FAQs: Mortgages

A mortgage term is the length of time a lender will lend mortgage funds to a borrower. Most mortgage terms run from six months to five years. Certain lenders may offer longer terms, e.g., 6, 7 or 10 years. After this period, the borrower can either repay the balance — the remaining principal plus interest — of the mortgage or renew the mortgage for another term. The total length of a mortgage is usually made up of several terms.

Shorter term: Typically two years or less

• Maybe a good choice if: You believe that mortgage rates will drop before renewal time. You want to be able to take advantage of these future lower rates. You expect to sell your home in the short term and don’t want to be tied to a longer mortgage term.
• Benefits: Typically shorter mortgage terms have lower interest rates. If you need to pay out your mortgage early, you’ll pay less of a prepayment charge if you have a shorter mortgage term.
• Drawbacks: Rates can be tough to predict. They may rise by the time your mortgage term ends. In this case, you’d have to renew at a higher rate.

Longer term: Typically three years or more

• Maybe a good choice if: You believe that the current rates are reasonable and could possibly rise, so it feels like a good time to commit.
• Benefits: You’ll know what your rate will be further into the future, so you can make longer term financial plans.
• Drawbacks: There’s a risk for unexpected payout charges due to situations like changes in your financial circumstances or having to move unexpectedly.

It takes a minimum of 30 days and as many as 90 days to complete your mortgage qualifying and approval process.

Under most circumstances, you must be employed for a minimum of 3 months and be past the probationary period at your place of employment for the lender to consider your current employment and salary.

You can ask for a copy of your credit report by mail or access an online version usually for a small fee. There are two main credit bureaus in Canada: Equifax Canada and TransUnion Canada.

There are several possible extra costs involved in purchasing a home. Some are one-time closing costs, such as land transfer taxes, legal or notary fees, fire insurance, survey fee or title insurance, and applicable sales tax. Others, such as property insurance, are ongoing monthly expenses. We recommend that you budget 1.5% to 4% of the price of your new home to cover these types of costs.

An open mortgage gives homeowners the flexibility to pay off their mortgage at any time. A closed mortgage is more strict – homeowners have to pay a penalty if they choose to pay off their mortgage before the term ends.

Open mortgage: Allows you to pay back the borrowed funds any time during the term, without having to pay a prepayment charge.

• Maybe a good choice if: There’s a chance you’ll want to pay out your mortgage during your term.
• Benefits: With an open mortgage, you can prepay or even pay out the entire balance of your mortgage at any time during the term without having to pay a
• prepayment charge.
• Drawbacks: Open mortgages typically have higher rates than closed mortgages.

Closed mortgage: Cannot be prepaid, renegotiated or refinanced before maturity, dependent on its terms.

• Maybe a good choice if: You’re comfortable staying with your mortgage for the full term. You don’t expect to pay it out before the term ends.
• Benefits: Closed mortgages typically have lower rates than open mortgages.
• Drawbacks: If you want to pay out your mortgage before the term is done or make a large prepayment, you may be have to pay a prepayment charge.

The difference between a fixed rate and an adjustable rate mortgage is that for fixed rates, the interest rate is set when you take out the loan and will not change. With an adjustable rate mortgage, the interest rate may go up or down.

Fixed rate mortgage: Your rate will be set at the start of your term and will not change

• Maybe a good choice if: You’re uncomfortable with rate changes.
• Benefits: You’ll have the security of knowing what the rate and payment amount will be for the duration of the mortgage term. Your rate is locked in so you’ll be protected from rising interest rates.
• Drawbacks: Mortgage rates can go up, but they can also go down. With a fixed rate mortgage, your rate is locked in. You won’t benefit from lower interest rates if they drop during the term of your mortgage.

Adjustable rate mortgage: Your rate will “float” with the prime rate throughout the term, with the potential to go up or down at any time.

• Maybe a good choice if: You’re okay with your mortgage rate changing over the course of the term.
• Benefits: Your rate will change throughout the term of your mortgage. You can take advantage of lower interest rates if rates do drop.
• Drawbacks: In the event that rates go up, your mortgage rate and your payment amount could increase.

Interest adjustment date is your term start date. Your anniversary date is every 12 month period following the interest adjustment date.

Amortization is the estimated number of years it will take to pay off your mortgage entirely. Amortization periods range up to 30 years. The longer your amortization is, the lower your mortgage payments will be, but the higher the total amount of interest you’ll pay over the life of the mortgage. An amortization is made up of a number of mortgage terms.

Once you obtain a residential mortgage from a lender, the lender will register the mortgage against your property which provides the lender with the ability to secure a mortgage or other loan against your property. This mortgage registration gives the financial institution the legal right to claim the registered property if the mortgage loan is in default under the terms of your mortgage loan.

Your lender will register what is known as a “charge”. There are two types they may use: standard and collateral. Bridgewater Bank registers all mortgages as a standard charge mortgage.

There are restrictions on down payment sources since banks must be diligent in following anti-money laundering rules and regulations to verify down payment funds are coming from a legitimate source.

There are many resources you may be able to use in order to achieve your down payment sooner. Down payment resources are broken into two categories: traditional and non-traditional down payment options. In most cases, we will ask for a minimum down payment of 10% of your mortgage amount from traditional resources. Anything over 10% may come from non-traditional resources. We have further information about down payment options found here on our website. However, down payment requirements vary and should be discussed in full at time of application.

Yes, in most cases Bridgewater Bank can move your mortgage with you. Your Bridgewater Bank mortgage is portable or assumable subject to borrower and property qualification. We have further information about portable and assumable mortgages found here on our website.