Simplifying the terminology....(Part II)

Whirlwind weekend for me....

Drove up to Kelowna for a wedding on Saturday evening and had a blast. Thanks to Susan and Pete Solymosi and an honorable mention to Deb White for having us attend. What a special moment to be able to share with a loving family and some great people.

Needless to say we partied hard, and one of us (I'll give you a hint...not me) felt it the next day.

Drove back last night through Summerland and Penticton so we could take advantage of the BC Grown fruit stands...and boy did we ever. Might have even hit the odd winery ;)

Here I am back at the office raring to go on a Monday.

In continuing fashion, here is part II of the common overlooked things we Mortgage Brokers assume that everyone understands.

LTV:  simply means Loan to Value. If you take what your you have as an outstanding balance on your mortgage and compare it to what your home is worth, you get what we call the LTV.
In the Lending world to keep your loan conventional, you have to keep your mortgage under 80% of what your home is worth, or 80% Loan to value.

Closed Mortgage: A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms. This is where the expertise of your Broker comes in. On the surface a rate may look better than a similar rate just because it is lower. But, in simplest terms possible, it is like comparing apples to oranges.
Like fruit, mortgages come in different sizes, shapes and flavours. You may be able to save $10 per payment by going with a lower rate, but that product line may carry with it some clauses written in that may restrict you from paying out your mortgage and refinancing. More on this subject in a future blog...or write me and ask for more info.

Open mortgage: A mortgage which can be prepaid at any time, without requiring the payment of additional fees. A product that has its advantages if used properly and fits in with a well designed plan. It is a tool that you have at yours and your Brokers disposal, but may not necessarily be the correct product or fit for your endeavour.
Yes there are no penalties, but for the most part the rates are higher. There is a break even point when you compare the the 2 usually around the 7-8 month mark for the most part ( have to run the calculations to be 100% sure ). So if you are planning on paying off your entire mortgage in less than this time frame, it may make sense to use this type of financing. If you are not 100% sure about repayment, perhaps a closed mortgage makes more sense with the lower rate....need to speak to an expert and have it mapped out for you to make the appropriate decision.

15/15 or 20/20:  These are both prepayment privileges that are written in to your closed mortgage products. They allow you to make up to, in the case of the 15/15 ( same applies for the 20/20, its just 5% more) extra payments on to your outstanding mortgage amount each year. You can make and extra 15% on your set monthly payments, and 15% extra of the outstanding balance each year, without penalty.
This extra 15% each month is a great way to hedge the Variable rate product against future rate hikes while still saving the difference in interest today versus a fixed rate product.

And last but not least today....

Interest Rate Differential Amount (IRD) : An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage.
So if you had 2 years left on your 5 year term, the IRD would be calculated using what the lender could lend your balance out at on their 2 year rate, not the 5 year rate that you originally had your contract written on.

If you want to know more about how the IRD is calculated I would be more than willing to show you the calculation and how it is derived.

You can always find more in depth knowledge on my webpage at www.kevynoyhenart.ca   Feel free to click through and find a few links that may be helpful in your quest of Home ownership. Conversely you can always get me on my phone as well.

Enjoy this wonderful Monday here on the west Coast of BC. Or if you are abroad, there as well.

Kevyn