Blog

In Canada, an Interest Rate Differential (IRD) penalty is a fee that lenders may charge borrowers if they break a fixed-rate mortgage contract early, for example, by selling their home or refinancing before the mortgage term ends.<h3>How the IRD Penalty Works:</h3>The IRD penalty compensates the lender for the interest they lose when the borrower exits the mortgage before the term is up. The calculation generally considers the difference between:<ol><li>Your mortgage rate: The interest rate on your current mortgage.</li><li>The lender's current rate: The rate the lender could charge on a new mortgage for the remaining term of your mortgage.</li></ol>The Formula: The exact calculation can vary greatly between lenders, but the general formula is:IRD Penalty = (Difference between your rate and the lender’s current rate) × Remaining mortgage balance × Remaining term in months / 12Example: If your current mortgage rate is 5%, the lender's current rate for a term equivalent to the remaining 2 years on your mortgage is 3%, and your remaining balance is $200,000, the IRD might be calculated as follows:- Rate Difference: 5% - 3% = 2% (0.02) - Remaining balance: $200,000 - Remaining term: 24 monthsIRD Penalty = 0.02 × $200,000 × 24 / 12 = $8,000Important Notes: - Higher Penalties: IRD penalties can be substantial, especially in times of falling interest rates. - Fixed-Rate Mortgages: The IRD penalty is typically associated with fixed-rate mortgages. Variable-rate mortgages usually have different prepayment penalties, often equivalent to three months' interest.<h3>Factors Influencing IRD Penalty Calculations</h3>The calculation of an interest rate differential (IRD) penalty is influenced by several key factors:1. Mortgage Type: The IRD penalty calculation varies depending on the type of mortgage. Fixed-rate mortgages are more likely to involve IRD penalties, while variable-rate mortgages often have different methods for penalty calculations.2. Remaining Term: The time left until your mortgage matures plays a crucial role. Generally, the longer the remaining term, the higher the potential IRD penalty.3. Interest Rate Changes: Fluctuations in interest rates since the beginning of your mortgage term can significantly impact the IRD. A greater difference between your original rate and the current rate usually results in a higher penalty.4. Market Conditions: The IRD penalty is also affected by the broader market interest rates. If rates have risen since you secured your mortgage, expect a higher penalty. Conversely, if rates have fallen, the penalty may be lower.5. Portability Option: Some mortgages offer a portability feature, allowing you to transfer your existing mortgage to a new property. Utilizing this option could help you avoid substantial IRD penalties. However, not all mortgages include this option, and lenders may impose restrictions, particularly if the property's purchase price exceeds $1 million.This overview covers the main factors affecting IRD penalties, helping you understand what to expect if you decide to break your mortgage early.Always review your mortgage agreement or consult with your lender to understand how the IRD penalty might apply to your specific situation.<a data-mce-href="http://www.calendly.com/snezhana" href="http://www.calendly.com/snezhana" data-mce-selected="inline-boundary" target="_blank" rel="noopener">Book a call here</a> to discuss your mortgage options. If you already have a mortgage, I can track the details for you and notify you when it might be advantageous to break your current mortgage for a better rate.

What Is an Interest Rate Differential (IRD) Penalty?

