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Canadian Mortgage Basics - Mortgage 101 - YouTube
Channel: Nolan Matthias
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- Hey, welcome back, it's Nolan Matthias,
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and today we're discussing
mortgage basics.
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The very basics of what you need to know
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about getting a mortgage,
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right down to terms like
closed and fixed and variable,
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and all of that jazz.
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But before we get into
it, do me that favor,
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hit that subscribe button,
hit that notification bell,
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and please hit that like button,
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so more people like
you can see this video.
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And don't forget about our
race to 10,000 subscribers.
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Yes, that's right.
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One lucky winner, one lucky subscriber
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will win their monthly mortgage payment
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or their rent payment just for
subscribing to this channel.
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So go ahead, do me that favor,
hit that subscribe button
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so I can do you that favor
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of paying your monthly mortgage payment.
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Okay, so let's get into it.
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Let's discuss the basics of mortgages,
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starting with what a mortgage is.
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So mortgage in its most simplest terms
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is a loan to get a house.
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That's it, it's a loan to buy a property.
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And how you determine the
amount of the loan is simply
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by taking the purchase
price of the property,
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let's say it's $400,000,
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subtracting your down payment,
let's say that's $50,000,
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and the amount of mortgage that you need
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is therefore $350,000.
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Very simple.
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Now from here is where it gets
a little bit more difficult
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and a little bit more interesting
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because in the event
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that you were putting less than 20% down,
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you need what's called mortgage insurance.
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Mortgage insurance comes
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from three different companies in Canada.
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It's other CMHC, which is the
biggest and the most popular,
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and the government backed one.
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Sagen, formerly Genworth Financial,
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don't ask me why they renamed it Sagen,
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I don't have no idea what that means,
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and Canada Guarantee are
the other two insurers.
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Now, it doesn't really matter
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who you get your mortgage insurance from.
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They all do basically the same thing
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with minor variations in their products
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and how they qualify people.
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But for the most part, it doesn't matter
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where you get mortgage insurance,
you just have to get it
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when you put less than 20% down.
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And know this, that all three
insurers are somewhat backed
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by the Federal government.
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For CMHC, it is 100% backed
by the Federal government
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and for Sagen and for Canada
Guarantee, it is 95% backed.
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Now, if you're putting more than 20% down,
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you don't need to get mortgage insurance.
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Although some lenders will do
what's called back insurance
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in order to insure their entire portfolio
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so that you can get lower interest rates.
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If you are putting more than 20% down,
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you will often find yourself
having to pay for an appraisal.
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They're typically around three to $400,
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however, that is in lieu
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of a five to $10,000
mortgage insurance premium
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that you would have to pay otherwise.
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So it is very much a very good deal
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to have to get an appraisal
rather than mortgage insurance.
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Now, the mortgage insurance is designed
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to protect the bank in case you default.
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So in other words, it is
not there to protect you,
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it is there to protect
the lending institution
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that has lent you the money.
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Now, that being said, always
make sure that if you can,
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to keep the mortgage insurance in place,
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when your mortgage comes up for renewal,
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or if you switch to a different lender.
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The reason why is
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because that insurance makes
it significantly cheaper
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for you to get a mortgage in the future.
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Insurance typically means
lower interest rates
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because there's less risk for the bank.
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Keep in mind that the most
risky mortgage for a bank
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is the one that is uninsured,
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where you've only put 20% down.
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That's why when you put 20% down,
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you pay a slightly higher interest rate
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and rates start to get better
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as you start to get to that
35% down payment point,
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which is when interest rates start
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to end up being pretty
similar to what you would pay
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if you were getting an insured mortgage.
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Now, there's two types of
rates you can typically get,
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the first is fixed, the
second is a variable.
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Fixed rates obviously have a fixed rate
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for the term of the mortgage.
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Variable rates have a variable rate
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that typically changes with movements
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in the Bank of Canada key lending rate.
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You typically pay a higher
price for fixed rates,
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you pay a premium for security,
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and you also typically
pay a higher penalty
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if you want to get out of that mortgage
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because you've committed
to maintain the mortgage
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for a fixed period of time.
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A variable rate on the other
hand is typically priced lower,
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it will typically save you
money over the long-term.
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Yes, there is the risk
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of interest rates increasing over time.
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However, that risk is often mitigated
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by the fact that there are
significantly lower penalties
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to switch to a different lender
or to pay out the mortgage.
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And also keep in mind that
when you're getting something
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like a five-year fixed mortgage,
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you're really getting a
five-year adjustable mortgage
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that adjusts in price every five years,
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and eventually if interest rates do go up,
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you are going to renew into a
higher interest rate anyways.
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So a variable rate just allows you
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to feel that pain more slowly over time,
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rather than all at once,
at the end of five years.
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Statistically variable
rates almost all of the time
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will be a better choice
than a fixed rate mortgage.
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Even though you have that
added sense of security
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with a fixed rate mortgage,
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the reality of it is a variable
rate will save you money,
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and the chances of your interest
rate jumping significantly
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in a short period of
time are very, very low.
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Now your amortization
is the amount of time
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that it will take to pay off
your mortgage in its entirety.
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Insured mortgages have a maximum
amortization of 25 years.
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Uninsured mortgages have
a maximum amortization,
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typically of 30 years.
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And that amortization is what
determines your payments,
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the longer your amortization,
the lower your payment.
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Now the amortization is not
to be confused with the term.
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The term of your mortgage
is the amount of time
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that you have a rate guaranteed for you.
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In terms of a fixed rate mortgage,
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it's the amount of time
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that you have that fixed
rate guaranteed for.
