Author: Terry P.

Categories
Commercial Mortgage

Commercial Mortgage Rates Guide 2022

Commercial Mortgage Rates

A commercial mortgage is a mortgage taken out on a property that is to be used for commercial purposes and not personal or residential. Commercial purposes include businesses, corporations, partnerships, etc. In commercial mortgages, the commercial property serves as collateral for the duration of the loan. The loan is paid back over an agreed period in installments.

Get Mortgage Rates

Acquiring and paying off commercial mortgages can require a slightly more complicated process than traditional mortgages. Commercial mortgages also come with a different set of risks than traditional mortgages. That is why a comprehensive understanding of commercial mortgages is important before applying for one.

Features of Commercial Mortgages

There are several types of commercial mortgages that a business can apply for, depending on the mortgage lender, down payment, and many other factors. Across all types of commercial mortgages, some critical features remain relevant. These include:

Interest Rates

These can be fixed, variable, or combined. Interest rates are usually presented as a percentage of the initial loan price.

Mortgage Term

Also known as the amortization period, this refers to the amount of time stipulated for the loan to be paid back. An average commercial mortgage can have an amortization period of 1-25 years.

Loan-to-Value Ratio

This is a percentage that shows the ratio of the loan amount to the market value of the property being mortgaged. Lenders use this value as a determiner for the amount of risk they would be taking on by approving a loan.

Differences Between Commercial and Residential Mortgages

Residential mortgages are the more popular type of loan among the two. Customers familiar with residential loans may feel like there is little to no difference between residential and commercial mortgages but this is not true. Some key differences include:

Down Payment

On average, commercial mortgages often require larger down payments than residential. Where a residential property loan may require a down payment of up to 25%, industrial properties may require up to a 35% down payment.

Requirements

The requirements for residential loans include personal income, expenses, and credit scores. For commercial loans, the requirements are more specific and may be determined by the property that is being mortgaged.

Interest Rates

Most commercial mortgages require higher interest rates as commercial properties often have higher values than residential ones. This incurs more risk for the lender. The interest rate may also increase due to the revenue being made by the business or its credit score.

Cost

Besides the down payment and interest rates, commercial mortgages cost more than residential due to processing costs. These processing costs are higher because commercial mortgages require more paperwork and time, documents like environmental reports and property appraisals cost more.

Time

Commercial mortgages typically require longer processing times than residential mortgages. Where a residential mortgage can take as little as four weeks to be approved and closed, a commercial mortgage could take anywhere from a month to a year.

Requirements for Commercial Mortgages

There are certain criteria that a business must pass before being approved for a commercial mortgage. Some of these requirements are explained below.

Business Profitability

The business that is applying for the loan must present a feasible and profitable business plan for its operations. A business that does not seem profitable is not likely to be considered for a mortgage. Lenders have to ensure that the business will make enough income to cover pay back the loan.

Debt Service Coverage Ratio

The DSCR is a figure that determines how much of a given income is available for the payment of debts. Lenders use this figure to ensure that borrowers always have enough income to pay off their loans.

Credit History

Lenders also take note of the credit history of a business when considering it for a loan. Good credit history is a requirement for a commercial loan. The business must have little to no unpaid debt as well. In some cases, the business owner’s personal credit score may also come into play.

Income History

When applying for a commercial loan, lenders require that a business have proof of consistent liquid profit and not equity. The lender may even require that your business have a certain minimum net worth.

Application Process for a Commercial Mortgage

Different lenders may have varying procedures for applying for commercial loans, but most systems should follow these steps.

Analyzing your Finances

Before you can approach any lender, you must take a good review of your business finances to ensure that it is all up to standard. This includes analyzing the profitability of your business, projected growth and revenue, and other factors.

Ascertain your Financial Needs

Proper preparation for a commercial loan application involves finding out what other financial factors may come into play with your loan. This involves answering questions that pertain to the financial running of your business. Such questions include whether the property is to be leased, probable expansion plans, maintenance or renovation budgets, and recurring costs for the running of the property.

Acquire Necessary Documents

When approaching a mortgage lender, certain documents are required of you. It is important to have all of these documents in order. They include:

  • A feasible and detailed business plan
  • Updated financial records for the business
  • Information on the management staff of the business
  • Details on the commercial property to be purchased.

