Mortgage Transactions

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There are many different times in life where you may sign a mortgage agreement; whether its buying your first home, renewing your mortgage, or taking equity out to finish renovating the long dreaded basement. I’ve narrowed it down to 5 major transactions, and summarized them as follows.

Purchase

Quite self-explanatory, this takes place when an individual purchases a new or existing home, for the first time or their fifth. Different mortgage products can be chosen if you were to build your home, bought a fixer-upper, etc. When purchasing for the first time, you would be eligible for the first time home buyer plan letting you withdraw funds from your RRSP to use as down payment tax-free. Keep in mind you will still have to repay this amount 15 years after buying the home, re-payment starting the 2nd year after withdrawing funds.

Renewalimage

Renewals are common with home owners wanting to continue living in their home, with their term coming up. It’s a good time to shop the market for products, rates, etc. If careers may have changed, buyers may look at completely different kinds of mortgages (ex. variable rate instead of fixed rate). A good tip is to consult with your mortgage expert one year in advance, so that you can start thinking about re-evaluating your budget if rates changed. Your broker can do this for you, or if you talk to your bank instead, than speak with them and go online to see what kind of rates are being advertised and what terms. There may also be an instance where it is worth the penalty to break your mortgage, if you can take advantage of a promotional rate. Always consult with a professional first.

Refinance

Refinancing your home is a very good tool if you want to add new money to the mortgage. You may have a lot of debt (credit card bills, car payments etc.) and would like to consolidate it into your mortgage to loosen up your cash flow and take advantage of the lower mortgage rate. Homeowners might also refinance when buying a second property like a rental, withdrawing equity and using as downpayment.

Porting

Another mortgage transaction that’s typically done near the end of the term, is a port or transfer of a specific mortgage from one property to another, or one lender to another. This transaction takes place when the amount of money being borrowed is unchanged. As soon as you decide to add new money to your mortgage, it would be considered a refinance.

Home equity line of credit

An equity take out means you have made a sizeable dent into your current mortgage, and would like to take some of that money out. It can be spent on whatever you please, acting like your own personal bank.

The kicker is that the money you take out is charged interest, just much lower than a traditional line of credit or loan. Your only obligation for monthly payments is the interest accumulated, depending on how much you carry over month-month.

Conclusion

Just like those pharmaceutical drug advertisements say, ask your doctor if this product is right for you. In this case, your mortgage specialist :p

 

 

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