Canadian Mortgage Basics - Mortgage 101

Canadian Mortgage Basics - Mortgage 101

– Hey, welcome back, it's Nolan Matthias, and today we're discussing
mortgage basics. The very basics of what you need to know about getting a mortgage, right down to terms like
closed and fixed and variable, and all of that jazz. But before we get into
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Okay, so let's get into it. Let's discuss the basics of mortgages, starting with what a mortgage is. So mortgage in its most simplest terms is a loan to get a house. That's it, it's a loan to buy a property. And how you determine the
amount of the loan is simply by taking the purchase
price of the property, let's say it's $400,000, subtracting your down payment,
let's say that's $50,000, and the amount of mortgage that you need is therefore $350,000. Very simple. Now from here is where it gets
a little bit more difficult and a little bit more interesting because in the event that you were putting less than 20% down, you need what's called mortgage insurance.

Mortgage insurance comes from three different companies in Canada. It's other CMHC, which is the
biggest and the most popular, and the government backed one. Sagen, formerly Genworth Financial, don't ask me why they renamed it Sagen, I don't have no idea what that means, and Canada Guarantee are
the other two insurers. Now, it doesn't really matter who you get your mortgage insurance from. They all do basically the same thing with minor variations in their products and how they qualify people. But for the most part, it doesn't matter where you get mortgage insurance,
you just have to get it when you put less than 20% down. And know this, that all three
insurers are somewhat backed by the Federal government. For CMHC, it is 100% backed
by the Federal government and for Sagen and for Canada
Guarantee, it is 95% backed. Now, if you're putting more than 20% down, you don't need to get mortgage insurance. Although some lenders will do
what's called back insurance in order to insure their entire portfolio so that you can get lower interest rates. If you are putting more than 20% down, you will often find yourself
having to pay for an appraisal.

They're typically around three to $400, however, that is in lieu of a five to $10,000
mortgage insurance premium that you would have to pay otherwise. So it is very much a very good deal to have to get an appraisal
rather than mortgage insurance. Now, the mortgage insurance is designed to protect the bank in case you default. So in other words, it is
not there to protect you, it is there to protect
the lending institution that has lent you the money.

Now, that being said, always
make sure that if you can, to keep the mortgage insurance in place, when your mortgage comes up for renewal, or if you switch to a different lender. The reason why is because that insurance makes
it significantly cheaper for you to get a mortgage in the future. Insurance typically means
lower interest rates because there's less risk for the bank. Keep in mind that the most
risky mortgage for a bank is the one that is uninsured, where you've only put 20% down. That's why when you put 20% down, you pay a slightly higher interest rate and rates start to get better as you start to get to that
35% down payment point, which is when interest rates start to end up being pretty
similar to what you would pay if you were getting an insured mortgage. Now, there's two types of
rates you can typically get, the first is fixed, the
second is a variable. Fixed rates obviously have a fixed rate for the term of the mortgage. Variable rates have a variable rate that typically changes with movements in the Bank of Canada key lending rate.

You typically pay a higher
price for fixed rates, you pay a premium for security, and you also typically
pay a higher penalty if you want to get out of that mortgage because you've committed
to maintain the mortgage for a fixed period of time. A variable rate on the other
hand is typically priced lower, it will typically save you
money over the long-term. Yes, there is the risk of interest rates increasing over time. However, that risk is often mitigated by the fact that there are
significantly lower penalties to switch to a different lender
or to pay out the mortgage. And also keep in mind that
when you're getting something like a five-year fixed mortgage, you're really getting a
five-year adjustable mortgage that adjusts in price every five years, and eventually if interest rates do go up, you are going to renew into a
higher interest rate anyways. So a variable rate just allows you to feel that pain more slowly over time, rather than all at once,
at the end of five years. Statistically variable
rates almost all of the time will be a better choice
than a fixed rate mortgage.

Even though you have that
added sense of security with a fixed rate mortgage, the reality of it is a variable
rate will save you money, and the chances of your interest
rate jumping significantly in a short period of
time are very, very low. Now your amortization
is the amount of time that it will take to pay off
your mortgage in its entirety. Insured mortgages have a maximum
amortization of 25 years. Uninsured mortgages have
a maximum amortization, typically of 30 years. And that amortization is what
determines your payments, the longer your amortization,
the lower your payment. Now the amortization is not
to be confused with the term. The term of your mortgage
is the amount of time that you have a rate guaranteed for you. In terms of a fixed rate mortgage, it's the amount of time that you have that fixed
rate guaranteed for. In terms of a variable rate mortgage, it is the amount of time that you have the discount
guaranteed for it.