Discuss with Your Lender

Once all of your documentation is ready, the next step is to talk to your lender. Your goal should be to prove to them that you can handle the cost of paying back the loan. Before you bid on a property, you should get the go-ahead from your lender. This involves discussions on the type of commercial mortgage that best suits your business, any other documentation you may need, and more.

Bid on the Property

With the go-ahead from your lender, you can now make a bid on the property of your choice. This is not a decision that should be made lightly so it is important to take as much time as necessary before making an offer on a property. The offer should be made with at least two months to spare before you need to use the property. It gives the lenders time to finalize the loan.

Conclusion

Commercial mortgages are very common, but, because of how much they differ from traditional mortgages, the application process may cause some confusion. It is essential to fully understand all the aspects of a commercial loan before applying for one. This helps to ensure that you get the best property and mortgage deal for your business.

Get Mortgage Rates

Visit Best Mortgage Online for any type of Mortgage loan and our experts will help you.

Categories
Mortgage Refinance

What Are the Risks of Refinancing A Mortgage?

Mortgage Risk

If you are a homeowner in Canada, especially on your first mortgage, it is common for you to hear people talking about “refinancing a mortgage.” According to the Canadian Mortgage and Housing Corporation (CMHC), refinancing a mortgage means securing another loan as a homeowner to pay off the prior mortgage. What this means, in essence, is that the new loan is used to get rid of the original mortgage.

Get Mortgage Rates

Refinancing allows you to completely pay off the old mortgage fee and go for different loan terms. You can get a refinancing deal from the same mortgage company from which you got the original one or work with a completely new lender. A refinancing deal allows you to get a loan as much as 80% of the original value of the house purchased.

There are several reasons why homeowners opt for refinancing their mortgage, and some of these reasons can be of advantage. However, despite the benefits associated with a refinancing deal, it still comes with quite a few risks you might want to watch out for.Best Mortgage Online has put together some of the reasons for going for refinancing and the risk of refinancing a mortgage.

Why do Homeowners Refinance Mortgages?

Among the different reasons available why people opt for refinancing deals, here are some of the most common reasons why Canadian homeowners refinance their mortgage deals:

· Have access to equity in the home: Refinancing your mortgage gives you access to equity in your home. It allows you to access up to 80% of the total home value as a lump sum. The extra money can be diverted into other investment opportunities or for carrying out a capital project. Some of the ways of accessing this equity include breaking your mortgage or getting a Home Equity Line of Credit (HELOC)

· To consolidate debt: Mortgage refinancing gives you access to equity on your home, which can be used to consolidate debts. The equity available on homes can allow you to pay off some high-interest debts and have all your debts consolidated.

· Getting a lower interest rate: This is the primary reason many homeowners go for refinancing. You can negotiate a better deal with your new mortgage lender or plan, which can save you a huge amount of money in the long run, and this depends on the size of your outstanding mortgage and pre-payment penalty.

· Change mortgage terms: There are different mortgage options, either fixed or variable rates. Both plans have pros and cons, and switching the plan can cause you to pay penalties. However, refinancing gives you the chance to switch between the two plans without any fee attached quickly.

Risks of Refinancing A Mortgage

Despite the enticing offers that are often advertised with refinancing mortgages, you might want to take a step back and think through the entire process before refinancing. There are risks and cost implications attached to the refinancing of a mortgage.

1. There is no free refinancing: Contrary to what you might have heard from friends or believed, there is no free refinancing. The process of refinancing involves you breaking your old mortgage earlier than you bargained for, and it comes with penalties.

Breaking the mortgage earlier than agreed will involve you paying a pre-payment penalty, which is equivalent to three months of interest charges. If you are not careful, you can pay more in penalties than the amount you will save from the lower interest rate.

2. Consolidating debt can put you into more debt: The usual catchy phrase for mortgage refinancing is “consolidating debt,” which means you can pay off your high-interest debt by refinancing.

While this might be true, there is also a catch to it. Although most of the high-interest debt paid off by the refinancing plan includes credit card debt and car loans, paying them off with this plan means you are transferring your unsecured debt into your mortgage plan, which is backed with collateral – your home.

