There are two types of mortgages; open and closed mortgages.

With OPEN mortgages there are no limits as to how fast you can pay down your mortgage, however you do pay a higher interest rate for this privilege. Typically, this type of mortgage is used by real estate investors who know they are only going to hold the property for a short time. Their interest expense is also tax deductible.

CLOSED mortgages are the preferred choice for owner occupied properties and also offer privileges for paying down the mortgage faster with the ultimate benefit of reducing the interest you pay over the life of your mortgage. These programs differ from lender to lender; at the end of the day you would not choose a lender based solely on this.

Payment Privileges offer a Few Different Options:

Annual or periodic lump sum payments: Payments of up to 15%, 20%, or even 25% of the original principal amount are allowed each year.
Increase your payment: You may also increase your current payment by up to 15%, 20%, or even 100% each year.
Double your payments: Some lenders also offer the option of doubling any and all payments.

The above options are “non-cumulative”: Lenders embrace a “use it or lose it” policy, meaning that if you do not use your 15% or 20% privilege in year one, you cannot make a 30% or 40% lump sum payment is year two. Passing up on privileges in any one year does not affect your privileges in future years.

Accelerated or rapid payments: With each payment (weekly, bi-weekly, or semi-monthly) you apply a small incremental amount of money directly to the principal. This privilege is designed so that every 12 months you make the equivalent of 13 payments.

An example of how taking advantage of even one of these privileges can save you thousands is easily illustrated with the Accelerated Payment Privilege. On a $280,000 mortgage that is amortized for 35 years at 5.3%, the regular bi-weekly payment would be $671.54. The accelerated bi-weekly payment would be $728.36. This would allow you to pay your mortgage off in 28.4 years. Using a constant interest rate, you would save $73,068 in interest expense.

If you were to make a lump sum payment of 2% each year on that same mortgage and just make regular payments, you would pay off the mortgage in 19.75 years and save $161,451 in interest expense…all for an investment of only $5,600 each year, and you would be mortgage free 15.25 years earlier!

The thousands of dollars in rent you’ve paid to your landlord may be a staggering figure— a figure you don’t even want to think about. Until now, buying a house hasn’t seemed possible; it didn’t seem to be in the financial cards for your foreseeable future. Or is it? This situation is common: countless people feel trapped their home rental, pouring thousands of dollars into a place that will never be their own—they think they’re unable to produce a down payment for a home in order to escape the rental dilemma. However, putting the buying process into motion isn’t as impossible as it may seem. No matter how difficult you believe your financial situation to be, there are a few key facts that can help you make the step from the renter’s rut, to your own home-owning paradise!

Initially, of course, the most daunting factor involved in buying a house is the down payment. You know you’ll be able to handle the monthly payments—you’ve done this, and possibly more, for years as a renter. The hurdle, instead, seems to be accumulating the capital needed to put money down. Here’s the good news – this hurdle may be smaller than you think. Take a look at the following points and explore whether any of these scenarios may be possible for you:

Find a mortgage broker to assist you with your options for accessing different lenders.

Mortgage brokers have access to more than just one lender, usually they deal with over 40. Some of those lenders will work with clients to get them into a house with various options available for down payment and closing costs.

Buy a home even if your credit isn’t top-notch.

If you have saved more than the minimum for a down payment, or can secure the loan against other equity, many lending institutions will still consider you for a mortgage, despite a poor credit rating. And working with a mortgage broker we only obtain one credit bureau to save you rating from multiple inquiries.

Find a seller to assist you in buying and financing the home.

Some sellers may be willing to bear a second mortgage as a seller take-back. The seller then assumes the role of the lending institution, and you pay him/her the monthly payments, rather than paying the price of the home in a lump sum. This is an additional option if you have a poor credit rating.

Federal Government First Time Home Buyers Plan (HBP).

Canada Revenue Agency now allows first time home buyers to withdraw up to $25,000 from your RRSP contributions to put towards your home purchase. There are specific guidelines for this program which can be found at cra-arc.gc.ca.

Create a cash down payment without going into debt.

You may borrow the down payment from a loan or a line of credit. As long as you can service the repayment amount this is a viable option. You may also be gifted your down payment from a family member as long as it is genuinely a gift and it is in your account 15 days prior to the closing date. You may also have a co-signer on the application to increase the strength of your application for approval.