Great news for those looking to buy a newly built home! The 30-year amortization option is back for high-ratio borrowers, marking its return since 2012. This program is available for first-time buyers purchasing newly-built homes. While it might not make a huge difference for everyone, it's definitely worth exploring the options.Here are seven key points to help you understand and take advantage of this opportunity:1. Lower Monthly Payments Many buyers, especially millennials with high total debt service (TDS) ratios, focus on monthly payments rather than the overall cost. With the new 30-year amortization, you could reduce your monthly mortgage payments by over 8%. For instance, a $500,000 home with 5% down and a 4.59% interest rate would cost $2,522 per month with a 30-year term, compared to $2,764 per month with a 25-year term.2. Increased Purchasing Power Lower monthly payments also mean lower debt ratios, allowing you to afford approximately 8% more home. This can significantly boost your buying power and help you find a home that better suits your needs.3. Improved Cash Flow While extending the amortization term might mean paying more interest over time, it provides extra cash flow. This flexibility can help you pay off high-interest debt, invest, or save for retirement. It’s an opportunity to grow your net worth more effectively.4. Eligibility Criteria Here’s what you need to know to qualify: - Maximum purchase price: $999,999 - Down payment must be less than 20% - The property must be newly built and never lived in (except for interim occupancy) - At least one applicant must meet one of these criteria: &nbsp; -- First-time homebuyer &nbsp; -- In the last 4 years, the borrower has not lived in a home owned by themselves or their current spouse/common-law partner &nbsp; -- Marriage or common-law partnership ended 90+ days before closingFor more details, check the <a data-mce-href="https://www.sagen.ca/wp-content/uploads/2024/07/Sagen-Lender-Update-FAQ-30-Year-Amortization-Eligibility-BDL.pdf?ref=mortgagelogic.news" href="https://www.sagen.ca/wp-content/uploads/2024/07/Sagen-Lender-Update-FAQ-30-Year-Amortization-Eligibility-BDL.pdf?ref=mortgagelogic.news">Sagen FAQs</a>.5. Be Aware of Market Realities Transparency is key. While the 30-year amortization offers benefits, it won’t make expensive markets like Toronto suddenly affordable. Additionally, many builders require significant down payments on new constructions, although smaller deposits are becoming more common.6. Act Quickly If home values drop this year, as some economists predict, acting now could be advantageous. The 30-year amortization might allow you to buy sooner and benefit from potential future capital appreciation.7. Flexibility with Amortizations Remember, you’re not locked into a 30-year term. You can make extra payments to shorten the amortization period. Plus, with inflation, paying back your mortgage with future dollars that are worth less can make fixed payments easier to manage over time.If you have any questions or need further assistance, feel free to reach out. I’m here to help! Simply <a data-mce-href="http://www.calendly.com/snezhana" href="http://www.calendly.com/snezhana">Book a Call</a> here to discuss your options

Exciting News for First Time Home Buyers: The Return of 30-Year Insured Amortizations

white modern cement building under blue sky

<h3>How does Mortagage Refinancing Work?</h3>A refinance alters the terms and conditions of your existing mortgage – it’s essentially a new mortgage. &nbsp;Specifically, you are increasing the amount of your mortgage, whether to pay off consumer debt, finance a renovation, invest, or to get a lower rate.Something to point out: When you want to access equity in your current home, the mortgage guidelines/rules are totally different from the mortgage rules in place for purchase transactions.When refinancing (accessing your equity) the maximum new mortgage (or existing mortgage plus any Home Equity Lines of Credit) is limited to 80% of the appraised property value.The Lender will request a full appraisal report completed by a licensed appraiser to determine current property value.For example:Your home is appraised at $1,150,00080% of the appraised value would be a $920,000 new mortgage.Then we have to subtract the existing mortgage + penalty, to determine any available equity left to be used:$920,000 - ($827,000 approximate outstanding mortgage + $10,000 estimated penalty) = $83,000 available equity&nbsp; Example #2:&nbsp;Property appraised at $1,200,00080% of the appraised would be a $960,000 new mortgage.$960,000 - ($827,000 approximate outstanding mortgage + $10,000 estimated penalty) = $123,000 available equity. As you can see, the appraised property value plays a huge role in the maximum amount you will be able to get from the refinance.In addition, you can expect to pay for the full appraisal and legal costs (about $1,300 to $1,500). Those costs can be included in the mortgage.Do you have any other mortgage related questions? Email me at <a data-mce-href="mailto:mortgages@snezhana.ca" href="mailto:mortgages@snezhana.ca">mortgages@snezhana.ca</a><table style="border-collapse: collapse; width: 100%;" border="1" data-mce-style="border-collapse: collapse; width: 100%;" data-mce-selected="1"><tbody><tr><td style="width: 100%;" data-mce-style="width: 100%;"> </td></tr><tr><th style="width: 100%; background-color: rgb(78, 235, 65); text-align: center; vertical-align: middle;" data-mce-style="width: 100%; background-color: #4eeb41; text-align: center; vertical-align: middle;"><a data-mce-href="https://snezhana.ca/newsletter-signup" href="https://snezhana.ca/newsletter-signup" data-mce-selected="inline-boundary">JOIN THE MORTGAGE CLUB NEWSLETTER</a></th></tr></tbody></table>

