Jun
30
We’ve all heard about the housing crisis that faces the country, in response to this crisis the banks have been consistently lowering interest rates. This has prompted many homeowners to consider refinancing their mortgage for a low mortgage rate. Refinance is the process of breaking your current mortgage and replacing it with a new mortgage. In many situations, this can be extremely beneficial by refinancing to a lower interest rate homeowners can save hundreds of dollars every month. However, we have seen a new phenomenon with the fluctuation in the market, some people are experiencing higher than ever mortgage penalties.
Before you consider a mortgage refinance in Ontario there are few things you should be cautious of, the first and most important is your penalty. Many people are aware that if they break their mortgage they will incur a penalty, what they don’t realize is how high the penalty can actually get. In the past six months, mortgage brokers have been seeing penalties that have reached into the tens of thousands of dollars. You may be asking yourself, why would the penalties be so high all of a sudden?
The answer is complicated, but a simple explanation is, most banks charge a standard three-month interest penalty for breaking a mortgage, however, some banks charge an interest rates differential. This is a calculation that the bank uses that takes the difference in the interest rate from the day you signed your mortgage to today, they take the difference and charge that for the remainder of your term. Some banks will actually use the bond market to calculate that difference, and it is the fluctuations in the bond market that have caused the recent problems. Therefore, before you consider a low mortgage rate refinance make sure that your mortgage specialist first inquires about your penalty.
A professional mortgage broker will be familiar with the bank that holds your mortgage, and should be able to give you a rough estimate of what your penalty will be. Your mortgage specialist will be able to calculate whether it’s advantageous for you to refinance your mortgage. In many cases even with the penalty, it is still worth refinancing your mortgage because the savings are so high.
The other thing to consider about refinancing a mortgage is the value of your property. Unfortunately, because of the decline in the housing market in the United States, we have experienced a ripple effect here in Canada as well. Some areas of Canada have seen significant decreases in the value of their properties. The problem with that is that banks will not lend more than the value of the house, so when homeowners try to refinance their mortgage they discover that their house is now worth less than their original mortgage.
These occurrences are more prominent in the western provinces such as British Columbia and Alberta. The reason these provinces have experienced a larger decline in house values is because they experienced a much faster increase in house values, so in these provinces it can be more difficult to refinance. In Ontario, the house appreciation over the past few years has been more modest so if you are considering a refinance in Ancaster, Burlington, Brantford, Hamilton, Oakville, Mississauga, or any other city in the GTA you will be happy to know that the house values in these cities have remained strong.
The good news is because of the fluctuations in the housing market in Canada the banks are offering some amazing interest rates, so even with their penalties many homeowners are saving thousands of dollars by refinancing. It is important when considering a low mortgage rate refinance you utilize the services of a professional mortgage broker. A mortgage broker will offer you an unbiased opinion about whether it’s actually in your best interest to refinance your mortgage, and will advise you on such things as mortgage penalties, and refinancing. A mortgage broker will also find you the bank that is offering the best mortgage products and interest rates at this time.
Jun
29
Home Mortgage Refinancing – What are the Reasons You Need to Consider
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More and more homeowners around the country have decided to refinance their home to consolidate debts, for making home improvements or to pay off their mortgage faster.
If you are considering home mortgage refinancing, it is a good idea to first understand what is actually involved in refinancing your home. Home mortgage refinancing involves obtaining a secured loan in order to pay off an existing loan. In most cases, the loan will have been secured by either property or some other type of assets. The most common reason for refinancing a home mortgage is to take advantage of a lower interest rate. This is especially true in the event you have had an adjustable rate mortgage or you financed your home some years ago.
Even if it does not seem that interest rates have gone down that much since you first financed your home, you may be surprised to learn how much difference even a small amount of interest reduction can make in your payments. In addition, changing circumstances may allow you to now qualify for a lower interest rate that was not possible when you financed the home. This is because interest rates are not only based on the prevailing interest rate at the time you finance the home but on other factors as well including your down payment amount and your credit rating. If your credit rating has improved since you first purchased your home, you may be in a very good position to now qualify for a lower interest rate with a home mortgage refinancing.
Another common reason for home mortgage refinancing is to actually reduce the length of your mortgage loan. For example, if you originally had a 30 year fixed rate loan you might wish to consider refinancing to a 10 or 15 year loan. This type of mortgage refinance allows you to pay off your mortgage sooner and over the duration of the loan save far more money in interest payments. In many cases, you may also be able to take advantage of receiving extra cash from your refinance while lowering your monthly mortgage payments if rates are lower. Of course, another option would be to keep your payment the same and pay off the loan even faster while also enhancing the equity.
You might also consider refinancing your home in order to pay off higher interest credit card bills. Typically, the interest rate you will be able to obtain on a home mortgage refinance loan will be lower than what you pay on your credit cards. There is also the convenience factor of being able to only pay a single loan payment every month versus multiple credit card payments. You should understand that with this type of loan, your home will serve as security for the loan until it is paid off.
Regardless of which type of home mortgage refinancing you ultimately decide is best for you, it is important to remember that you may also be able to take advantage of important tax advantages as well. Consult your tax advisor to find out whether you can deduct the interest on your home equity loan. You may be surprised to discover that it is completely tax deductible; something that can not be said for credit card interest.
Jun
29
Mortgage Insurance
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In mortgage insurance the lender gets a protection in case of any default by the borrower. Don’t confuse yourself with mortgage life insurance, which provides coverage against borrower’s death, or damage from fire, flood or any other disaster. Mortgage insurance can benefit home buyers. First time home buyers can pay low down payment because they have taken mortgage insurance.
If home buyers keep buying house again then they can pay low down payment and gain tax advantage. The money that you would have used for down payment can be used for investments, moving costs or other expenses.
Borrower generally pays 20% down payment of the home purchase price to the lender if they do not take mortgage insurance. But if Mortgage insurance is taken, the borrower has to pay only 5 to 10 percent of down payment to lender. A low down payment also allows borrowers to purchase more home than they might otherwise be able to afford. If the borrower does not take mortgage insurance, then the borrower has to pay $10,000 for the required minimum 20 % down payment
for the home value of $50,000. With mortgage insurance, the borrower will make a down payment of only 10 percent and purchase a $100,000 home. With mortgage insurance, borrowers can increase buying power, put less money and purchase
a home sooner.
Borrower pays to the mortgage insurance on a monthly basis including principal and interest payments that are made on the loan. The lender then transfers these premium payments to the mortgage insurance company.
Borrower generally pays for mortgage insurance, usually as part of the monthly house payment. There are many payment options like monthly payments, annual payments and programs that require no cash from the borrower at closing for mortgage insurance.
Mortgage insurance is suitable for various loan types like fixed rate, 30, 25 and 15 year loan and many adjustable rate mortgages. Your lender will find out which plan is suitable for you and will make all the arrangements for obtaining
insurance from the mortgage insurance company.
Mortgage insurance can benefit both lender and borrower as it provides a level of security. With mortgage insurance if the borrower defaults then the lender can keep the title of the property and policy amount. With mortgage insurance the down payment will be significantly less. But, without mortgage insurance, the down payment will be more. Both the borrower and lender can benefit from mortgage insurance.