12 most commonly asked mortgage questions
Lower Mainland Mortgage Broker, Kimberly Coutts, The Mortgage Maven discusses topics around the different types of mortgages, the difference between fixed and variable rates, important mortgage terms, new rule changes and the most commonly asked question covering how mortgages are affected by the Bank of Canada rate changes.
For a great educational and informative update, Coutts covers 12 most commonly asked mortgage questions.
Stockhouse: What is the best mortgage rate?
Coutts: This is a question that I get on the daily and it’s not actually the most basic question. There’s so much gets involved when asking about rates, so it’s really is a deep dive into your personal situation. Are you getting an insured rate? Are you getting a conventional rate? Is it a rental property? Are you self employed? So it’s always a tough question when people say, what’s the best rate? it’s really tough to answer.
Stockhouse: Who pays mortgage brokers?
Coutts: So we actually get paid by the lender directly. So if you are getting traditional financing through one of the big banks, they will pay us mortgage brokers at the end once your property has closed. What happens if you are getting an alternative mortgage or perhaps a private mortgage, is you, the client, is going to pay a portion of that commission or all of that commission.
Stockhouse: What is an insured mortgage?
Coutts: So an insured mortgage is a mortgage where you are putting less than 20% down. So up until December 15th, the cap amount was going to be $1 million. However, the government has recently made some changes, and so now you will be able to purchase a property for just under one and a half million dollars, putting less than 20% down. And amortizing it over 25 to 30 years, and that is going to be an insured mortgage. What the difference is, is that the, the mortgage is actually backed out by one of the three insurers in Canada.
Stockhouse: And what is a conventional mortgage?
Coutts: So a conventional mortgage is when you’re putting more than 20 percent down. And if the property is over one and a half million dollars come December 15th, it will automatically be a conventional mortgage. The one thing also about that is that you can amortize it over 30 years. And one thing to note about conventional rates is that they are slightly higher than insured mortgages because there’s more risk to the lender because there’s no insurer that’s backing that property up or you.
Stockhouse: What is a Monoline?
Coutts: So a Monoline is one of those big banks. They’re huge financial institutions, but they don’t have any brick or mortar stores. So you can’t just walk in to a Monoline and say, “Hey, can you give me your best rate?”. You actually need to go through a licensed mortgage broker to get in touch with these financial institutions. The main difference between a Monoline and say, one of the big banks is that they don’t have things like credit cards.
Stockhouse: Why would someone get a fixed rate versus a variable rate?
Coutts: It is really client dependent. So if you are a client who wants to know exactly what you’re going to be paying for every single month, then a fixed rate is good, is a good place to go because they just want to know exactly what their monthly mortgage payment is going to be. That’s what’s going to help them sleep at night. A variable rate is for people that want to take a little bit more risk, but in the long run, over the last, you know, many years, variable rates have outperformed a fixed rate in terms of how much money you are paying, towards interest versus principal.
It was a bit bumpy for the last couple of years, but we are seeing the Bank of Canada Prime go down, so rates are coming down as well.
Stockhouse: What are the two variable rates?
Coutts: So, we have two types of variable rates. The first of course is that static mortgage, and static mortgage payments, or static mortgages rather, are those variable rate products that your monthly payment is exactly that. It’s static – It stays the same, and it changes as the Bank of Canada changes. In terms of the second type of variable rate mortgage, the adjustable variable rate mortgage, your payments float up and down. So as the Bank of Canada goes up, your monthly mortgage payment is going to go up. That’s when people were really feeling the pain over the last couple of years. But as Bank of Canada has been coming down, they are feeling a little bit more relief. And so your payments are starting to come down.
Stockhouse: When the prime rate does go down, does it affect all mortgages?
Coutts: No, so this is the thing. When Bank of Canada Prime goes down or up, it only affects those variable rate products. So for the two types of variable rate mortgages that we talked about, static and adjustable, it will affect home equity lines of credit, lines of credit, car loans, things like that. But fixed rates are fixed for the duration of the term of your contract.
