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What is a mortgage?
A mortgage is a loan secured by real estate, typically used to buy a home. Learn how mortgages work in Canada and what they mean for your homeownership journey.
Introduction
In Canada, a mortgage is more than just a loan, it’s your ticket to owning a home. Whether you’re buying your first condo or upgrading to your dream house, understanding what a mortgage is (and how it works) is key to making smart financial choices.
A mortgage is a secured loan:
You borrow money from a lender using your home as collateral. If you default, the lender has the legal right to take possession of the property and sell it to recover the debt. This is why lenders scrutinize your financial profile before approving your application.
You repay it with interest:
Mortgage payments are typically made monthly and include both principal (the amount you borrowed) and interest (the lender’s fee for lending you the money). In Canada, most mortgages use semi-annual compounding for interest, and you can often choose between fixed or variable rates.
Terms and amortization periods differ:
The term (often 1 to 5 years) is how long you’re locked into your mortgage contract with specific terms and rate. The amortization period (usually 25 or 30 years) is how long it would take to fully pay off the mortgage based on your payments. You renegotiate your mortgage at the end of every term.
Qualification is based on Canadian rules:
Lenders review your credit score, income, employment history, debt obligations, and down payment. They also apply a “mortgage stress test” to ensure you can handle future rate increases. This is an important rule set by the Government of Canada to protect both you and the lender from future uncertainty.
Conclusion
At the end of the day, a mortgage is a tool. When used wisely, it helps build equity, provide stability, and open the door to long-term financial growth. Let’s make sure it works for you and not the other way around.
Need clarity or a custom quote? Call me at 905-517-4228 or book an appointment now to get started.
How mortgage interest works (simple vs. compound)
Understanding how mortgage interest is calculated in Canada can save you thousands. Learn the difference between simple and compound interest and how it affects your mortgage.
Introduction
Mortgages in Canada don’t just depend on the rate they also depend on how that rate is calculated. Whether it’s simple or compound, the math behind your interest matters more than most people realize.
Simple interest:
Simple interest is calculated only on the original loan amount, not on previously accumulated interest. While easy to understand, it’s rarely used in Canadian mortgage lending because it doesn’t reflect the true cost of borrowing money over time.
Compound interest:
With compound interest you’re charged interest not just on the principal, but also on the interest that has already accumulated. This is the standard in Canada and is what significantly increases the cost of long-term borrowing.
Semi- Annual vs. Monthly Compounding:
In Canada, mortgages typically use semi-annual compounding, even when you’re making monthly payments. This can be confusing because it’s different from the monthly compounding you might see on credit cards or personal loans.
The impact of compounding is substantial over time:
A difference in compounding frequency or method can amount to tens of thousands of dollars over a 25- or 30-year amortization. Always ask your lender for the compounding method when comparing rates.
Conclusion
The difference between simple and compound interest isn’t just a technicality it’s a core part of your long-term cost. Always understand how the interest is compounded before signing your commitment.
Confused by the fine print? Let's break it down together.
Call 905-517-4228 now or let's book a time to chat.
Fixed vs. Variable Rates: What's Right for You?
Choosing between fixed and variable mortgage rates is one of the most important decisions for Canadian homebuyers. Here’s what you need to know to make the best choice.
Introduction
If you’ve ever been torn between locking in a great rate or riding the wave you’re not alone. In Canada, fixed vs. variable mortgage rates is one of the biggest debates among buyers, brokers, and economists alike.
Fixed mortgage rates offer you predictability and stability:
Your payment amount stays the same for the entire length of your term. This is ideal for borrowers who want certainty in budgeting and those with tighter cash flow.
Variable rate mortgages fluctuate:
Variable rates are tied to the lender’s prime rate, which follows the Bank of Canada’s overnight lending rate. Your payments may fluctuate (up, but rarely down), especially in times of economic volatility.
The risk and reward of variable rates:
Historically, variable-rate mortgages have saved borrowers money over the long run, but they come with the psychological stress of payment changes and uncertainty especially if you’re on a tight budget.
Some lenders offer hybrid mortgages or conversion options:
These allow you to start with a variable and switch to a fixed rate mid-term if rates start to rise. But read the fine print, conversions don’t always offer the best fixed rates available at the time. Generally you can lock in at the posted rate, not necessarily the best discounted rate.
Conclusion
The right rate type depends on your risk tolerance, cash flow, and future plans. There is no one-size-fits-all solution, this is really all about what’s, the best fit for you.
Let's run the numbers together. Book a free call now, there's no cost or obligation, or better yet, give me a shout at 905-517-4228.
Amortization Period vs. Mortgage Term Length: Understand the Difference
Mortgage term and amortization period are not the same thing. Here’s how they work in Canada and how they impact your payment, flexibility, and long-term interest.
