Mortgage Basics

At FirstOntario Credit Union we believe that most consumers want to understand the products and services they buy. That's why we encourage you to visit the Learning Centre to explore the Mortgage Glossary, learn how to become Mortgage Free Faster, and play with the other tools and calculators in GO Figure. After all, a mortgage is likely the single biggest investment most consumers will ever make. It's worth spending some time learning more about it.

In addition to using the Learning Centre, we've put together some of the most common questions that we get asked every day by people interested in mortgages.

Every day we help people, just like you, get the right mortgage. So please, drop by a branch or call us to discuss your special mortgage needs.

 

Common Mortgage Questions

What's the difference between the Term of a mortgage and the Amortization Period?

The amortization period is how long it will take to repay the mortgage. In most cases, an amortization period is 20 or 25 years.

The amortization period is then further broken into smaller periods or terms. A particular interest rate is set for that term. You negotiate your mortgage at the end of each term.

 

What is a fixed rate vs. a variable rate mortgage?

A fixed rate mortgage means that the interest rate is set for the full term of the mortgage and does not change. The amount of principal and interest that you pay every month remains the same throughout the term.

A variable rate mortgage means that the interest rate fluctuates with the Prime rate throughout the term of the mortgage. The amount of the monthly payment that goes to principal and to the interest will change with any rate fluctuations.


What are Closed vs. Open Mortgages?

An Open mortgage has no limit on prepayment. In fact, you could pay the mortgage off in full during your term and pay no penalty.

A Closed Mortgage cannot be paid in full during the term. Many closed mortgages do have some accelerated prepayment privileges. At FirstOntario you can prepay up to 20% each year without penalty. For most people, that is really all they need.

What's the difference between a Conventional Mortgage and a High Ratio Mortgage?

A conventional mortgage has a down payment of 20% or more of the purchase price leaving 80% or less to be financed.

A high ratio mortgage has a down payment of 19% or less of the purchase price leaving 81% or more to be financed and must be insured through the Canada Mortgage and Housing Corporation (CMHC).

 

What sort of Payment and Prepayment Options are available?

Payment Options

Generally, the more frequently you re-pay your mortgage, the sooner you will be mortgage free and your will have carried a lower interest expense. Standard payment options are:

•  Monthly
•  Bi-weekly
•  Weekly
•  Accelerated payments

 

Prepayment Options

Prepayment options allow you to pay your mortgage off sooner. The ability to make additional payments on your mortgage can be an important feature and could save you thousands of dollars in interest costs; any prepayment you make goes directly to the principal balance owing.

At FirstOntario:

• Mortgages up to 5-year terms are eligible for prepayment of up to 20% of the original mortgage balance every year.
• On 7-year terms, you can prepay up to 15% of the original mortgage balance every year.

 

What is Bridge Financing?

Often when you are selling one home and purchasing another one, the dates that the homes exchange hands don't match. When that happens, you usually need a short-term loan to "bridge" or cover the time gap between completing the sale of one property and finalizing the purchase arrangements of another.

 

Portable and Assumable Mortgages

The flexibility of portable and assumable mortgages can be important when you are selling your home. When your current mortgage has great features and a great rate, this can be very attractive to you and any potential buyers of your existing home.

• A Portable mortgage essentially allows you to take the mortgage with you when you move. You are transferring the terms and conditions of your mortgage to your next home.
• An Assumable mortgage is important when you are selling your home. If the mortgage has a low interest rate and attractive features, it can be a great selling feature to potential buyers because they have the option to take your mortgage over with the same terms and conditions.

Mortgage Fees and Charges

Some financial institutions charge their customers to renew their mortgage with them. As a Member of FirstOntario Credit Union, we waive the renewal fee. We value our Members' loyalty. By saving you money when you renew, we are saying "thank you."

 

Rate Commitment and Guarantee

Looking for a home can be nerve-racking enough without the added stress of fluctuating mortgage rates. When you decide on the home that's right for you, it's important to know what your mortgage rate will be.

At FirstOntario:

• The rate we quote you is guaranteed for a full 90 days
• You can shop for a home with complete confidence knowing that the rate we quote you is guaranteed
• Our rate guarantee saves you money if mortgage rates rise

For even more information on mortgages please visit the Learning Centre, on the left side of this page.