Canadian mortgage questions

[redvlagrl]

So yes, I am a moron when it comes to understanding Canadian mortgages, but in my defence I'm not from here and it works differently in different places!

DH and I bought our place 2.5 years ago. We have a variable mortgage at prime -0.8%. We were advised to get a zero down mortgage and use our savings to pay down student debt. I know zero down mortgages are illegal now.

When we originally negotiated the rate was about 3.25% and then of course it totally plummeted. So we have been paying the same amount and have already paid $20k off the principal. It's been really good.

DH is a university prof (tenure track) and his tenure will come up around the same time as our mortgage but I don't think we will have an answer by the time the mortgage comes up.

We have never missed a payment or been late (it comes out of the bank auomatically). I assume our rating is good, but we have short histories here which made is tough to get a mortgage in the first place.

Here's where I don't understand things:

I know we have to renegotiate after 5 years. Do we have to re-apply? Our income was higher then because I was also working, however we should be debt free by then (student loan and car payment).

Can they refuse to renew our mortgage?

Could we have to pay significantly more?

Does one typically shop around at that point?

I'm guessing we'll never get such a great deal again.

Thanks!

[Hollysmom]

My answers are below in red. Hopefully they help.

I know we have to renegotiate after 5 years. Do we have to re-apply? Our income was higher then because I was also working, however we should be debt free by then (student loan and car payment). If you have made all your payments on time your lender will usually automatically renew your mortgage for the same term at the current customer rate (not necessarily your current rate)

Can they refuse to renew our mortgage? Techincally they can but it is very unlikely especially if you have made all your payments on time

Could we have to pay significantly more? This would only happen if you new rate was much higher than your current one. The term of your mortgage was 5 years but most mortgages in Canada have an amortization period of 25 years (sometimes longer but not usually) so your new payment would be based on what you would need to off your mortgage over your existing amortization - probably 20 years in your case.

Does one typically shop around at that point? Yes, I would start to with your current lender several months before your mortgage comes up for renewal to try and get the best rate you can from them. If you aren't happy with them or their rate I would start to shop around at that point

[sanguine_speed]

Make sure to proactively negotiate when it comes time to renew. If you do nothing, you will probably automatically roll into the advertised five-year fixed term rate, and this is always a couple of percentage points above the "real" rate--that is, the rate you would get if you asked or shopped around.
No, you will probably never have the same rate you have now. You are golden right now. We have a very good rate too (3.65% for the next 4 years as we just got the mortgage last year), but we know that when it comes time to renew, the odds of having a rate close to this are very, very low. We are already preparing for the much higher mortgage payments by trying to pay more now, etc.

In your case, if you're at prime minus 0.8, you may be paying somewhere under 2% interest right now. If you have a 25-year amortization on a $200,000 mortgage , that's about $822 per month. If, after your term is up, you renew at a fixed rate of 5% (which is historically a very very good rate, and unlikely to be possible in a few years), your payment would go up to $1314 per month (with 20 years left of amortization).

Be prepared!

[yeahwhat]

We just went through the 5 year renewal, which was basically going into the bank to talk to our rep, we asked for the rate we wanted and what monthly amount we wanted to pay (slightly accelerated), which happily she was willing to give us. A few weeks later she sent out the official papers. No reapplication necessary.

Once you have a (good) 5 year history with a company, they're not going torture you to keep you as a customer. Shopping around can help as a negotiating tactic to get a better rate though. In another 2.5 years, prime is likely to be higher and there's a good chance that you'll be able to get another prime -% mortgage. Your payments will depend on how much you owe and how many more years you want to amoritize for.

[redvlagrl]

Ack, the interwebs just ate my reply.

Thanks so much for your replys and information! I feel better knowing how it works.

Yes, we have been prepared for the fact that our payment smight significantly increase - this is a big incentive for us to pay off our debts by the ime we have to pony up!

Thanks again!

[CarrieMF]

Does one typically shop around at that point? Yes, I would start to with your current lender several months before your mortgage comes up for renewal to try and get the best rate you can from them. If you aren't happy with them or their rate I would start to shop around at that point

Start with a Mortgage Broker, they shop around all at once & you get the lowest rate they can find.