Introduction
Many Canadians mix up amortization period and mortgage term length and it’s no wonder. Both phrases refer to timelines tied to your mortgage, but they affect your money in very different ways.
Your mortgage term:
The term length is the period you’re committed, by contract to a lender under a specific rate and set of conditions, usually 1 to 5 years. At the end of the term, you can renew, renegotiate, switch lenders, or pay off the balance.
The amortization period:
The amortization period is the total time it would take to pay off your mortgage entirely based on your current payments. This is typically 25 or 30 years but in rare cases can be extended beyond that period, sometimes up to 40 years. This has a significant impact on how much interest you pay overall.
A shorter amortization saves you thousands in interest, but it increases your monthly payments. A longer amortization lowers your payment but extends your debt and adds significantly more interest.
You can reduce your amortization over time:
Smart strategies like making lump-sum payments, increasing your regular payment amount, or reducing your amortization period during a refinance, you can become mortgage-free faster, potentially saving you thousands of dollars of the remainder of your term.
Conclusion
Think of your term as the short game and your amortization as the long one. Let’s be strategic and structure both to support your financial goals now and later.
Want help choosing the right combination of term and amortization? Reach out at 905-517-4228 or let's book some time to chat.
What is a Mortgage Pre-Approval?
Getting pre-approved is one of the smartest moves a homebuyer can make. Here’s what mortgage pre-approval means in Canada and how to get it.
Introduction
Before you fall in love with a property, make sure you know what you can afford. A mortgage pre-approval helps you shop with confidence, knowing exactly what lenders are willing to offer you.
A pre-approval is a lender’s conditional offer:
This offer is subject change or cancellation but confirms a you are eligible for a loan you a specific amount, based on your financial profile. It is not a full mortgage approval, but it gives you clarity and buying confidence.
Basic underwriting without knowledge of the property:
You’ll need to provide income verification (pay stubs, job letters, T4s), a credit check, a breakdown of current debts, and proof of down payment.** The lender uses this information to calculate your GDS/TDS ratios (without knowing the specific property taxes and heating costs).
Rate hold allows you to shop with confidence:
You’ll usually receive a rate hold valid for 90 to 120 days, protecting you from rate hikes while you shop. If rates drop, many lenders will offer the lower rate. This is known as a float down.
Pre-approval strengthens your offer in a competitive housing market:
Sellers and real estate agents take your offer more seriously because you’ve already been financially vetted. This is important, but doesn’t replace the need for a Condition of Financing on your offer. Just because the lender likes you, doesn’t mean that they will like the property. A condition of financing allows you a way out of the purchase agreement if you are unable to secure a mortgage.
Conclusion
Getting pre-approved doesn’t take long but it gives you clarity, bargaining power, and peace of mind. It’s a no-brainer for serious buyers and should be your first step in the process.
Start your pre-approval today at APPLY NOW or call 905-517-4228 to get rolling.
Open vs. Closed Mortgages: What's the Difference?
Choosing between an open and closed mortgage in Canada affects how flexible your loan is and how much interest you’ll pay, and any penalties you might incur for paying it off early. Here’s what you need to know.
Introduction
Open and closed mortgages each serve a specific type of borrower. Whether you need flexibility or want the lowest possible rate, knowing the difference is crucial before you sign any mortgage contract.
Open mortgages offer flexibility:
You can pay off the entire balance or make large lump-sum payments anytime without penalty. Ideal for those planning to sell, refinance, or pay down their mortgage quickly.
Closed mortgages are more restrictive:
They offer lower rates but limit your prepayment options. You’ll face penalties if you pay out the mortgage early or exceed your allowed lump-sum privileges. These penalties can be significant if you sell or refinance mid-term.
Open mortgages tend to have higher interest rates:
Most Canadians choose closed mortgages unless they really need the flexibility they offer because expect to be selling the property soon or they expect a large cash inflow that they will apply to the mortgage. Open mortgages are often used as a short term solution.
Choosing depends on your timeline and financial plan:
If you’re expecting a windfall or plan to sell shortly, open may make sense. Otherwise, a closed mortgage will typically save you more in interest.
Conclusion
The key question is: how long are you planning to keep the mortgage? The right choice balances your rate, goals, and prepayment needs.
Not sure which option fits your future plans? Let's review them together by booking a quick chat, or give me a call at 905-517-4228.
High-Ratio vs. Conventional Mortgages
Learn the difference between high-ratio and conventional mortgages in Canada and how it affects your insurance costs, interest rates, and down payment.
Introduction
Not all mortgages are created equal. In Canada, whether your mortgage is high-ratio or conventional affects your eligibility, requirements for mortgage default insurance, and even your interest rate.
A high-ratio mortgage means your down payment is less than 20%:
This triggers the requirement for mortgage default insurance from CMHC, Sagen, or Canada Guaranty.
Conventional mortgages have a down payment of 20% or more:
These don’t require default insurance, which can save you thousands but they may come with slightly higher rates or different approval criteria.
