Canada Offers Mortgage Insurance, Should You Go For It?
For those wanting to purchase a residence, the Canadian housing finance system has made it possible to do so without paying all the down payment. Better yet, it allows people to purchase a mortgage with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment. How is this possible? You are able to get such a great deal because they require the purchase of loan insurance for the amount borrowed. This reduces risk from the loan for the lender and enables you to buy a residence without having to front the entire down payment.
What are the Requirements?
However, not everyone will be able to get loan insurance; there are some requirements to qualify. The first requirement is the property must be in Canada. The purchaser must make a down payment of at least 5% on single-family and two-unit homes and 10% on three- or four-unit dwellings. The down payment must come from your own recourses, but a gift from an immediate relative is acceptable. Another qualifier is that 32% of your gross household earnings is comprised of your principle, interest, property taxes, heat bill, the annual site lease in case of household tenure, and 50% of applicable condominium fees. An additional qualifier for loan insurance is your debt load should not be more than 40% of your gross household earnings. Other factors that can conclude if you qualify for mortgage insurance or not are closing expenses and fees.
So, whats the cost?
The lender pays the insurance premium to obtain mortgage insurance. Though the responsibility for paying for the mortgage insurance is technically on the mortgage company, the mortgage company will pass the cost on to you. Does loan insurance cost a lot? There are different answers to that question. The price of the insurance and the amount of the loan are directly connected. The less you are lended, the less your insurance will cost. This helps those who pay more for a down payment. They even give buyers options on how to pay the insurance premium. You can tie the insurance premiums into your loan and pay them monthly or pay them up front in a lump sum. You are not safe just because you purchased loan insurance if your loan is defaulted. Insurance for the borrowed mortgage reduces risk for the mortgage company. On the bright side, you got to buy a home with little money down and a good interest rate. Save on mortgage insurance by visiting www.infoprimes.com. Summary: Mortgage insurance, introduced by the Canadian housing finance system, has made possible for purchasers who qualify to acquire a home without paying a large portion of the down payment.
Properties Buyers In Canada are Getting Mortgage Insurance Should You Care?
If you are looking to buy a residence but cannot afford the money down, the Canadian housing finance system has made it possible. Better yet, it allows purchasers to acquire a mortgage with a 5% down payment, but will be able to get an interest rate as if you made a 20% down payment. What makes this possible? This is made possible by purchasing loan insurance for the amount borrowed on the mortgage. This reduces risk from the loan for the broker and enables you to acquire a property without having to front the entire down payment.
Are There Requirements?
To get mortgage insurance, there are requirements to qualify, so some people buyers will not be able to get it. The first requirement is the home must be in Canada. For single-family and two-unit dwellings, you must have a down payment of at least 5%, and at least 10% on three- or four-unit residences. You need to provide the down payment from either your own resources or a gift from an close family member. Another qualifier is that 32% of your gross household earnings is comprised of your principle, interest, property taxes, heat bill, the annual site lease in case of household tenure, and 50% of applicable condominium fees. An additional qualifier for mortgage insurance is your liability load should not be more than 40% of your gross household earnings. The amount of closing expenses and fees can also play a part in deciding your eligibility for mortgage insurance.
How much does it cost?
The mortgage company pays for the mortgage insurance by paying the insurance premiums. Yes, the broker is the one who pays the premium, but believe me; they will pass the expense on to you. Will the loan insurance be a lot to cover? Well, the answer varies. There is a direct correlation between the amount borrowed and the cost of mortgage insurance. The more youre lended, the higher insurance will be. This rewards buyers who save to put money down. You can even pay the insurance premium in different ways. You can bind the insurance premiums into your loan and pay them monthly or pay them up front in a lump sum. If you default on your mortgage, the loan insurance does not keep you safe. Insurance for the borrowed amount reduces risk for the broker. On the plus side, it enables you to buy a home you were not otherwise able to acquire. Save on mortgage insurance by visiting www.infoprimes.com.
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Does The Right Life Insurance Plan Exist In Canada?
Choosing a life insurance policy for many Canadians is not apparent or understandable. At the end of the day, what is life insurance for? It is security for our loved ones. Right?
Many buy life insurance while they are still relatively young, the kids are in the house, and the prospect of paying off the house debt, student loans, and vehicles is a century away. They are being intelligent and protecting their family incase of the unspeakable.
So do people who have a smaller debt load and an empty nest still need life insurance or is it just for young people? Thinking they are being financially sound, many cease their life insurance. They have put their loved ones at risk even though they have saved just a little money.
If you assume life insurance is expensive, it may not be what you think. Ten years ago, it was much more costly than it is now. Ten million Canadians in their forties and fifties are able to pay for life insurance policies.