So in a variable rate mortgage, if it's priced at prime
minus 0.5 or prime minus 0.1, that discount will be guaranteed for the term of the mortgage,
so let's say five years. Now, if the Bank of Canada
adjust their key lending rate, obviously the key lending
rate or prime will change, but your discount off of
prime will stay the same. Now there are two types of payments, there are unaccelerated payments
and accelerated payments. Typically unaccelerated
payments are monthly or semi-monthly payments, although they can be bi-weekly or weekly, depending on how your lender sets them up. The accelerated payments are
typically weekly or biweekly. And it is important to remember to ask for accelerated weekly
or biweekly payments. If you just ask for weekly or biweekly, there's a chance that you may
get non-accelerated payments. The easiest way to determine
if the payment is accelerated is to take the monthly
payment and divide it by two, in the case of biweekly payments, or divided by four in the
case of weekly payments.

absolute best product

And if your bi-weekly
or weekly payment equals either of those numbers, then you have an accelerated payment. If it is less than that, then your weekly or bi-weekly
payment is not accelerated. We highly recommend for anybody purchasing a home to live in, to take accelerated weekly
or bi-weekly payments. The two of them are virtually the same, there's a little tiny bit of
benefit at the end of 25 years if you take a weekly payment
over a bi-weekly payment, but it is minimal, I'm talking two, $300
over a 25 year period.

So biweekly, weekly, pick
the one that's right for you. We choose weekly because it allows you to manage your cashflow a
little bit better knowing that there's a little
bit of money coming out every single week, rather
than a larger amount of money coming out every two weeks. Now, when you go to get your mortgage, it is a good idea to get pre-approved. There are two types of
pre-approval processes. There is fully underwritten and there is not fully underwritten. Any sort of app that tells
you that you're pre-approved in less than two or three minutes and basically spits out a number, or anybody who takes an
application over the phone and doesn't get your job
letters, your pay stubs, and all of your pertinent documents is doing a non-underwritten pre-approval. They typically are not worth the paper that they are written on. An underwritten pre-approval
on the other hand, gets your job letter, get your pay stubs, gets all of your documents,
gets them all confirmed and gets you a real number for what you are pre-approved for. That is the type of pre-approval that we do at Mortgage 360, and this is the only type of
pre-approval that we recommend.

Obviously, when it comes
to getting a mortgage, we highly recommend
that you get a mortgage through a mortgage broker. It is 2021, the conversation
of where the best place to get a mortgage is over. It is clear that mortgage
brokers have more access to more products, more lenders, and have a better overall
sense of the market than an individual banker. Do your banking, so in
other words, your savings, your checking accounts and the
things that need to be done at a bank at the bank, but take advantage of a mortgage broker so that you can get the
absolute best mortgage for you at the most competitive price. We often find that when
somebody does get a mortgage from a bank and they
understand the differences between different banks
and different lenders, they are often choosing a bank that is different from the
one that they deal with.

Now, every bank has things that
they do really, really well. Some do mortgages really well, some do checking accounts really well, some do investments really well. What's important is making sure that you get the mortgage
that is right for you, and is the best for your circumstances. And chances are, it is not from the bank that you typically deal with. And keep in mind that a mortgage
payment is simply a payment that comes out of your bank
account on a monthly basis or a biweekly or a weekly
basis if you choose…chosen to pay your payments biweekly or weekly, and that is all it is.

You don't need to see
it on the same screen as all of your other banking,
you just need to make sure that you have the absolute
best product for you. As far as what lenders look at, when they're looking at a mortgage, they look at three things when
it comes to you personally, they look at your credit, they look at the amount of down payment that you're putting down and
they look at your income. They look at those three things and determine how much they
are willing to lend you. And then on top of that, they
also look at the property. The quality of the property
plays an important role in the mortgage because
that is the security that securitizes the mortgage.

In other words, if you default, that is the recourse that the lender has. So they typically don't want a property that is not going to be marketable. They want a really great property, as well as a really great borrower in order to lend them
money for a mortgage. Now, if you're looking to get
pre-approved for a mortgage, and that is an underwritten pre-approval, the simplest way to do it
is to go to the link below and apply online at mortgage360.ca. If you're just looking to
figure out approximately what you would qualify for, and you aren't necessarily ready to jump into the market yet,
we're also going to link below to our online mortgage app,
which will help you determine how much you qualify
for, see what rates are and get all of the things
that are mortgage related before you actually jump
into a pre-approval.

So if you found this video useful, do me that favor, hit
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and please hit that like button so more people like
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you on the next video..

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