It’s really okay that most people don’t understand how mortgages work. Professionals like Bryan Guertin make it
their business to educate them and guide them through the various types of
mortgages available and find the best fit.
The mortgage broker will tell you first of all that the money the banks use is
not their own. It is held in trust so bankers don’t take risks with it. They
need to know that trust won’t be jeopardized and that the money is secure.
That’s why mortgage insurance is mandatory on mortgages for homes that are
purchased with less than 20 per cent down payment.
“Most people don’t have 20% to put down,” explains Guertin.
With 20% down, there is equity in the home that the lender can recover if the “deal
goes sour”. In the case of a lower down payment, the mortgage insurance covers
the loss to the bank. If you require insurance, the larger the down payment,
the less the insurance will cost. The minimum down payment allowed is 5% of the
cost of the home. The mortgage insurance in that instance would be 2.75% of the
mortgage amount. These fees are tacked onto the mortgage payment. The more you
put down, the less the insurance costs. For example, a down payment of 10%
would result in the insurance dropping to 2%.
Another way to facilitate a home purchase where financing is a challenge is to
sign up for an extended mortgage term. While a traditional mortgage would have
a term of 20 to 25 years, an extended mortgage would offer a 30 to 35-year
term. Being given the option of spreading out payments comes with a surcharge
of .2% per five years. This means that a mortgage at 5% down is extended to 35
years, the insurance rate rises from 2.75% to 3.15%.
These options allow potential home buyers who are “scraping to get a down
payment” to get into the market sooner and avoid putting their money into rent.
According to Guertin, most people take a 5-year term and renegotiate their
mortgage every five years. He says this route gives home owners peace of mind
since it shields them from increasing rates. Banks also offer floating interest
rates that are tied to the prime rate. Depending on the economic times the
rates are prime plus or minus a certain percentage.
Mortgage shoppers can find more information on mortgage options by visiting
Bryan Guertin’s website at
www.bestdealmortgages.com.