As you get older, purchasing different policies can be an advantage to you, your family, and your wallet. In the short term, a term life policy may be smarter, safer, and more affordable. But a permanent life insurance choice will be best for the long term where you can choose traditional whole life, universal whole life, and variable whole life insurance.
To help your future, these choices will help you save money and secure your loved ones future.
You are given the most guarantees with traditional whole life insurance. The annual premium is guaranteed and there are minimum guaranteed cash values and death benefits. Most traditional whole life policies are participating, meaning the surplus they earn can be used to grow cash value or death benefits.
If you favor premium flexibility early in the insurance plan, universal life insurance is for you. There are maximum guaranteed premiums and minimum set cash value and death benefits with universal life. Instead of dividends, universal life policies earn interest at a determined rate every year.
If you are a more well-informed risk taker, you may want to consider variable life. It has the bestpotential for cash value increases, but also has the least guarantees. Moreover, there are mandatory guaranteed death benefits and annual premiums.
It can be very beneficial for you familys future to purchase life insurance regardless of how complicated it can be. Visit www.infoprimes.com to receive great deals and professional council on life insurance.
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Is an Adjustable Rate Mortgage for You?
Our parents may have had the same mortgage (and the same home) for 25 years, but times have changed dramatically, and most mortgages today are no longer fixed rate, long term, but rather ARMs (Adjustable Rate Mortgages) this is by far better.
An even newer development has occurred that allows buyers to be able to choose the index their ARM is based on, giving them a more reliable control over the rate.
If you choose a rate that is tied to an index that reacts quickly to changing rates, you can take advantage every time the rates are falling. Lagging indices let the borrower know the bottom has been reached as rates turn upwards, and he can make his move, this will be a total benefit for you. The most common indexed ARMs are:
The six month CD ARM- The rate on these loans can change 1% every six months. This index reacts rapidly to general market changes.
The twelve month spot ARM- The maximum rate will only change once a year, so it is more slow lagging indicator.
The six month Treasury Average ARM- Changes every six months, but on the less volatile treasury market, so it reacts more slowly in fluctuating markets.
The twelve Month Treasury Average ARM- This rate changes 2% every twelve months, but since the underlying treasury bill reacts more slowly when markets change, it will lag behind the spot ARM.
In this article you will get all the basics you need in order to get the best adjustable rate mortgages rather than a fixed rate.
We want to give you an outline of the main features of ARMs so you can calculate the annual percentage rate (APR) of your adjustable rate mortgage.
You don't always need to accumulate points for a better adjustable rate mortgage, there are a few pages that can help you out by analyzing your points automatically and in the best of all is that really fast.
You may do all this at home by checking the information on the Internet as sometimes you can end up finding better quotes than with a personal broker by analyzing the options.
So deciding for the option that will match with you will not be an easy task you will must get as much information as possible about adjustable rate mortgage and fixed rates.
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Should You Choose a 15 or 30 Year Home Loan?
It is not rocket science to realize the difference between a 15 and 30 year mortgage: the payments on the 15 are calculated so that the mortgage will be paid off in 15 years. This, of course, will mean that you will have a higher monthly payment rate than with the 15 year than with the 30 year mortgage.
Of course, you will earn equity in your home a lot faster with a 15 year mortgage than with a 30 year, but only if you can afford the higher payments every month. Of course, after the 15 year term is over (or less if you move or refinance in the interim), you have to obtain a new home loan and decide once again which is the best choice.
Depending on their needs; some people prefer a shorter mortgage to build equity in their home more quickly, some want to keep monthly payments down. If you can afford the higher payments of a 15 year loan, should you automatically choose it? If you pick a 30 year mortgage, you certainly have the option of paying additional payments and reduce the principal more quickly. Even though this will not be as fast as a regular 15 year mortgage, you will reduce your loan principle more quickly. If you can afford the higher payments, but choose the lower payment 30 year option you have the advantage of keeping payments low when you need to and paying down more when you want to build wealth.
Of course, many people believe they can increase wealth by other means. If you were given the options of a $100,000 mortgage at 7% for 30 years or 6.75% for 15 years (the longer term is always at a higher rate since the lender is taking more of a chance on rates moving up) you would have a choice of paying $665 or $885, respectively. What will you do with that $220 in added savings? However, the equity built is a lot lower $5,868 for the 30 year loan vs. $22,933 for the 15 year loan. There are some who believe putting the additional $220 into the stock market would yield a better return, or maybe an investment in a child's 529 education plan is a more important need. Judgment and needs can vary.
Perhaps more important to a lot of people is the flexibility offered by the 30 year loan compared to to the 15 year mortgage. Those people who have the discipline to invest or save the $220 saved on the mortgage, would probably do perfectly fine. Too many people, however, do not have this kind of discipline, and the funds would be wasted; these kinds of people are better off being forced to build equity through the use of a shorter term loan.
