• What is the difference between a conventional mortgage and a high-ratio or insured mortgage?
• Should I choose a fixed rate or a variable rate mortgage?
• If I have a variable-rate mortgage and the banks start posting higher interest rates, should I lock into a fixed rate?
• What does a mortgage term mean and how is it different from amortization?
• What is the difference between an open-term mortgage and a closed-term mortgage?
• Should I take a short-term mortgage or a long-term mortgage?
• How does amortization affect the amount of interest I will be paying? And what is the best amortization period to seek?
• What difference does payment schedule make? Is it better to pay weekly, bi-weekly or monthly?
• Do advertised gimmicks and cashbacks really save me money?

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What is the difference between a conventional mortgage and a high-ratio or insured mortgage

A conventional mortgage is one where the borrower puts down at least 20% of the purchase price. When the mortgage loan exceeds 80% of the appraised value or purchase price (whichever is less) of the property, it is considered high-ratio and needs to be insured. The insurer insures the lender against borrower default if the mortgage is not repaid. For insured mortgages, the borrower must pay an insurance premium which is usually added to the loan.

Sometimes, lenders may still insist the mortgage be insured even if the loan is less than 80% of the value. This may happen if the lender deems the borrower's qualification as providing enough "risk" to warrant getting the mortgage insured. A good mortgage consultant will shop the deal to other lenders who may not insist on having it insured.

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Should I choose a fixed rate or a variable rate mortgage

A fixed rate mortgage is one where the interest rate and mortgage payment stays the same for the whole term of the mortgage. Interest rate varies in a variable rate mortgage. They vary with the fluctuations in the lender's prime rate. The minimum term for variable rate mortgages is usually 3 years and most of these type of mortgage let's you lock-in to a fixed rate at no cost during the term.

Having a fixed-rate mortgage offers security of knowing what you will pay monthly throughout the term, especially if you have a busy life and do not have time to follow what's happening to the rates. However, you pay more for it because the lender takes more risk with a fixed-rate mortgage. With a variable rate, you pay less interest because you are the one taking the risk in case rates go up.

If you think the rates will go up then get a fixed rate. On the other hand, if you risk believing that rates will drop or stay low, it is better to get a variable-rate mortgage. If at any point you feel you want to convert to the lender's fixed rate, most will allow you to do so without penalties.

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If I have a variable-rate mortgage and the banks start posting higher interest rates, should I lock into a fixed rate

No. The best thing to do is to speak to us or send us an email at contact@canadamortgagehub.com and we can advise you of the best thing to do for your situation. Alternatively, you may do your own due diligence in finding out why they are posting a higher rate and if this trend will continue in the long term. Do not rely on newspaper headlines. If it is short-lived, there is no need to panic and pay more interest with a fixed rate.

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What does a mortgage term mean and how is it different from amortization

A mortgage term defines the length of time you have a contract with a lender for a specific mortgage amount, rate and other loan stipulations. Every term has a maturity date wherein the term ends and the borrower has to either renew with the same lender or switch to a different lender who might offer a better deal. This is different from amortization period which is the number of years you will take to pay off your loan. Based on the length of amortization period, your mortgage payments for the whole term with a lender might be higher or lower. The shorter the amortization period, the larger monthly mortgage payment you have to make. Granted that you do not extend the amortization with every renewal and do not make accelerated or extra payments, summing up the total years for each term should equal the amortization period by the time you pay off your mortgage.

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What is the difference between an open-term mortgage and a closed-term mortgage

With a closed-term mortgage, the borrower pays prepayment penalties if the mortgage is paid off or the mortgage contract is terminated before the term expires. An open mortgage lets you pay a portion of or the full amount of the mortgage, before the term expires, without incurring penalty fees. The mortgage contract is usually written only for a short term (typically 6 months or one year).

If you have uncertainties in life, such as if you don't know if you might get relocated by your employer any time, then getting an open mortgage might be more beneficial.

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Should I take a short-term mortgage or a long-term mortgage

The general rule is the shorter the term, the lower the rate. When the rates are low, you should take advantage of getting a longer term. The opposite is true, if you don't want to commit to a rate long term because you think they are high, and you have a higher risk tolerance, you may want to take a shorter term to take advantage of the lower rates and renew after that period. Hopefully, the rates drop by the time your term expires.

Another thing to consider is how long you plan to keep the property. You wouldn't want to pay penalties getting out of a 10-year closed-term mortgage if you know you might sell the property after 3 years.

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How does amortization affect the amount of interest I will be paying? And what is the best amortization period to seek

Amortization period is the total number of years it will take for you to pay off your mortgage. The longer the period, the lower your monthly mortgage payments, but you pay more interest over the length of time it takes to pay off your mortgage.

The best amortization period for you depends on your goals, income, rate and the amount of loan you're applying for. The amount of interest paid for every 5 years of increase in amortization is quite significant. However, saving money in interest payments might not be everyone's primary goal. On the other hand, getting a longer amortization makes one qualify for a higher loan amount to buy a better home. The best way is to speak to us or fill up an application form for us to advise you on what is best for your situation.

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What difference does payment schedule make? Is it better to pay weekly, bi-weekly or monthly

Mortgage payments can typically be made weekly, accelerated weekly, bi-weekly/semi-monthly, accelerated bi-weekly, or monthly. The more significant difference lies in accelerated payments. With accelerated payments, you make payments every two weeks for bi-weekly and every week for weekly schedule. This means you pay an extra month of mortgage payment every year thereby reducing your amortization period and saving you money in interest rates. The non-accelerated payments just spreads out your payments more if you are using semi-monthly/bi-weekly or weekly, and saves very little money in interest. To calculate how much you can save, you may also use our (accelerated) Bi-Weekly VS Monthly Calculator on the Mortgage Tools section of our site.

Some things to consider when choosing which payment schedule to use are:

1. If you are salaried, when do you get paid? If you get paid on the 15th and the 30th, choosing a non-accelerated semi-monthly/bi-weekly payment might be a good idea.
2. Do you want to pay off your home sooner? Then choose an accelerated option if you can afford to make the payments that way. You will not only shorten your amortization period, but you will also save money on interest rates.
3. Whatever payment schedule you use, you can always pay off your mortgage faster and save on interest payments by making extra principal payment allowable each time you pay or taking advantage of pre-payment privileges you have.

Payment Rate	Payment Amount	Years to Pay Off Mortgage	Estimated Interest Paid over the Mortgage’s Lifetime
Monthly	$639.87	25 years	$91,940.85
Bi-Weekly	$319.90	21 years	$74,927.96

This example is based on a $100,000 mortgage with a 6% interest rate calculated semi-annually, not in advance, and assumes that the interest rate remains constant for the full 25-year amortization period.

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Do advertised gimmicks and cashbacks really save me money

Not necessarily. Sometimes, the amount of money you save on gimmicks or get as a cashback may seem like a huge amount now but they can actually cost you more money in the long term compared to if you get a lower rate or better term on your mortgage. Give us a call and we'll do the math and compare the results with you.