Types of Mortgages
Mortgage lingo can often be confusing even for the expert home buyer. To make things even more confusing, Mortgage Terms can also be vastly different from one financial institution to another. At Bow Valley Credit Union, we take the time to review your home ownership goals, and walk you step by step through your mortgage options, rates, insurance needs, and legal processes. On top of the expert advice, all of Bow Valley Credit Unions mortgages earn profit share rewards, an extra return back to you at year end, just for being a member.
Insured High Ratio Mortgages versus Conventional Mortgages
With the high cost of buying a home these days, saving for the down payment can be difficult and can often take years before you can start to realize the dream of owning your own home. A conventional mortgage is referring to a home buyer who has saved twenty percent or more towards the purchase of their home based on purchase price. High Ratio Mortgages are often referred to as an Insured Mortgage, and is a program that has been developed to allow home owners to buy a home with as little as 5 percent saved as their down payment, based on purchase price. Bow Valley Credit Union works with both Genworth and CMHC, who are companies that insure High Ratio Mortgages for our members, and charge a premium to the home owner to take part in this program. Both Conventional and Insured Mortgages are available at Bow Valley Credit Union, and we will take the time to review both options with you and help you make the right decision towards home ownership.
Open or Closed Mortgage/ Fixed or Variable Rate Mortgages
Having a good understanding of your rate options is another important factor to discuss with your financial advisor at Bow Valley Credit Union. Terms such as Open Rate or Closed Rate and Fixed versus Variable Rate, can mean different things at different financial institutions. It is important that when looking at rate options, you understand any of the ‘small print’ and what, if any, penalties or fees are associated with the rate or term you choose.
With an open mortgage at Bow Valley Credit Union, you have the flexibility to payout or repay your mortgage with no penalties. This flexibility is usually the case for those requiring a little more freedom with the repayment terms of their mortgage, and is usually a short term option as it often has a higher interest rate. Closed mortgages are traditionally offered for one through five year terms and carry some penalty should you payout or repay your mortgage in full, within the term period. Closed rate options usually offer lower rates and is usually the best option for those who plan to stay in their home for a longer term with little changes to their mortgage. Fixed rates are rates that do not change for the period of time chosen, where variable rates are associated with Prime that can change when the Bank of Canada adjusts its Prime Lending Rate. When discussing and comparing rate options it is important to know the details. Is a Fixed Closed Mortgage the same as the Open Variable Mortgage? Or is the Open Fixed Mortgage better than the Closed Variable Mortgage? It can all be quite confusing and overwhelming, and why we feel it is important to take the time to sit down with a Bow Valley Credit Union Advisor to go through all the details, and provide options that will best suit your home ownership goals.
Looking to build your own home or building for investment or resale purposes? One important factor to building a home with minimal stress is starting with the right advice and the right mortgage options. At Bow Valley Credit Union we offer a variety of options when it comes to a construction mortgage. Whether it be a self-build or stick build, draw mortgage or turnkey build, your Bow Valley Credit Union specialist will go through all the details when it comes to qualifying, funding, and finalizing your mortgage.
Often referred to as Mobile Home Mortgage, it is the amount of funds borrowed to purchase movable personal property. Bow Valley Credit Union does offer financing on Mobile Homes, however various factors must be reviewed to determine eligibility including purchasers credit worthiness, if property is permanently affixed, leased or owned land, life expectancy, and down payment, just to name a few. Based on the many variables it is always best to speak with our account managers to complete a pre-approval.
Bow Valley Credit Union offers various mortgage options for personal use vacation homes and revenue generating vacation homes. Investing in a secondary or vacation home can sometimes be more stressful than buying your own primary residence. Affordability, down payment, location, purpose, and insurance are some of the factors that come into play when qualifying for a mortgage on a secondary property or vacation home. All this is simplified by making an appointment to sit with a Bow Valley Credit Union Advisor who will go through all the details, and provide options that will meet your financial goals.
To help protect you and your loved ones, Bow Valley Credit Union offers life, disability and accidental insurance on our mortgages. In the event something happens to you that could alter your ability to continue with payments, your insurance coverage will cover both interest payments due monthly, and help to continue paying down you principal. This option provides you with the peace of mind knowing that your payments will be covered, while maintaining your good repayment history, so that you can focus on getting better. Flexibility is also available in the amount of coverage, including your monthly payments and outstanding balance.
Home and Auto insurance is also available through Bow Valley Credit Union and our partnership with Johnson Insurance. At discounted rates offered exclusively to our Bow Valley Credit Union Members, it is just one more reason to get a free no obligation quote and start saving today.
