Lisa Theriault

In this ever changing economic environment, it is very important to be sure you are asking the right questions when shopping for a mortgage (whether it be for a purchase or a refinance):

10. Is the mortgage portable/assumable?

- life changes, so the time may come when you need the flexibility to take your mortgage with you to a new property, or you may want to make your home more attractive to prospective buyers and offer to have them take over the remaining terms of the mortgage (careful here though. You want to make sure you have discussed how your lender manages a mortgage assumption to ensure you are being released from the obligation once the new owner takes over. Ask your mortgage professional before going this route.)

9. Can I get mortgage/creditor insurance if I need it?

- some lenders offer life, disability, job loss and/or critical illness insurance as an 'extra' when you are taking a mortgage with them. As a mortgage agent/broker, we offer creditor life and disability insurance (optional of course, but we do have to offer it) so our clients have the option whether or not the lender offers it themselves. When you get a mortgage, it is also a good time to do an insurance review (with an insurance agent/broker) to ensure you are well, but not over, covered

8. Is the mortgage term open or closed?

- you can have a fixed or variable rate mortgage that is either open or closed. Variable doesn't mean that you can pay your mortgage off anytime, prior to the end of the contract term, without a penalty. If your mortgage is 'open', then you won't have a penalty when you go to pay it off (or pay more than the lender allows in their 'prepayment privilege' clause) before your term ends. This one can come back to bite you so be sure to get clarification

7. Is my rate fixed or variable/adjustable?

- a fixed rate won't change throughout the contract term (1 year, 2 years, 5 years, etc) whereas a variable or adjustable rate will change according to the fluctuations in the Bank of Canada overnight rate. Whether the fixed or the variable is best for you should also be discussed (and will be the topic of a future post!)

6. Can I make extra payments on the principal? If yes, how much?

- these are usually called 'prepayments' and the amount you can apply in extra funds towards your principal will vary between lenders (typically anywhere from 10% - 20% annually). Some lenders are now offering an even lower rate in exchange for very a very small, or no, prepayment privilege

5. Do I have to get my mortgage insured through CMHC/Genworth/Canada Guaranty (formerly AIG) if my current mortgage is already insured?

- people often don't ask this question, so they end up paying the entire mortgage insurance premium all over again, when they may in fact have been able to only pay a 'top up' premium on the new money they are adding. Asking this question could potentially save you thousands on your new mortgage principal AND interest costs over the life of your mortgage.

4. Can I increase my payments during the term?

- most lenders allow you increase your payment amount by up a predetermined limit (%) on an annual basis. Increasing your payments can help pay your mortgage off sooner.

3. How is the penalty calculated if I broke my mortgage during the term, before maturity?

- most fixed rate mortgages will carry an early payout penalty that is determined by either 3 months of interest on the outstanding balance, or an interest rate differential - whichever is higher. For a variable or adjustable rate mortgage, the penalty is generally based on a 3 month interest calculation (using either the lender's 'prime' rate at that time, or the contract rate).

2. What rate can I get and how does the fixed compare to the variable/adjustable?

- pretty self-explanatory really: You need to know what interest rate you can get, and then compare the fixed with the variable rate options. Not all fixed rate offers are the same, nor are all variable/adjustable rate offers (look at the whole package, including items listed above, not just the rate itself. Some lenders compound interest monthly, while others compound semi-annually. A monthly compounding schedule will cost more than an a semi-annual schedule, so that lower rate may not actually BE lower).

1. And the MOST IMPORTANT question you should be asking ... IS MY MORTGAGE PROTECTED AGAINST INFLATION and will I have a large payment 'shock' come renewal time?

- I bet you thought that rate would be the #1 question to ask when arranging a mortgage, but it really isn't. What happens when your mortgage comes up for renewal, at the end of your term, and rates have changed? They could be lower or much higher than what you are agreeing to pay today (and in today's environment, that is a very likely scenario that cannot be ignored). Are you going to be prepared for the 'shock' of the increase to your mortgage payment? The most important factor in protecting your biggest asset (for most people) is to ensure you have a plan which helps you combat inflation. If your mortgage professional, be they a banker or a mortgage agent/broker, is not prepared (or equipped with the knowledge) to devise a plan to protect you, then you need to look elsewhere for a professional who can and will.

All of these questions have a series of possible responses, depending on your personal circumstances, so the first step to finding YOUR best mortgage plan is to deal with an Accredited Mortgage Professional (AMP). If there are terms you are unsure of, either in this post or in information you have received from your current mortgage professional, I welcome you to visit my team and I online at www.lisatheriault.com, or give me a call directly at 613-860-1825.

The story is often the same. You find the house you've been searching for, in the neighbourhood of your dreams, but it needs some updating or personalizing via renovations that you aren't sure how you can afford. What if you could add these renovations to your mortgage, have it all at the great low rates that a mortgage offers, and all in one payment? Well you can with a Purchase Plus Improvements mortgage!

The Purchase Plus Improvements mortgage can be insured (CMHC/Genworth/Canada Guaranty) or conventional with many lenders. It allows borrowers to add up to the equivalent of 10% of the purchase price in upgrades or renovations that will add to the value of the home. Borrowers can then get financing up to 95% of the 'as improved' value (or 80% if conventional). The key here is that you have to make sure you either have access to funds to 'float' the reno until you get the extra money from the lender (as it is held back by the lawyer until the work is completed), or your contractor needs to be okay with getting paid once ALL of the work is completed (this means that if you are getting Jim to do the bathroom and Richard to do the flooring, they both have to be finished before either of them gets paid). I often recommend that people get a 'do not pay for 6 months' from a local box store, then they can pay it off in full, before the interest charges accrue, once the lender releases the extra funds.

Here's an example:

Purchase Price: $340 000

Renovations: $34 000

'As Improved' value: $374 000 (note that the new lending value is generally derived on a dollar for dollar basis, depending on the proposed renos)

Down Payment (5% of total): $18 700

New Mortgage: $365 079 (including mortgage insurance premium)

In this example, the client was able to add $34K in improvements to the property and only increase their out of pocket, via the down payment, by an extra 5% (or $1700).

In the end, don't let a little imagination get in the way of your dream home. If you see the potential, there is a way to get it done without breaking the bank (no pun intended!).