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Understanding What You Can Pay for a Home
Decide how much you can afford for a home before you shop for it, not after. Many prospective home buyers fail to do this and spend countless hours looking at homes that are way out of their affordable price range.
If you understand how banks determine the mortgage you can afford by looking at your income, amount of deposit and total closing costs, you will have a better concept of this. Total expenses have to be examined by the lender to make sure you will be able to pay down the loan they are giving you.
There are some rule of thumb ratios that many lenders use that take into account your income and expenses, debt ratios and closing costs, to determine what you can afford to pay for a home.
You can try to estimate these costs yourself, or you can make it easy on yourself by consulting with a mortgage consultant who can do this for you.
In many cases, having a sufficient down payment is the most difficult part of home ownership. We are no longer in in a savings oriented society and most people have a hard time saving that elusive next egg. We can forget about no down payment mortgages now that the credit crunch in the real estate market has forced banks to be stricter about their terms.
Usually, you won?t be in a position to close on a home loan without at least a 10% deposit. This means that for a median priced home of $200,000, you will have to have the minimum amount of $20,000 for the down payment, and the extra funds for closing costs. A bank can give you a good faith estimate of your closing costs.
So let us figure that you need $25,000 to start shopping for a home. The next step is to find out what your mortgage payments will be. There are mortgage affordability calculators on the internet, or you can ask a mortgage consultant to do these calculations for you.
The standard rule of thumb is that your mortgae costs should not exceed 25% of your income. Excessive credit card debt will affect your disposable income, remember. The balance of your income above 25% should be used for food, utilities, savings, education and entertainment. Spending too much to service your credit card debt will leave less disposable income to pay your home loan.
If your income is $6,000 per month, this rule of thumb means that you can afford $1,500 per month for your mortgage. Now you have some figures in hand to start looking for a home.
How to Understand the Lock in Period for Your Mortgage
When you apply for a home loan, you will be given a rate, but that rate is for that day only. These terms may not be the the same as those offered to you at settlement, weeks or months later.
In reaction to this problem, many lenders offer to lock in a rate for a certain period of time. They understand that there is inevitably a period of time between when the mortgage application is made and the loan can be settled. The rate of interest is a critical factor in the affordability of a home, so this can be an big point. So a lock in period can be negotiated with the lender, which will fix the rate for a certain period of time. This applies to either interest rates and points.
Generally, banks will offer this option at any point: application, during processing, or at approval.
Perhaps you have a chance to lock in 5.5% interest with one point for 30 days. What this gives you is the privilege to have that rate, even if you do not close on the loan for another 30 days. This thirty day period is the norm, since getting all the paperwork taken care of may take that length of time. Longer periods are also available, but usually are priced more, since banks are not going to risk rates moving against them for a longer period without some compensation for the risk.
Keep in mind, however, that a locked in rate can prevent you from taking advantage if interest rates go down, unless you have an agreement that prevents this from happening. Make sure your bank is willing to switch to the lower rate in case of lower interest rates.
Once the 30 day period is over, your agreement is over and you will be quoted whatever the new market rate is. If rates have not changed, a bank may consider issuing a new guarantee at the same rate.
There can also be a combination of lock ins:
Locked in Rate, locked in points. In this case, the lender will hold both the rate given and any points quoted.
Locked in rate, but no points locked. The base rate remains the same, but the points may change. You may have to pay more points to get the guaranteed rate.
If you are in a period of very volatile interest rates, it may be well worth your while to have a lock in term, even if there is a charge for it.
Choosing How Many Points You Want to Pay on Your Mortgage
a lot of people don?t really know what ?points? are when it comes to discussing their mortgage. In simple terms, points are paid by a borrower to a bank to reduce the rate on a mortgage. A point represents 1% of the face value of the loan. If your home loan is in the amount of $100,000, one point costs you $1,000.
The purpose of points is to reduce the overall interest rate on the mortgage. The ratios can be different, depending on the market and the lender, but let?s take an example for a mortgage at 6.25%: if you pay one and one half points, you will reduce the home loan rate to 5.875%, if you pay 2 ? points, you would reduce the rate to 5.375%.
The test is how long you will live in the home since the cost of the points goes down as time passes. You should not even think about borrowing to pay points since this will just add to the cost of the loan. In many instances, especially for young buyers with a starter home that they hope to move out of in a short time, one should not consider paying for points.
In general, points are a deposit on your interest rate that you will use over the life of the loan. Paying 1.5 points to lower your loan from 6% to 5.5% is an investment, but is it a smart one? Actually, you are paying a part of the interest ahead of time, so if you are only going to have the home loan a short while, you have paid that advance interest for nothing.
It can be calculated whether or not it is worthwhile for you to pay points, depending on how long you will be in your home; use one of the many calculators on the internet or ask a mortgage consultant to do it for you, free of cost.