The consequence of this is that if you default on payment, you can lose your home since it serves as collateral. The consequence of non-payment of credit card debt is often limited to a bad credit score, but it can be as terrible as a foreclosure in the case of a mortgage.

3. Longer duration: Another grey area of refinancing you need to watch out for is the term involved with the new mortgage. Most mortgage plans normally last for 30 years, and refinancing involves you merging the old mortgage into the new 30 years plan. If you have fewer years to go on your old mortgage and you refinance for a new 30-year plan, you might pay higher interest rates overall. This is not a good saving strategy.

Also, if you do not plan to stay in the house for a long time, refinancing might be a terrible idea for you as you get a longer mortgage time and breaking it will cost you more money. Therefore, you need to calculate and weigh your options before deciding if refinancing your mortgage is the best bet for you.

Is There Any Bright Side to Refinancing?

Despite the risk of refinancing a mortgage, it does not make it terrible financial advice. On the contrary, there are several pros attributed to refinancing, among which are getting equity on your home or being able to consolidate your debt. Through refinancing, you can also switch easily between fixed or variable mortgages without worrying about paying any fee.

The hack to refinancing a mortgage is to take well-calculated steps towards it and ensure that you get the best deal out of the mortgage. In most cases, homeowners can negotiate better deals for their new mortgage than the previous deal. This is more efficient when you get your new mortgage from a different lender with lower interest rates and better terms.

Lastly, remember to look before leaping into a refinancing plan!

Best Mortgage Online got you covered if you need further assistance with refinancing your mortgage or getting a new lender for your refinancing plans.

You can check out more information at http://bestmortgageonline.ca/.

Get Mortgage Rates

With our more than 20 years of experience in Mortgage and finance industry, Best mortgage online can help you in reducing the risk involved in Mortgage refinance.

Categories
Mortgage Refinance

The Complete Guide to Mortgage Rates for 2022

Mortgage Rates 2022

A mortgage is an important subject for every homeowner or potential homeowner. Getting a mortgage for your house can be one of the biggest financial decisions you will make, and it is necessary to have the right information needed to make the best choice when it comes to what mortgage type to choose. Different mortgage rates and terms depend on the type of house you want to acquire and your credit score.

Get Mortgage Rates

If you are a newbie planning to get your first home through a mortgage, relax; the journey is exciting, and this post will also guide you in understanding how a mortgage works and how to get the best mortgage rates possible. In simple terms, a mortgage is a repayable loan that you can get from the bank or a broker to purchase a home; most times, the loan is often secured by collateral and paid back monthly. In Canada, you must make a down payment on your property to qualify for a mortgage.

Best Mortgage Online has highlighted the mortgage rates available in Canada for 2022 and how to ensure you get the best mortgage rates for your home financing.

Mortgage Rates in Canada

The current mortgage rates in Canada have experienced a significant reduction since the period of the COVID-19 era in 2020 and parts of 2021. Although there are experts’ projections that the mortgage rates will increase before the end of 2022, the increase will still be low or at par compared to what we had before COVID. If you plan to get a house, this might be your best chance of getting the best mortgage rates.

A mortgage rate is determined by the terms agreed upon by the lender. The term means the period where factors like interest rates and payment frequency of the mortgage are in effect. There are differences in the rates that apply depending on the type of lender and the duration of payment. Although mortgage terms are flexible, Canada’s most common term is five years. The mortgage rule is that the lower the number of years, the lower the rate applicable.

Fixed vs Variable Rates

The fixed vs variable mortgage rate is one of a home buyer’s major decisions. A wrong choice can cost you thousands of dollars or save you thousands of dollars if you make a favorable choice. To get the best mortgage rates in Canada, you need to choose between fixed or variable rates. It depends on the type of house you want to mortgage and the duration you propose for completing the payment. Here are the significant differences between fixed and variable rates:

Fixed rates:

  • The interest rates on a fixed mortgage remain unchanged for the entire duration of the mortgage term
  • The rate of a fixed mortgage can be typically high, but it provides a stable repayment plan and amount
  • Breaking the mortgage attracts a high penalty called Interest Rate Differential Penalty

Variable rates:

  • The interest rates on variable mortgages are not fixed and can go lower or higher depending on the current market rate set by the Bank of Canada
  • The initial rate of a variable mortgage is often lower than that of a fixed, but the rate can also be higher at a certain period.
  • The penalty for breaking the variable mortgage is far lower, and you can switch to a fixed rate at any time without breaking the mortgage.