What is Mortgage Refinance

round clear glass-top table and five gray chairs dining se

Given the evolving market dynamics and stricter credit evaluation criteria implemented by both lenders and mortgage insurers recently, it's crucial to exercise caution during the period between mortgage approval and funding.Did you know that lenders may conduct fresh credit checks just before funding, particularly if there's a significant gap between approval and funding dates. They also have the right to cancel your mortgage application if there are any material changes to your situation between when your mortgage was approved and the closing (funding) date.<h3>Here are 7 key tips to keep in mind during the period between mortgage approval and funding:</h3>1. Refrain from purchasing a new vehicle or upgrading to a pricier lease. Avoid major credit-based transactions unless you can demonstrate to the lender that they'll be settled before your closing date.2. Avoid quitting or changing jobs, even if it's for a better-paying position, as you might still be under probation. Any transition in employment status, including self-employment or contract work within the same industry, should be deferred until after mortgage funding.3. Exercise caution when transferring substantial sums between bank accounts, as it might appear as if you're borrowing funds. Be prepared to provide documentation for any cash transactions or transfers. To avoid complications and streamline the process, it’s best to minimize the movement of money between accounts until your mortgage financing is fully finalized.4. Ensure timely payment of all bills, including disputed ones, to avoid jeopardizing your approval. Lenders scrutinize credit reports before closing, and any collections or delinquencies could lead to last-minute complications or even cancellation of the mortgage approval.5. Avoid opening new credit cards or lines of credit until after the funding date to minimize any impact on your credit profile.6. If receiving a cash gift, ensure proper documentation before depositing it, and consult with your mortgage broker beforehand if needed.7. Postpone furniture purchases on deferred payment plans until after funding, as these transactions can affect your credit report and potentially impact the approved mortgage amount.By following this steps you can help ensure a smooth mortgage funding process and mitigate any potential risks to your approval.Do you have any other mortgage related questions? Email me at <a data-mce-href="mailto:mortgages@snezhana.ca" href="mailto:mortgages@snezhana.ca">mortgages@snezhana.ca</a><table style="border-collapse: collapse; width: 100%;" border="1" data-mce-style="border-collapse: collapse; width: 100%;" data-mce-selected="1"><tbody><tr><td style="width: 100%;" data-mce-style="width: 100%;"> </td></tr><tr><th style="width: 100%; background-color: rgb(78, 235, 65); text-align: center; vertical-align: middle;" data-mce-style="width: 100%; background-color: #4eeb41; text-align: center; vertical-align: middle;"><a data-mce-href="https://snezhana.ca/newsletter-signup" href="https://snezhana.ca/newsletter-signup" target="_blank" rel="noopener">JOIN THE MORTGAGE CLUB NEWSLETTER</a></th></tr></tbody></table>

