Playing the Interest Rate Chicken Game with your Term

5 Year vs. 10 Year Mortgages – Does it Matter? 

The best and worst thing about becoming a mortgage broker is the training. On one side, getting your license involves doing a lot of math with specialized calculators and an understanding of legalities and other professions surrounding purchasing real estate. The advent of the Internet has made the former redundant and while it's nice to know how a real estate appraiser uses comparable sales to determine a home's net worth, it isn't up to me to actually do the appraisal.

Your friendly mortgage broker learns a lot through osmosis and trial and error and trying again. Most of my education has come after I received my license. Understanding credit reports and lender's various positions regarding credit scores, 'high-risk' locations for lenders, purchasing your parents' house, sweat equity as a down payment, all matters not covered in the How-To-Brokerage textbook. 

Buying a Home, the Basics

How many times have you asked this; "If there was only some visual representation of what I need to do as someone who wishes to buy a new home?"

Well, that's what Kiss Mortgages is here for, to Keep It Simple Simple. Feast your peepers on this.  

While it's meant for your basic mortgage broker 101 course, I believe it helps to take away the mystery of what a mortgage broker does and why. After all, we may understand why we need a T1 General (Canada represent) or two years NOAs but do you? Do you even know what that means? Let me be your tour guide. Follow me down the rabbit hole...

1) Initiate Client Contact - Whatever the marketing pros want to call it - 'touches' 'collisions' 'interactions' all it is really is someone saying 'I might need help one day and I will remember you first.'

Top 20(ish) Must Know Definitions when talking about Mortgages

A typical mortgage broker class

Sometimes us mortgage brokers forget that not everybody has gone through an all you need to know about applying for a mortgage course. Websites and MBs will throw certain words at you repetitively as if you know them. Here are some of those words for a handy quick reference guide. Of course, most lenders will also have a glossary of common terms on their websites.

Interest Rate  Simply put, it's the cost of borrowing money from a lender. The higher the interest rate, the more you pay for borrowing.

Amortization The time over which all regular payments would pay off the mortgage but not to be confused with 'term'.

Term The length of the current mortgage agreement, after which time the mortgage contract can be renewed or renegotiated with no penalty to the borrower.

Consider a Term as being a base hit. Amortization is a home run. 

Variable or Fixed Rate  lenders offer you 2 types of interest rates when creating your mortgage agreement; variable and fixed.

Variable  fluctuates with the established Interest Rate which can change 8 times a year. It is also called a Floating Rate. It's a gambler's rate as if the rate starts climbing you may pay more in interest or conversely most lenders allow you to 'lock in' your rate at any time in the first 3 years of your term.

Fixed Rate  the interest rate is agreed upon for the term of the mortgage. You can 'lock in' on a fixed rate and forget about it until the end of your term.

Open Mortgage  A mortgage which can be prepaid at any time, without requiring the payment of additional fees.

Closed Mortgage A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except if agreed upon beforehand.

Loan to Value (LTV) A lending risk assessment ratio that lenders examine before approving a mortgage. High LTV ratios are seen as higher risk and therefore the loan will generally cost the borrower more in interest. They will also need to purchase mortgage insurance.

LTV = mortgage requested divided by the appraised value of property.

Total Debt Service Ratio How much do you need to be making in order to cover all monthly debts that will occur for your new household? Your TDSR should not exceed 40% of your gross monthly income.

Beacon Score aka Credit Score All lenders require a credit check. The result that is returned to them is your beacon score. A score of 650 or higher is good, 650 or below may cause concerns in approving a mortgage.

has excellent beacon score

Maturity Date  Last day of the term of your mortgage agreement. Most lenders look to lock in another mortgage term before the maturity date.

Appraisal Value  An estimate of the market value of the property in question

Conventional Mortgage A mortgage that does not exceed 80% of the purchase price of the home. Mortgage insurance is not need in a conventional mortgage.

High Ratio Mortgage If you don't have 20% of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a Mortgage Insurer, such as CMHC.

CMHC (Canada) or Genworth These are companies that provide mortgage insurance to the lender against loss in case of default by the borrower. The premium is paid by the borrower. CMHC is federally run and is the number one reason why mortgage insurance rates remain low.

Interest Rate differential (IRD) If you wish to perhaps buy out your mortgage as you found a better rate elsewhere or wound up with a lot of extra cash, an IRD is what your bank will charge you for breaking the term's agreement. It handcuffs a lot of owners who may wish to take advantage of lower rates as an IRD can run into the thousands of dollars. Simply put, the IRD can be equivalent to a kick in the balls when you check into how much it would cost to pay out your mortgage.

there's your IRD!

Porting This allows you to move to another property without having to lose your existing interest rate. You can keep your existing mortgage balance, term and interest rate plus save money by avoiding early discharge penalties.

Principal  the easiest for last; the principal is the actual amount of money you borrowed from the lender, not including interest

Hope it helps! Good luck. Contact me with any questions or clarifications. 

The Art of Selling Privately or Not

The Art of a Nearly Non-Deal

I think this is the one...

Perhaps you found someone looking to sell their house privately, someone who wants to avoid the thousands of dollars of commission a Realtor would make for doing nothing more than getting someone to sign some papers from a Real Estate For Dummies handbook. Perhaps this sounds like a great idea in the short term – maybe it’s family, maybe it’s an acquaintance you've known for years. 

Perhaps you should rethink that idea before everyone gets too excited and starts planning renovations or Mexican holidays.

Now I’m not advocating entirely for one way or the other – there are thousands of private sales that go through without a hitch. There might be a few small hiccups along the way, but as long as everyone is negotiating in good faith, happy is as happy does. Unfortunately there are also thousands of Realtors out there with more than a few that push potential clients into a house that they may not be happy with in order to receive that juicy commission. Like everyone else, when looking for a Realtor, ask for referrals. There are plenty of good Realtors out there and there are bad ones which gives the others a bad name and is why private sales or Do-It-Yourself companies like The Property Guys have become such a popular option in recent years. 

That said, here’s some warning signs that you should be wary of when attempting to purchase privately and trying to shave a few thousand dollars from your mortgage by using a do it yourself kit. If you step back and remind yourself that this is a deal worth perhaps hundreds of thousands of dollars, when and if a delay happens everyone can continue to work diligently to making the deal happen. That said, the most stressful factors in attempting a private sale (from my own personal experience);