL VS. HIGH RATIO MORTGAGES - A conventional mortgage is for an amount which does not exceed 80% of the purchase price and your down payment is a minimum 20% of the purchase price.   With a high-ratio mortgage, you contribute less than 25% of the cost of the home as a down payment and as little as 5%.  A high ratio mortgage requires mortgage loan insurance, either from Canada Mortgage and Housing Corporation (CMHC) or GE Canada Capital Mortgage Insurance Canada.