Stockhouse: What is a reverse mortgage?
Coutts: So a reverse mortgage are those mortgages available to anybody who’s 55 years and older. It’s a way for them to be able to, a homeowner, to tap into the equity in their home. And so they can use that equity to help an adult child with their down payment for their first home. Maybe they just want to have a little bit more monthly income coming into their pockets, you know, to help cover extra expenses with CPP, OAF(and) of course it’s limited, so you want to make sure that you’re still living your best life and you want to maintain that that same monthly income.
And some people utilize it to actually invest into the markets. I’ve had a couple of clients do that. That tapped into the equity because they were like, “You know whatI?, I know I could make some money in the market. I’m gonna take out some of that equity in the property.” And the other thing about the reverse mortgage is that there’s no actual monthly payments that need to be paid.
It’s tax free money and you only pay back the mortgage once you’ve actually sold the property.
Stockhouse: What does it mean to port an existing mortgage?
Coutts: So when you port an existing mortgage, lots of clients, clients that probably brought their, bought their properties in 2020, 2021, they’ve had phenomenal rates like 2%, (and)less than 2%. And so say they’re now three years later wanting to upgrade, but they want to hold on to that 2 percent rate. What you can do potentially is port that mortgage to the new property. But more often than not, people are moving up, and so they’re going to need a larger mortgage. When you’re talking to a mortgage broker, they can do the math and see what makes sense for you. Does it make sense to just, you know, pay the penalties and get a brand new mortgage? Or can we actually put that mortgage and not every mortgage is portable.
Stockhouse: Why would someone get an alternative or private mortgage?
So sometimes if somebody has bruised credit and they need to work on, maybe they missed a payment or missed a couple of payments for a variety of reasons and it has impacted their credit score.
We can put them into our private mortgage for a very short term, probably a year. You can usually get out of it after three months, but if we see that the client’s credit has improved then we can get them into the regular space. That is really one of the biggest reasons that we see people going into a private mortgage. Sometimes maybe they don’t have enough income this particular year In terms of alternative mortgages a lot of my self employed incorporated sole proprietor clients They will get an alternative mortgage because of the fact that, you know, depending on how they do their taxes, we just need other options.
Stockhouse: What are subjects to financing?
Coutts: So subjects to financing is a critical piece of the contract, but subjects to financing is there to protect you as the client. What it essentially means is that we have three, four, five days from the time of an accepted contract to get that financing because it’s one thing as a mortgage broker for us to say, yes ,”You know what the lender, based on your income, your assets, your liabilities, etc is going to give you the money”, however, it’s the lender that’s gonna give you that money right not not me. So you want to make sure that the bank is actually going to give you that money and so subjects to financing just protects you and sometimes it’s not you that they don’t even like maybe it’s the building.
Stockhouse: Do you recommend utilizing a mortgage broker or a bank?
Coutts: So I always recommend utilizing a mortgage broker for sure. We have those relationships with the banks already and you know, you as an individual, you’re going to get three, four, maybe five mortgages in your lifetime, but a really good mortgage broker is doing 30, 40, 50 deals a year, and they have a variety of lenders that they can go to.
And they have those relationships because they’re submitting, many, many files to them and so they have those great relationships to make things that much easier for you. You know, they have access to these different lenders and if one lender says no, for whatever reason, just with one quick flick of a button, we can send it to another lender.
And so, yes, when you have those three, four or five days subject removal dates, you wanna be acting efficiently and quickly, and being able to get a quick response, whether it’s a yes or no from the lender.
Be sure to stay up to date on all the latest stock market news at Stockhouse.com.
Also check out other interviews with Kimberly Coutts, Need some extra cash? Here’s the information on reverse mortgages, Lower inflation primes Canada’s real estate market for a shift and Expert gives key insights on BOC rate cut on mortgages.
Join the discussion: Find out what everybody’s saying about public companies and more by checking out Stockhouse’s stock forums and message boards.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.