Home Equity Line of Credit
A Home Equity Line of Credit (HELOC) is a credit tool that allows you to access equity in your home when you need it, and pay interest only on the amount you advance. Once paid back, the HELOC remains available for you to use once again for any future needs, without having to requalify. Common reasons why you would want to use a HELOC versus mortgage could include home renovations, investment purposes, vehicle purchase, or paying off higher interest bearing debt. A HELOC can be something that is set up when you first buy your home, or down the road when you need to access additional cash. Qualifying for a home equity line of credit can be a little more rigorous than a standard mortgage as it requires more equity to be available in your home than a standard mortgage does. Once approved, it provides convenient ongoing access to the funds for immediate needs and future goals.
Interest rates on a HELOC are set up as a variable rate with no fixed term on prepayment. Minimum repayment required is usually set up as interest only, however a Bow Valley Credit Union advisor will sit with you and help you to calculate payment amounts required to have your HELOC paid back in the time line you desire.
Insurance on a Home Equity Line of Credit is also an essential factor to protecting your family and your largest investment. Through our partnership with Valeyo, we have the ability to offer both peace of mind and convenience with life and disability insurance on your HELOC. Our Wealth Advisor is also available to sit with you and discuss your overall insurance needs and further assist in protecting your wealth and family estate.
Mortgage Lingo used can be confusing and stressful at the best of times. Below are a few terms and their definitions as it pertains to Bow Valley Mortgage products, in hopes it helps alleviate some of the questions that can arise around borrowing for home purchase.
Down Payment: The amount of money required to purchase a home. A down payment can be saved funds, borrowed funds, gifted funds, or combination of all.
Amortization: The amount of time to pay off your mortgage based on fixed amount of payments that pays both principal and interest
Conventional Mortgage: The opposite of a high ratio mortgage where the home owner/home purchaser has more than 20% equity or down payment; alternatively it is a mortgage where the home owner/home purchaser is borrowing 80% or less based on the value or purchase price of the home
High Ratio Mortgage: The opposite of a conventional mortgage where the home owner/home purchaser has less than 20% equity or down payment; alternatively, it is a mortgage where the home owner/home purchaser is borrowing 80% or more based on the value or purchase price of the home. Currently CMHC and Genworth are two companies that Bow Valley Credit Union partners with to provide High Ratio mortgages to our members
Appraisal: Methods conducted by an approved and licensed appraisal company to establish the overall value of a property
Home Inspection: Methods conducted by an approved and licensed home inspector to determine any improvements required to a property and if significant enough, could devalue the property and increase risk to the potential home owner; usually included as a condition in the purchase of a home that an inspection be completed
Fixed Rate: Rate that does not change for the term or length of time chosen. Usually fixed rates are offered from 1 year up to five year terms
Variable Rate: Also referred to as a floating rate. Rate that changes based on Prime plus a fixed rate. Prime is based on the Bank of Canada Prime Borrowing rate.
Open Mortgage: Mortgage that offers no penalties and flexibility with repayment and paying off your mortgage. Rates are usually higher with an open mortgage as opposed to a closed mortgage as it allows for the added flexibility on repayment
Closed Mortgage: Set agreement on the amount one can pay down and payoff their mortgage, without penalty. Should one exceed the pay down or payout allowed, penalty fees are charged.
Principal: The amount approved and borrowed; essentially the amount of the mortgage balance
Interest: The cost of borrowing; rates are often quoted as an annual rate (APR), and collected based on payment frequency.
PIT: Stands for Principal Interest Taxes; means that payments being collected or calculated includes the repayment of the original mortgage balance (principal) + the cost to borrow funds from the credit union (interest) + collection of property taxes (taxes) that are payable to the town/city every year
Preapproval: A qualifying mortgage amount you are approved for prior to placing an offer to purchase a property; qualifying is based on sitting with a Bow Valley Credit Union Account Manager and providing your information on income, net worth, current debt repayment, and down payment saved; pre approvals are provided subject to the valuation of the home you are looking to purchase
Chattel Mortgage: Often referred to as Mobile Home Mortgage, it is the amount of funds borrowed to purchase movable personal property
Deposit: A deposit is taken when placing an offer to purchase a home. The amount can vary depending on realtor requests, seller requirements, and market conditions, just to name a few. The deposit is a credit towards the purchase price offered, and it may be taken back or withdrawn if your offer is not accepted within a certain period of time as indicated on your purchase agreement. Should you back out of the purchase agreement after the specified time has passed, the seller has legal rights to retain the deposit, even if the sale does not go through. The funds are held in trust with the sellers lawyer, and applied against the purchase amount should the agreement take place.