- 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.
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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.
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 that subscribe button,
hit that notification bell, and please hit that like button
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And don't forget
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Cheers, and we'll see you on the next video.