Your Rights And Responsibilities As A Borrower
Its important to know your rights as a mortgage borrower. When applying for a mortgage, your lender must provide information such as your mortgage principal amount, your mortgage interest rate, your annual percentage rate , term, payments, amortization, prepayment privileges and charges, and other fees. This can be provided in an information box in your mortgage agreement.
Changes to your mortgage agreement will need to be made in writing within 30 days, or it can be disclosed electronically. Your lender must also give you a renewal statement at least 21 days before the end of your term, or let you know if they will not be renewing your mortgage. If your lender is a member of the Canadian Banking Association, which includes most major banks operating in Canada, your lender may have agreed to provide additional information, such asonline financial calculatorsor other information that can be used to calculate mortgage prepayment charges.
Your lender also has rights, such as the right to inspect your title or the right to sell your home if you dont make your mortgage payments.
You also have responsibilities as a mortgage borrower. It’s important to carefully read your mortgage agreement and ask your lender questions if you don’t fully understand any terms or conditions.
What Is Good About A Long
1. Predictable repayments
The big plus point about a longer term fixed deal is that your monthly repayments are predictable for a long time.
It means that you dont have to worry about whats happening in the wider mortgage market and are effectively protecting yourself against interest rate rises.
For example, if you secure a five-year deal and interest rates creep up in five years time, when you switch to a new deal you might have to pay a rate that is higher than the one you are currently on.
2. It saves time
People on shorter term deals also have to shop around every few years, which can be time consuming.
Each time you switch you would probably spend time researching the mortgage market and speaking to a broker to choose a new deal.
3. It saves money
Admittedly you will pay more in interest if you opt for a long term fixed deal, but you could save money on lender fees.
This is because most deals come with product charges, typically costing around £1,000. If you were to switch 10 times over 35 years, that is an extra £10,000 in fees that you might have to pay on top of your mortgage.
If you are paying a mortgage broker each time you switch to a new deal, the fees can also mount up to thousands of pounds over the lifetime of your loan .
Opting for a long term fixed rate mortgage means you no longer have to worry about these extra costs.
Times Money Mentor can help you choose a mortgage with this comparison tool.
How To Decide Between A Fixed And Adjustablerate Mortgage
To sum it up, now is actually a very risky time to buy your forever home using an ARM.
Yes, you can refinance to an FRM or another ARM further down the line. But thats not cheap. And theres a good chance both those rates will have risen by then.
So, pay close attention to the caps we discussed above that limit your exposure to risk. And ask yourself: Will you really be able to comfortably afford those higher payments if they become necessary?
You should also question how certain you are that youll move home before your initial, fixedrate period expires, if thats your plan.
What you dont want to do is be dazzled by the savings you can initially make with an ARM and ignore all the risks.
This is one of those decisions you want to make with due consideration. Your mortgage lender and loan officer can help you decide.
But ultimately, only you can answer the question: Is an ARM loan a good idea?
Resources for borrowers: If youre considering getting an ARM, you can download a free PDF of the CHARM booklet from the Consumer Financial Protection Bureau . Its 12 pages long and is packed with essential information.
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Q What Other Risks Are There With Such A Long Fix
AJ – If you want to move house, or need to remortgage, you may find your options limited. This is because if you want to get out of a fix early, youll often have to pay huge penalties, which are at their most severe in the early years.
My advice is to really check the small print and understand what your mortgage allows, and dont forget to be clear about what happens at the end of the fix.
What do you think? Does a long fix worry you, or does the stability help you? Let us know in the comments below
Less In Total Interest
A 15-year mortgage costs less in the long run since the total interest payments are less than a 30-year mortgage. The cost of a mortgage is calculated based on an annual interest rate, and since you’re borrowing the money for half as long, the total interest paid will likely be half of what youd pay over 30 years.
Recommended Reading: How Soon You Can Refinance Your Mortgage
Do I Need Cmhc Insurance
UnderOffice of the Superintendent of Financial Institutions regulations, you are required to purchase CMHC insurance if your down payment is below 20%.
You may beineligible for CMHC insuranceif:
- your purchase price is $1,000,000 or above, or
- your amortization period is longer than 25 years.
In these cases, you must make a down payment of 20% or higher.