What NOT To Do Between Your Mortgage Approval and Funding Dates

When it comes to financing your home purchase, you may come across the term "collateral mortgages." In Canada, collateral mortgages are becoming increasingly popular among homebuyers. In this guide, we'll break down what collateral mortgages are and how they differ from traditional mortgages.<h2>What is a Collateral Mortgage?</h2>A collateral charge mortgage is a type of mortgage where the lender can register the mortgage for an amount higher than the actual loan amount. This allows the borrower to access additional funds in the future (up to the registered amount) without having to register another mortgage (saving legal fees).<h2>Pros and Cons of Collateral Mortgages</h2><h3>Pros:</h3><ul><li>Higher Registered Amount: Unlike a conventional mortgage where the registered amount matches the loan amount, with a collateral charge mortgage, the lender may register the mortgage for a higher amount, often up to 125% of the property's value.&nbsp; </li><li>Flexibility: This type of mortgage offers flexibility for borrowers because they can access additional funds later on, such as for renovations, without having to go through the legal process of registering a new mortgage or refinancing.</li></ul><h3>Cons:</h3><ul><li>The lender has the option to utilize the collateral mortgage to settle any outstanding debts you owe them. For instance, if you have a credit card with the same lender, and if you were to default on a credit card payment, the lender could increase the amount of your collateral mortgage to cover the debt.</li><li>In the event that you wish to refinance to tap into the equity you've accrued in your home, but your lender rejects your application due to poor credit or your income has decreased drastically, you may encounter difficulty obtaining a second mortgage from another lender. This is because your home is secured against the collateral mortgage, which appears to have exhausted the available equity making it challenging to secure additional funds in second position behind the existing 1st mortgage.</li></ul><h3>How to Qualify for a Collateral Mortgage</h3>Qualifying for a collateral mortgage is similar to qualifying for a traditional mortgage. Lenders will look at your credit score, income, and overall financial situation to determine if you are eligible for this type of mortgage.Feel free to email me at <a data-mce-href="mailto:mortgages@snezhana.ca" href="mailto:mortgages@snezhana.ca">mortgages@snezhana.ca</a> to discuss whether collateral mortgage might be a good fit for you.

What is Collateral Mortgage?