We have put together some of the mortgage rates provided by top lenders in Canada:

LenderFixed MortgageVariable MortgageDuration
Nesto3.44%1.20%5-year
Tangerine3.54%1.37%5-year
Laurentian Bank3.54%2.45%5-year
TD Bank4.59%2.60%5-year
Desjardins Group4.74%2.45%5-year
HSBC4.74%2.65%5-year
BMO4.79%2.45%5-year
CIBC4.79%2.45%5-year
Home Trust Company4.79%2.45%5-year
National Bank of Canada4.79%2.45%5-year
Royal Bank of Canada4.79%2.45%5-year
Banque Scotia4.79%2.65%5-year

How to Get the Lowest Mortgage Rates in 2022

For most individuals, the variable rate is always the best choice due to the many advantages compared to fixed rates. Here are some reasons why variable mortgages might be the best way to get the lowest mortgage rates in 2022.

  • Variable has historically cost less than fixed-rate: The expert report provides that in 90% of most cases, a variable mortgage always has a lower rate than a fixed mortgage. The common fear about variable rates is that they can also increase when the market price surges, but history has proven to us that this rarely occurs. You can save more money by going for a variable mortgage.
  • Effect of COVID–19 on mortgage rate: Despite the health challenges that have occurred because of the pandemic, it has a different effect on the mortgage rate. The pandemic has greatly impacted the economy, and one of the mechanisms of the government to stimulate the economy is to control the interest rates through the Central Bank of Canada. From all indications, the rates will still be kept relatively low in 2022 to continue stimulation.

Comparing Mortgage Rates

Another way of getting the lowest mortgage rates even after selecting a variable mortgage is to compare different mortgage rates. Different lenders offer mortgage services and offer different rates for their services. It is often recommended to compare the different lenders’ rates and select the lowest one with great options.

When comparing mortgage rates across lenders might be tricky for first-time home buyers. The first thing to do is compare the annual percentage rates and not just the interest rates. The annual percentage rates are more comprehensive and include interest rates, fees and other associated costs. A lender might have a low-interest rate but a higher annual percentage rate cumulatively. Calculating the total rates will make your choice of lender much easier.

Conclusion

Mortgages are highly important when it comes to home buying. It is even more important to understand how a mortgage works if you try to save costs. There are commonly two forms of mortgage with different rates. One of the best forms of mortgage rates in Canada is the variable mortgage; it has lower interest rates and allows you to save more money than the fixed rate.

The variable rate is even more advantageous in 2022 since the market has an even lower rate due to the impact of COVID-19 on the mortgage rate. To effectively save cost when it comes to home buying, you can compare the rates offered by different lenders and select the one most appropriate.

Get Mortgage Rates

Best Mortgage Online is focused on helping residents of Canada to acquire homes with the best mortgage rates. For more information, you can check https://bestmortgageonline.ca/.

Categories
New Purchase Mortgage

How Financial Institutions Calculate your Mortgage Payment

Mortgage Calculator

If there is one thing we have all learnt since we were kids, it must be that prices can be deceiving. As children, when we buy something we like, the cost on the shelf could be different from the cost on the counter because of the sale tax. However, we didn’t know that those tiny unexpected increments prepared us for the concept of interest and principal amount.

Every economy’s financial institutions thrive on the concept of interest. Since a mortgage is one of the services, financial institutions offer, the idea of interest is an integral part of it, and it, along with the principal amount, makes up the mortgage payment. So, what is this mortgage payment?

Get Mortgage Rates

Mortgage payment runs on the concept of interest and principal. It is the actual money off your mortgage and the interest you pay your mortgage lender for borrowing you the money you need to buy a house. There’s more; find out all about it as you continue to read.

What is Mortgage Payment

Your mortgage payment is a combination of the principal mortgage payment and the interest. There is not much to say about the principal amount, as it is the actual value of the mortgage itself, with interest being the cost you pay to your financial institution for giving their money to help you get the house you want.

Your principal amount is essential, and it determines the interest you will pay during the cycle of your mortgage payment. You see, your mortgage lender charges you interest on the principal amount that you owe. So, the more you continue to pay down the amount you owe, the more interest you will gradually reduce.