Let?s discuss our $100,000 loan that could be reduced to 5.5% if $1,500 were put down in points. Then it is a matter of finding the breakeven point, by examining the mortgage payment differences between these two rates. A $100,000, 5.5% fifteen year mortgage will have a payment of $599.55 per month. The cost of a $100,000, 30 year loan at 6% would be $567.79 a month.
The points paid will save you $31.76 a month, but you had to give your lender $1,500 in order to get this savings. If you divide your investment of $1,500 by your savings of $31.76, you can see that it will be 47.23 months for you to recover the investment. In other words, if you don?t think you?ll be in the home for about 4 years, you get nothing by paying the points.
After that point, however, the initial investment of $1,500 is covered, and you will now save a net of $31.76 each month. If, a very big if in today?s mobile society, you owned your home for the full thirty years of the mortgage, and multiply the $31.76 per month savings over thirty years, you would save $9,933.58 over the entire term of the loan!
The Scoop on Interest Rate Only Home Loans
In the old fashioned mortgage mortgage market, you pay a part of your mortgage, and the monthly interest with each monthly mortgage payment you make. At least most mortgages work like this. Lenders have now come up with a new type of loan titled interest only.
Basically the homeowner can pay what he wants, provided he pays the minimum of the interest payment. Just about all mortgages allow you to pay down a higher balance than the minimum, and interest only loans are not different; you can pay more if you like.
There may have been some reason for this kind of loan when property prices were increasing dramatically, since the homeowner would be guaranteed some equity due to the increased home price. Equity was built by a combination of loan paydown and increased home values.
However, developments in the real estate market mean that this type of increased value is no longer a given, so any equity has to be built by paying down the principle. There may be some instances where interest only loans can work. Today, it would actually only work if it were used as a stop gap device.
A good example would be if one partner to the home loan was attending school and the other was employed. Theoretically, once the other partner completes school and starts working again, the mortgage payments can be increased to begin to reduce the loan.
Or suppose a home owner has a sporadic type of income, in that he earns very little for a while and subsequently receives a large payment. Maybe a project consultant is only paid at the end of a project. Keeping payments low in the months when income was low and then paying into equity when the windfall came would make sense, as long as the discipline was there to make the additional payments.
In any of these cases, it is dangerous to not boost the payment at some point in so as to bring the loan balance down. If you are paying off the principal a little at a time each month, when it comes time to sell the home, you will have some equity in it, even if housing prices have not gone up. If you only pay the interest each month, you will never lower the principle, and if the home sales price is lower than the mortgage, you will not be able to pay down the loan.
What are Interest Rates Up to? Should I Purchase a Home?
When you are attempting to time the best time to borrow for your house, picking a time when interest rates are down will save you a lot of money. Will interest rates increase, in which case you should lock in a fixed rate mortgage for as long as you can, or are they headed down, which means you should either wait to buy or refinance, or choose a rate that adjusts frequently?
What determines interest rates depends on a lot of factors, so knowing what they are as well as how they operate can help you make your decision. The price of money is interest rates, and if you understand what will affect the price of money, you will know better what affects interest rates, which includes your mortgage rate.
The most important precursor of interest rates is inflation. There are two major things to watch when it comes to inflation. The PPI (Producer Price Index) and the CPI (the Consumer Price Index).
PPI is the change in prices at the stage where goods are produced. If PPI is rising, this means that the cost of finished goods is higher, which will lead to inflation.
CPI, or Consumer Price Index is the change in prices at the consumer level, as measured by a standard basket of goods. Most consumers are more familiar with CPI because it more directly has an affect on what they pay for goods. Certain segments of CPI can ?skew? the percentages, so analysts frequently remove changes in food and oil prices, which are often too volatile. The volatile segments of food and energy can skew the inflation rate, while core inflation gives a better measure if overall prices are increasing, causing inflation.
GDP is another relatively good predictor of inflation and interest rates. The Fed (Federal Reserve Bank-the Central Bank of the United States) is responsible for keeping the economy on an even keel-not a lot of growth, which will cause inflation and not too little, which may cause a recession. Central banks intervene in the money markets to control the supply of money to slow the economy down or speed the economy up.
The unemployment rate also has an impact on interest rates. If unemployment is down, the resulting increased wages will be an inflationary force. If unemployment is up, the resulting decreased wages will mean lower inflation. Lower wages mean lower prices which equals lower inflation.
It can be very beneficial to a prospective homebuyer to keep on top of these kinds of economic indicators to understand what is happening in the interest rate arena. In general, a slow economy, with high unemployment, means that interest rates will be coming down, and you should hold off on your loan for a while. Increasing GDP and reduced unemployment means the economy is heating up and you can expect increased interest rates in the future.