It is no secret that a lot of people took advantage of the attractive interest rates back in 2020/2021 and locked in extremely low interests with very manageable payments.But what happens when your mortgage term ends?&nbsp;At the end of the term, your mortgage becomes due and payable in full. If you are one of few lucky people to win the lottery or receive a large inheritance, good for you - you can pay off the mortgage in full with no penalty at all (assuming you make the payment on the maturity date).However, for the rest of us - we are left with the only option - renewing the mortgage for another mortgage term. But what happens when the rate you are offered from your current lender is much higher than your existing rate? You might be faced with the so- called Payment Shock: when your existing mortgage payment will be increased drastically and may negatively impact your monthly cash flow.Here is when my expertise comes to shine and I offer valuable advice and options to make the mortgage work for you.<figure id="figure-2wiskpa6frltpzpz8b"><img id="2wiskpa6frltpzpz8b" src="https://cdn.durable.co/blocks/0A8JPaNyp0VxSGzYYGeA2abIyQ2Df3ux6nYnMZUNHnx5ILAAlTNPUrMdFfXSQmTJ.jpg" alt="woman looking at the phone" class="object-cover bg-gray-100 rounded-sm md:rounded-md lg:rounded-lg" style="aspect-ratio: 16/9; object-position: 80% 5%;" data-corners="default" data-aspect="16:9" data-caption="" data-positionx="80%" data-positiony="5%" data-fullwidth="false" data-mce-src="https://cdn.durable.co/blocks/0A8JPaNyp0VxSGzYYGeA2abIyQ2Df3ux6nYnMZUNHnx5ILAAlTNPUrMdFfXSQmTJ.jpg" data-mce-style="aspect-ratio: 16/9; object-position: 80% 5%;"></figure> Did you know that 51% of Canadian homeowners don’t plan on changing lenders when their mortgage comes up for renewal — and 9% weren't even aware that they could switch lenders to get a better rate?&nbsp;Renegotiating your mortgage at renewal time is an excellent way to save money and ensure that you have the best mortgage product for your financial situation.&nbsp;There are 3 options to consider when your mortgage term is ending:1. Renew with the same lender 2. Switch/Transfer to another lender 3. Refinance the mortgage.<h3>What is Mortgage Renewal?</h3>Your mortgage is up for renewal when you approach your maturity date (also known as your renewal date). This is when your current mortgage contract ends and your mortgage lender will then present you with your options to renew the mortgage with them.As the name implies, a mortgage renewal is simply renewing your mortgage with your current lender. But here's the catch: don't just sign on the dotted line without checking out other options first.&nbsp; We're all busy, and it's tempting to just send the form back to your current lender without a second thought. It's quick, it's easy, and it seems like the simplest thing to do. But here's the deal: it could end up costing you a lot more than you realize. That's why it's super important to take a good look at your options. You want to make sure you're getting a really good deal when you renew with your current lender. They might offer you a decent rate, but guess what? You could actually save a ton of money or have a lower payment by switching to a different lender.<h3>What is Mortgage Switch/Transfer?</h3>There is a good chance that you’ll be able to find a lower rate with another lender. This is where you would switch your current mortgage balance and remaining amortization over to another lender. This is also known as a mortgage transfer.A title insurance company such as First Canadian Title (FCT) &nbsp;facilitates the transfer of funds from one lender to the other. The costs are generally picked up by the new lender. For most mortgage switches, the only fee involved is the discharge fee from your current lender. It can range anywhere from $200 to $400 depending on your province.&nbsp; While there are a small number of lenders who will cover the discharge fee, most will not. The fee would get added to the new mortgage, so you shouldn’t have any out of pocket costs at closing. The maximum amortization will be what you have remaining based on years passed on the calendar. For example, if you started with 25 years and five years have passed, then your maximum amortization will be 20 years. If you made use of your prepayment privileges or were on an accelerated biweekly or weekly payment schedule, then your effective amortization would reflect fewer years remaining. You can either go with the lower amortization or you can move it back up based on years passed.&nbsp; On a mortgage switch, you can always reduce your amortization but cannot increase it, nor can you increase your mortgage balance. However, &nbsp;there are some exceptions to this rule depending on your mortgage charge - whether the mortgage was registered as a standard or collateral charge. If you have a HELOC (Home Equity Line of Credit) attached to your mortgage, then your mortgage is most likely a collateral charge. If you have any debts outside your mortgage/HELOC, they can be transferred to the HELOC, and paid out during the mortgage switch.<h3>What is Mortgage Refinance?</h3>Refinancing allows you to replace your existing mortgage agreement with a new agreement – this means you’ll have a new interest rate, term length, and even a longer amortization. If you want to increase your amortization up to 30 years to reduce your payments, or if you are looking to take equity out of the property, then mortgage refinancing would be your best options. While the process is similar to a mortgage switch, it falls into a different pricing category. This means a slightly higher rate may apply.&nbsp; However, if your objective is to have a lower monthly payment and better cash flow - mortgage refinance will help you achieve your goal. Many people decide to refinance for a simple reason: to combine their debts. This means bringing together different debts, like paying for education or renovating a home, into one. Sometimes, you might have debts with high interest rates that make it hard to manage your money. Refinancing helps by combining these debts into one with a lower interest rate and a single, easier-to-manage monthly payment.In conclusion, exploring your options for mortgage renewal is a smart financial move that can help you save money, access equity, and improve your overall financial situation.&nbsp; Take some time to check out different mortgage options and reach out to me ahead of time. That way, I can help you find the right mortgage for what you need now and for the future. If you know anyone whose mortgage is coming up for renewal - feel free to share this blog post with them.If you are ready to discuss your mortgage renewal options, <a data-mce-href="http://www.calendly.com/snezhana" href="http://www.calendly.com/snezhana" data-mce-selected="inline-boundary">click here to book a call with me.</a>

Blog

What Is an Interest Rate Differential (IRD) Penalty?

Exciting News for First Time Home Buyers: The Return of 3...

What is Mortgage Refinance

What NOT To Do Between Your Mortgage Approval and Funding...

What is Collateral Mortgage?

Navigating Your Mortgage Renewal