However if you are switching companies your mortgage is with you will have to pay some fees. Some places may require you to pay for an appriasal to be done.

[Poddi]

Shop around a bit, print out some other firm's good rates and bring it to your lender. If your credit rating is high many of them are willing the match the best rate. That way you can get the best rate without the hassle of transfer. And you don't always have to stick to a 5 year term. We had a 10 year term. 5 year was just the most typical.

[limette]

A year prior to selling our house, I decided it was a good time to refinance my mortgage. It had another year up for renewal but the rates were insanely low so I pitted my lender up against another bank for rates.

We ended up shaving 5 years off our mortgage while still paying the same amount each month. We stayed with our bank because they offered to do it with no penalty fees.

Soooo you don't necessarily have to wait until renewal, do it when it's in your best interest.

Also, I'm not sure that it is illegal for no down payment mortgages. We just got a new mortgage when we bought our new house last month and it was suggested by our mortgage consultant that she could probably get us the mortgage without the 5% down. We paid it anyway but the option was there.

Definitely brush up on what the rates are and how the market is going before going in to negotiate.

[CarrieMF]

Soooo you don't necessarily have to wait until renewal, do it when it's in your best interest.

There may be fees with doing it early though. When we went to renew our oldl mortgage if we did it more than 90 days before the renewal date it would have cost us $800 in fees on a $68,000 mortgage.

[Poddi]

Originally Posted by CarrieMF

There may be fees with doing it early though. When we went to renew our oldl mortgage if we did it more than 90 days before the renewal date it would have cost us $800 in fees on a $68,000 mortgage.

She has a variable rate mortgage. Usually those come with a no penalty rule if they decide to lock the rate early with the same bank, as long as the new term is more than a few years.

Although there's nothing close to prime rate now, not to mention below prime. Don't be too surprised if your payment go up a couple hundred dollars a month.

[limette]

Originally Posted by CarrieMF

There may be fees with doing it early though. When we went to renew our oldl mortgage if we did it more than 90 days before the renewal date it would have cost us $800 in fees on a $68,000 mortgage.

It's all in the negotiating. We had a fixed rate mortgage and refinanced with no fees because our bank didn't want to lose the mortgage to someone else. You have to pit lenders against each other. I've done it with credit cards as well, to lower interest rates.

[sanguine_speed]

Originally Posted by limette

Also, I'm not sure that it is illegal for no down payment mortgages. We just got a new mortgage when we bought our new house last month and it was suggested by our mortgage consultant that she could probably get us the mortgage without the 5% down. We paid it anyway but the option was there.

They may have been shuffling things around by giving you a loan or line of credit for that first 5% and a mortgage for the other 95%.

Here are the new guidelines as of 2008:




The federal government has cracked down on the mortgage industry with new rules that will make it more difficult for consumers to borrow. But many market observers think it is too little too late.

One of the key measures is a requirement that all mortgages have at least a 5% down payment. Competition in the mortgage industry has allowed consumers to put zero money down on a home and still get a competitive rate.

The government's other key measure is to introduce a stipulation that insured mortgage products have an amortization period of no longer than 35 years. In the past two years, the amortization period has stretched from 25 years to as much as 40, with some people suggesting a 50-year amortization was next.

Any consumer with less than a 20% down payment on a home is required to get mortgage insurance if they are borrowing money from a financial institution covered by the Bank Act. The new rules affect those mortgages.

"Today's announcement marks a responsible and measured approach by the government to ensure Canada's housing market remains strong and to reduce the risk of a U. S.-style housing bubble developing in Canada," the government said in a release.

"The Canadian government has modestly tightened mortgage lending rules. The changes are more about optics," said Derek Holt, vice-president of economics with Scotia Capital.

The amortization rules will only slightly affect monthly carrying costs. The difference between a $200,000 mortgage at 6% interest amortized over 35 years, as opposed to over 40 years, comes down to $41 per month.

The new rules take effect on Oct. 15, 2008, and affect only new government-backed insured mortgages, not existing mortgage holders.