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In terms of a variable rate mortgage,
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it is the amount of time
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that you have the discount
guaranteed for it.
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So in a variable rate mortgage,
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if it's priced at prime
minus 0.5 or prime minus 0.1,
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that discount will be guaranteed
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for the term of the mortgage,
so let's say five years.
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Now, if the Bank of Canada
adjust their key lending rate,
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obviously the key lending
rate or prime will change,
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but your discount off of
prime will stay the same.
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Now there are two types of payments,
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there are unaccelerated payments
and accelerated payments.
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Typically unaccelerated
payments are monthly
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or semi-monthly payments,
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although they can be bi-weekly or weekly,
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depending on how your lender sets them up.
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The accelerated payments are
typically weekly or biweekly.
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And it is important to remember to ask
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for accelerated weekly
or biweekly payments.
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If you just ask for weekly or biweekly,
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there's a chance that you may
get non-accelerated payments.
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The easiest way to determine
if the payment is accelerated
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is to take the monthly
payment and divide it by two,
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in the case of biweekly payments,
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or divided by four in the
case of weekly payments.
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And if your bi-weekly
or weekly payment equals
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either of those numbers,
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then you have an accelerated payment.
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If it is less than that,
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then your weekly or bi-weekly
payment is not accelerated.
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We highly recommend
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for anybody purchasing a home to live in,
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to take accelerated weekly
or bi-weekly payments.
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The two of them are virtually the same,
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there's a little tiny bit of
benefit at the end of 25 years
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if you take a weekly payment
over a bi-weekly payment,
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but it is minimal,
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I'm talking two, $300
over a 25 year period.
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So biweekly, weekly, pick
the one that's right for you.
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We choose weekly because it allows you
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to manage your cashflow a
little bit better knowing
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that there's a little
bit of money coming out
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every single week, rather
than a larger amount
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of money coming out every two weeks.
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Now, when you go to get your mortgage,
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it is a good idea to get pre-approved.
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There are two types of
pre-approval processes.
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There is fully underwritten
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and there is not fully underwritten.
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Any sort of app that tells
you that you're pre-approved
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in less than two or three minutes
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and basically spits out a number,
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or anybody who takes an
application over the phone
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and doesn't get your job
letters, your pay stubs,
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and all of your pertinent documents
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is doing a non-underwritten pre-approval.
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They typically are not worth the paper
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that they are written on.
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An underwritten pre-approval
on the other hand,
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gets your job letter, get your pay stubs,
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gets all of your documents,
gets them all confirmed
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and gets you a real number
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for what you are pre-approved for.
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That is the type of pre-approval
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that we do at Mortgage 360,
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and this is the only type of
pre-approval that we recommend.
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Obviously, when it comes
to getting a mortgage,
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we highly recommend
that you get a mortgage
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through a mortgage broker.
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It is 2021, the conversation
of where the best place
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to get a mortgage is over.
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It is clear that mortgage
brokers have more access
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to more products, more lenders,
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and have a better overall
sense of the market
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than an individual banker.
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Do your banking, so in
other words, your savings,
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your checking accounts and the
things that need to be done
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at a bank at the bank,
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but take advantage of a mortgage broker
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so that you can get the
absolute best mortgage for you
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at the most competitive price.
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We often find that when
somebody does get a mortgage
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from a bank and they
understand the differences
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between different banks
and different lenders,
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they are often choosing a bank
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that is different from the
one that they deal with.
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Now, every bank has things that
they do really, really well.
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Some do mortgages really well,
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some do checking accounts really well,
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some do investments really well.
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What's important is making sure
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that you get the mortgage
that is right for you,
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and is the best for your circumstances.
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And chances are, it is not from the bank
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that you typically deal with.
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And keep in mind that a mortgage
payment is simply a payment
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that comes out of your bank
account on a monthly basis
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or a biweekly or a weekly
basis if you choose...chosen
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to pay your payments biweekly or weekly,
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and that is all it is.
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You don't need to see
it on the same screen
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as all of your other banking,
you just need to make sure
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that you have the absolute
best product for you.
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As far as what lenders look at,
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when they're looking at a mortgage,
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they look at three things when
it comes to you personally,
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they look at your credit,
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they look at the amount of down payment
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that you're putting down and
they look at your income.
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They look at those three things
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and determine how much they
are willing to lend you.
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And then on top of that, they
also look at the property.
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The quality of the property
plays an important role
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in the mortgage because
that is the security
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that securitizes the mortgage.
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In other words, if you default,
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that is the recourse that the lender has.
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So they typically don't want a property
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that is not going to be marketable.
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They want a really great property,
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as well as a really great borrower
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in order to lend them
money for a mortgage.
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Now, if you're looking to get
pre-approved for a mortgage,
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and that is an underwritten pre-approval,
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the simplest way to do it
is to go to the link below
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and apply online at mortgage360.ca.
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If you're just looking to
figure out approximately
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what you would qualify for,
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and you aren't necessarily ready
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to jump into the market yet,
we're also going to link below
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to our online mortgage app,
which will help you determine
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how much you qualify
for, see what rates are
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and get all of the things
that are mortgage related
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before you actually jump
into a pre-approval.
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So if you found this video useful,
[599]
do me that favor, hit
that subscribe button,
[600]
hit that notification bell,
and please hit that like button
[603]
so more people like
you can see this video.
[605]
And don't forget
[606]
about our race to 10,000
subscribers contest,
[608]
all you have to do is click
that subscribe button.
[611]
Cheers, and we'll see
you on the next video.
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