Insured (high-ratio) mortgages often get the lowest rates:
The absolute lowest published rates are typically for high-ratio insured mortgages. The rules to qualify are very strict and lenders know the loan is backed by default insurance, reducing their risk.
CMHC insurance premiums:
Are based on the loan-to-value ratio, and they’re added to your mortgage balance. This affects how much you borrow and how much interest you’ll pay over the life of your mortgage. ******CMHC CALCULATOR LINK*****
Conclusion
The type of mortgage you qualify for affects everything from your rate to your approval odds. Understanding this difference helps you plan your purchase strategy with confidence.
Let's crunch the numbers together, check out the CMHC calculator or give me a call at 905-517-4228.
What is a Mortgage Broker (or Agent) and What Do They Do?
A mortgage broker helps you find the best mortgage by comparing options from multiple lenders and not just one bank. Mortgage brokers match the needs of borrowers with the needs of lenders.
Introduction
No need to go mortgage shopping alone. A licensed mortgage broker works on your behalf to compare offers, negotiate terms, and guide you through the process. In many common mortgage transactions the broker is paid in full or in part by the lender at no or minimal cost to you.
A mortgage broker is licensed to work with multiple lenders:
Including big banks, smaller banks, credit unions, monoline lenders, Mortgage Investment Corporations (MICs) and private lenders giving you more options than any one bank can.
Brokers are often paid by the lender (not the client):
In many residential mortgage transactions, brokers earn a commission for their work and their services may be free to the borrower. However, in certain unique, challenging or complicated transactions it is likely that the broker will charge a fee directly to the borrower. Fees should always be clearly disclosed and understood by the borrower.
Their job is to find you the best deal:
Through their lender relationships, they can offer access to products not available to the public, such as broker-only rates or customized solutions for self-employed clients, newcomers to Canada, or those with unique credit profiles.
An experienced broker helps structure and package your application to reduce the chances of rejection, and avoid costly mistakes. They have training and expertise in the complexity of mortgages especially with things like penalties, rate holds, and refinance strategies.
Conclusion
A great mortgage broker doesn’t just find you a good rate they help you make confident, informed decisions with expert guidance. You’ve found a great one with Malcolm Stoffman, Mortgage Broker (M18002114).
Let me do the heavy lifting to get the right solution for you, give me a call at 905-517-4228.
How Are Mortgage Penalties Calculated in Canada?
Breaking your mortgage early can cost thousands especially with fixed rates. Here’s how lenders calculate penalties in Canada and what it means to you.
Introduction
Life happens and sometimes you may need to break your mortgage early. But before you do, it’s important to understand how your penalty will be calculated so you’re not hit with unexpected costs.
There are typically two methods of penalty calculation:
The greater of three months interest or the Interest Rate Differential (IRD).
Fixed-rate mortgage bring a greater risk for a higher penalty because of the IRD:
The IRD is based on your current rate vs. the lender’s posted rate for the remainder of your term. The bigger the gap, the higher the penalty, and these can be substantial.
Each lender has a slightly different formula for their IRD calculation:
Some lenders use posted rates, others use discount rates, while other use distinct benchmark rates. To confuse matters even further, some lenders blend or round terms which makes comparison tricky without expert help.
Variable-rate mortgages usually have a simpler penalty:
They just use three months interest, regardless of the term remaining or market conditions at the time.
Conclusion
Mortgage penalties can feel like a black box but they don’t have to be. The vast majority of Canadians will deal with a mortgage penalty at some point. Knowing the formula helps you plan your exit strategy and minimize surprises.
Let's estimate your penalty before you make a move book a call at XXXXXXXXXX or give me a call at 905-517-4228.
What Does It Mean to Port a Mortgage?
Porting a mortgage lets you transfer your existing rate and terms to a new home but there are conditions. It’s often easier said than done. Here’s what to know before you move.
Introduction
If you’re selling one home and buying another, porting your mortgage can help you avoid penalties and keep your great rate intact. But it’s far from automatic and every lender handles it a bit differently.
Porting allows you to move mortgage:
Including the current rate, remaining term, and balance to a new property. It’s a great way to avoid paying a penalty.
You must qualify again:
Just like a new application, your income, debt levels and credit will be scrutinized. Lenders will also reassess the new property’s value and location.
Timing matters:
Most lenders require you to complete the sale (of your existing property) and purchase (of your new property) within a strict window (typically 30 to 90 days) to be eligible for porting.
You may need a blend-and-extend if your new mortgage is larger:
This means combining your existing rate with the new market rate. It’s helpful, but the math can be complicated make sure to ask for a breakdown and understand the details.
Conclusion
Porting can be a great tool but only when it fits your timeline and the lender’s rules. It’s not automatic, so make sure you understand the fine print.
Current Rates