What Will Mortgage Rates Do In 2021
Rates are expected to continue to slowly climb through the end of 2021, but there will be ups and downs from week to week. Though the Federal Reserve has announced a tapering of its bond purchases, which has kept interest rates low, interest rates arent expected to skyrocket. While the economy is on the road to reaching its prepandemic levels, it isnt likely to make a full recovery by the end of 2021. Because of the current uncertainty, mortgage rates will remain low throughout the year.
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Your Interest Rate Will Be Less
You pay less in interest on a 15-year, fixed-rate loan for two reasons. First, because the loan is paid back in half the time, you pay off a greater amount of its principal balance with each monthly payment. Secondly, 15-year loans come with lower interest rates than 30-year versions because you aren’t holding the bank’s money for as long.
According to the Freddie Mac Primary Mortgage Market Survey, the average interest rate on a 30-year, fixed-rate loan stood at 3.78 percent as of September 2017. The survey showed the average rate on a 15-year, fixed-rate loan was 3.08 percent during the same time frame.
If nabbing the lowest possible interest rate is important to you, a 15-year, fixed-rate mortgage is a good choice.
Is A 30 Year Mortgage A Good Idea
30Year FixedMortgageloan30year fixedmortgageGood idea
. Accordingly, is it bad to get a 30 year mortgage?
The main reason to avoid a 30–year mortgage is because it’s costly. You’ll typically pay more than twice as much in interest over the life of the loan with a 30–year loan as with a 15-year one. Many people favor longer loans because their monthly payments are lower. That is indeed a factor worth considering.
Secondly, is a 15 or 30 year mortgage better? Interest CostsThe interest rate: 15–year loans typically have lower interest rates than 30–year loans, so you’ll pay less interest right from the beginning. Lifetime interest costs: The longer you borrow, the more interest you’ll pay, and your loan balancethe amount you pay interest onremains higher for longer.
Besides, what are the advantages of a 30 year mortgage?
At a glance: The primary advantage of a 30-year fixed-rate mortgage is payment stability and predictability, since the interest rate stays the same. The primary disadvantage is that you’ll probably end up with a higher mortgage rate, so you might pay more interest over the long term.
How much do banks make on a 30 year mortgage?
30-Year Fixed Mortgage vs. 15-Year Fixed Mortgage
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/1 Arm Rates May Come At A Slight Discount
- While interest rates will vary over time and by mortgage lender
- Expect a 10/1 ARM to price slightly below a comparable 30-year fixed
- Perhaps just .125% to .25% cheaper in rate
- The discount is marginal because 10 years is still a long time to offer a fixed interest rate before the first adjustment
Now lets discuss 10/1 ARM rates, which generally come cheaper than 30-year fixed rates.
However, the interest rate may only be .125% or .25% cheaper because you get a fixed rate for a full decade before any adjustment takes place.
Many folks dont even stay in the same home or keep their mortgages for a decade, so the 10/1 ARM could make sense and save you some dough with little to no downside.
However, this also explains the lack of a large discount relative to the 30-year fixed.
If youre not comfortable with a loan program that features adjustable rates, steer clear. The savings may not be worth the stress.
Assuming you plan to move within 10 years , going with a 10-year ARM should provide you with a discounted fixed rate for a significant period of time while you figure things out.
Of course, if you know you wont stay even five years, it could be even smarter to look to the 5/1 ARM instead, which will come with an even lower interest rate.
Read Also: How Much Do I Need To Earn For A Mortgage
Variable Mortgage Rates Canada Prediction: Effects Of Covid
As the effects of COVID, unfortunately, continue to take their toll on the broader Canadian and global economy, it is likely that, as of 2021, it will take several years for the economy to stabilize and then begin to grow again.
The economy indeed can be thought of like a giant ship that can take a while to turn around.
One of the biggest mechanisms that the government has to stimulate an economy is its control over interest rates through the Central Bank of Canada.
If interest rates are lowered and kept low this lowers costs of borrowing which does two main things:
- It reduces what borrowers need to spend on interest, so borrowers have more money to spend on other things in the economy.
- It makes borrowing more attractive, so people borrow more, and spend more with this borrowed money and this boosts the economy.