You now know, there are options. The next step is to educate yourself on what your own personal possibilities might be and how to follow through with this goal. You should be pre-approved for your mortgage before searching for a home. The process is free and doesn’t place you under any obligation. Its simple, you can be pre-approved over the phone! Once a credit application is submitted, you’ll receive a written pre-approval, which will guarantee you to a specific dollar range or mortgage amount. When you have the pre-approved mortgage amount, you’ll know the price range to look in. Make a commitment to break out of the renting rut. Start today!

You’ve been saving for awhile, weighing your options, looking around casually. Now you’ve finally decided to do it—you’re ready to buy a house. The process of buying a new home can be incredibly exciting, yet stressful, all at once. Where do you start? It is essential you do your homework before you begin. Learn from the experiences of others, do some research. Of course, with so many details involved, slip-ups are inevitable. But be careful: learning from your mistakes may prove costly. Use the following list of pitfalls as a guide to help you avoid the most common mistakes.

Searching for houses without getting pre-approved by a lender:

Do not mistake pre-approval by a lender with pre-qualification. Pre-qualification, the first step toward being pre-approved, will point you in the right direction, giving you an idea of the price range of houses you can comfortably afford. Pre-approval, however, means you become a cash buyer, making negotiations with the seller much easier.

Failing to familiarize yourself with the neighbourhood before buying:

Check out the neighbourhood you’re considering, and speak to the neighbours and local merchants. Are there schools, churches, parks, or grocery stores within reach? Consider visiting schools and day cares in the area if you have children. Keep in mind resale marketability. Ask yourself if others would want to buy this house down the road? Consider your own needs but also the appeal for future buyers.

Allowing “first impressions” to overly influence your decision:

The first impression of a home is the single most influential factor guiding many purchasers’ choice to buy. Make a conscious decision beforehand to examine a home as objectively as you can. The best way to do this is to see as many homes as you can in your price range and compare apples to apples. Don’t let the current owners’ style sway your judgment. Look beyond the outdated décor or clutter. But don’t be fooled by quick make over jobs either. If you have a solid foundation and the desired location and space cosmetics can be changed.

Making an offer based on the asking price, not the market value:

Ask your Realtor for a current Comparative Market Analysis. This will provide you with the information necessary to gauge the market value of a home, and will help you avoid over-paying. What have other similar homes sold for in the area and how long were they on the market? What is the difference between their asking and selling prices? Is the home you’re looking at under-priced, over-priced, or fair value? The seller receives a Comparative Market Analysis before deciding upon an asking price, so make sure you have all the same information at your fingertips.

Failing to have the home inspected before you buy:

Buying a home is a major financial decision that is often made after having spent very little time on the property itself. A home inspection performed by a competent company will help you enter the negotiation process with eyes wide open, offering you added reassurance that the choice you’re making is a sound one, or alerting you to underlying problems that could cost you significant money in both the short and long-run. Your Realtor can suggest reputable home inspection companies for you to consider and will ensure the appropriate clause is entered into your contract.

Not knowing and understanding your rights and obligations in the Offer to Purchase:

Make it a priority to know your rights and obligations. Ask questions about chattels, a survey and zoning certificate, the possibility of changing possession dates. No question is trivial. You are the buyer so it is your responsibility to be educated. Lack of understanding about your obligations may, at the very least, cause friction between yourself and the people with whom you are about to enter the contract. Assumptions, poorly written, missing clauses, or a lack of awareness of how the clauses apply to the purchase, could contribute to increased legal costs and void a contract. Your Realtor and lawyer are experienced in these contracts make sure you are as well informed.

Not using a Real Estate lawyer:

We all know professionals in our warm circle of influence. But do you that lawyers are very specific in their work? Make sure you use a real estate lawyer to review your offer and close your deal. Each person you come in contact with this transaction plays an important role including your lawyer. Ask for referrals of real estate lawyers to ensure a smooth closing.

Not recognizing different styles and strategies of negotiation:

Many buyers think that the way to negotiate their way to a fair price is by offering low. However, in reality this strategy may actually result in the seller becoming more inflexible, polarizing negotiations. Employ the knowledge and skills of an experienced realtor. S/he will know what strategies of negotiation will prove most effective for your particular situation.