This means that the earliest period of your mortgage is usually the most expensive, as you haven’t made a considerable payment on the principal amount itself. Although if you can make those early days relatively inexpensive if you have enough cash to pay as your initial deposit or down payment. Your interest would be lower when you do this, as you have made headway with the principal amount.

Your mortgage payment comprises monthly payments that you will pay until the mortgage term runs out. The payment depends on the interest rate that the bank offered you, and you accepted it at the beginning of the mortgage. Although you may want to finish paying before the agreed term, it would cost you as mortgage lenders require you to pay a pre-payment penalty or charge if that happens.

Now, since the principal amount is precise as it is the amount you truly need, how about the interest you have to pay, and why do mortgage lenders charge interest anyway? The truth is, interest is how mortgage lenders make their money for providing you with the cash you need.

As you can see, you need to have an idea about how your mortgage lender determines the interest rate you pay. Don’t worry. We promise not to bore you with the mathematical calculations, but you will know what you need to know about interests before you apply and sign for a mortgage term.

How your Financial Institution Calculate your Interest

You might wonder why there is a semblance in interest rate after getting offers from multiple lenders. It does look unfair. It is like the whole Canadian mortgage system wants to fleece you of your hard-earned money.

We can tell you that they aren’t trying to fleece you of your money. In fact, you and your lender have something in common. You both are borrowing money. Shocked? Don’t be. We will make it more straightforward now. Picture this. Your mortgage lender is borrowing money from the government, and as your mortgage lender is charging you an interest rate, the government through the bank of Canada is charging your lender.

Mind blown? Yeah. The interest rate the government charges the bank is the Prime rate, and it is one of the factors that determine the interest rate your mortgage lender charges you. The other factors are;

  • Your Credit Rating
  • Principal Amount.
  • Whether the rates are fixed, variable or hybrid
  • Amortization length
  • Payment Schedule

Credit Rating

Your credit rating comprises your credit report and credit score. Lenders examine these two before they decide to lend you the money you need for your mortgage. These two also determine your interest rate, should mortgage lenders decide to give you the money you need. The poorer your credit rating, the fewer chances you will get a mortgage and the higher your chance of getting an expensive mortgage.

Principal Amount

We have explained this bit about the principal amount earlier on under a previous heading. In summary, the higher your principal amount, the higher your interest. To prevent this, deposit a handsome fee as your down payment.

Whether the Rates are Fixed, Variable or Hybrid

Majorly, your lender would offer you two types of mortgages. Your financial institution could provide you with a fixed-rate or variable mortgage. Fixed-rate mortgage benefits you when your interest is low, as your financial institution will maintain that rate till the end of the mortgage. However, fixed-rate mortgages rarely have low-interest rates. The reason for this is simple.

Your mortgage lender bears risk by fixing the rate for you. Your lender is saying that they will maintain that rate no matter the economic situation.

On the other hand, a variable rate is a rate in flux. Your mortgage lender or financial institution starts with one rate, and during the term of your mortgage, that rate will change. The rate will change due to economic conditions or any other conditions. So, as a borrower, you would be taking on more risks. Fortunately, variable rates have low rates.

There is one more. The hybrid rate combines the qualities of fixed and variable rates. An aspect of your mortgage will have a fixed interest rate. The other part would have a variable interest rate. So, you have the benefits which those two rates offer. For instance, you will be partially protected against an increment in rates. Likewise, you will enjoy some advantages when rates fall.

Payment Schedule

Your payment schedule covers how much time you want to make your mortgage payment. You can choose to have an accelerated payment, which gives you the power to make an extra payment annually. This additional payment comes in the form of a 13th-month payment. You can escape paying more interest this way.

Your Amortization

Your amortization is the time-frame it takes you to complete your mortgage payment. As your amortization increases, your payment reduces. On the other hand, you will pay more interest the longer it is.

Conclusion

As you can see, financial institutions use specific metrics to calculate your interest. You often determine how favorable these calculations will be  when you pass these metrics.

Choose Best Mortgage Online as your Mortgage Consultant. Our experts help you find the best mortgage rates in Canada to assist you in your home purchasing process. Contact us via the button below.

Get Mortgage Rates