So my main variable mortgage rate prediction here is that the Government of Canada will want to keep interest rates low for a long period of time because the economy needs a lot of stimulation given the effects of coronavirus. The Central Bank of Canada will not likely start to increase rates until the economy begins to grow at a stable pace, which is still likely about 1- 2 years down the road.
From another perspective, it would appear that the Central Bank of Canada literally cant increase rates too soon because this would send the economy into a depression.
Should I Get A 40 Year Fixed Rate Mortgage
Kensington Mortgages is the latest lender to allow borrowers to fix their interest rate for as long as 40 years.
The loans are similar to those offered by online mortgage broker Habito, which was the first to offer a home loan where you can lock in an interest rate for between 10 and 40 years.
When you are deciding whether to fix for a long period of time, the biggest thing to consider is how the interest rate compares to what else is on offer in the mortgage market.
Interest rates are at record lows and many fixed deals currently come with rates of between 2% and 3%.
However, if you want to fix for a term of 10 years or more, you usually have to pay more for the privilege.
So if value for money is the most important factor to you, a long term fixed deal probably isnt a great idea.
But if certainty is more important than value for money, a long term deal might make sense.
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Sage Mortgage Best Broker
Established in 2020, Sage Mortgage is an online mortgage broker licensed in 20 states, able to connect you with the best rates and loan terms based on your situation. The broker is owned by Red Ventures, parent company of Bankrate.
Strengths: As a mortgage broker that works with several wholesale lenders, Sage Mortgage is able to offer competitive rates, and you can get a custom quote in less than a minute online.
Weaknesses: Sage Mortgage isnt licensed everywhere, so youll need to confirm availability, or potentially work with another broker.
Read Bankrate’s full Sage Mortgage review
Whats The Difference Between A Fixed And Variable Rate
- A fixed interest rate will not change during your mortgage term.
- A variable interest rate can change during your mortgage term.
Having a fixed rate means that your mortgage rate will not change until your mortgage term is over. You can choose to get a fixed-rate mortgage for a long term length if you think rates will increase soon, or for a short term length if you think rates will stay the same or decrease. The 5-year fixed rate mortgage is the most popular mortgage type in Canada.
On the other hand, avariable mortgage ratecan change at any time. Your mortgage payments will still stay the same, but what changes is the percentage of your payment that goes towards paying off the mortgage principal. If rates decrease, a larger amount of your monthly payments will be going towards your principal. This means that if interest rates decrease, youll be able to pay off your mortgage faster with a variable rate.
If interest rates rise, a larger amount of your monthly payments will go towards your mortgage interest. Your monthly payment amount is fixed for the duration of your term, so you wont have to pay more money if rates rise. However, your mortgage payments must be enough to cover at least your monthly interest cost. If interest rates increase significantly, where your mortgage payment no longer covers the interest cost, then your mortgage payment amount will need to be increased.
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Advantages And Disadvantages Of A 10
A 10-year mortgage isnt for everyone. Few people have the financial resources to repay a loan so quickly. But there are some definite advantages if you can:
- Much larger monthly payments compared to loans with longer terms
- Cash is tied up in your house and not readily available to you
- Cant make lower monthly payments without refinancing
Question 3 So Who Should Take A 10 Year Fixed Rate Mortgage
If you are very worried about increases in costs, have no circumstances that would indicate other rates like variables could be preferable, and very sure that the early repayment penalties wont be likely to cause an issue then you just need to decide whether you feel its worthwhile gambling long term and risking paying more than you might need to or whether to take a short term product in the hope that you can secure another competitive rate again in a few years.
This decision is mainly going to come down to the margin between short term fixed rates and long term ones and the probability that changes to your own circumstances make better deals available to you in the short term , and whether you feel the additional cost is good value for the extra security.
A mortgage advisor such as ourselves will discuss your circumstances with you and give guidance on whether a fixed product is really more appropriate for you. If a fixed rate is the best option for you, but it comes down purely to a decision between long and short term deals then this is very much a decision best made by the customer, but at least we can present to you the best options available over the different periods so you can make a more informed decision between them.
If youd like to know what the best deals available to you both in the short and long term could be then complete out enquiry form and an advisor will contact you, to discuss your options and provide you with advice.
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