Mortgage Basics 101. Talk to your CIBC Mobile Mortgage Advisor today.

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1 Mortgage Basics 101 Mortgages are big investments that require financial stability and dedication. Start the process on the right foot by familiarizing yourself with different types of mortgages and rates, and learn helpful facts that will prepare you to be a responsible home buyer. Types of mortgages Closed mortgages: Closed mortgages have prepayment options of up to 20% of the original mortgage amount. If you decide to pay out, renegotiate or refinance before the end of the term of a closed mortgage, prepayment costs will be applied. Open mortgages: An open mortgage can be repaid at any time throughout the term, either in full or partially without any prepayment costs. Provides flexibility until you are ready to lock into a closed term. Convertible mortgages: A convertible mortgage is similar to a closed mortgage, but gives you the option of converting to a longer term, closed mortgage at any time without prepayment costs. With this option you can make an annual prepayment up to 10% of the original mortgage amount. Types of mortgage interest rates Fixed rate mortgages: A fixed interest rate remains the same throughout the entire term. This option allows your payment to remain constant so you know exactly how much you will pay every month and what amount you will have paid off at the end of the term. Variable rate mortgages: A variable interest rate will fluctuate with the CIBC Prime rate throughout the mortgage term. This impacts the amount of principal that you pay off each month as your mortgage payment will remain constant. Mortgage amortization and mortgage term Amortization period: The estimated number of years it will take you to pay off your mortgage. Amortization periods are often 15, 20, or 25 years long. Mortgage term: A mortgage is usually amortized over a long period, made up of shorter mortgage terms. Your term is your current contract to pay your mortgage under the terms you ve negotiated with your lender. After the term expires, the mortgage can be renegotiated. Mortgage down payment options Conventional mortgages: The down payment is at least 20% of the purchase price. High-ratio mortgages: The down payment is less than 20% of the purchase price. You are required to have at least a 5% down payment when buying a house. High-ratio mortgages must be insured by a third party such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial Canada or Canada Guaranty and require you to pay an insurance premium. Mortgage payment options Mortgage payments can be made weekly, bi-weekly, semimonthly and monthly. Tim Mohr

2 Mortgage Affordability 101 If you re thinking about buying a home, one of the first questions you may ask yourself is, How much can I afford? Read the following mortgage affordability tips before you set out to find the home of your dreams. Consider your annual household income. This is a key factor when determining how much of a mortgage you can afford. In addition to calculating your annual household income, consider any income changes that may impact your ability to make your payments. For example, if there are currently two major income sources within your household, would you still be able to afford your mortgage if one was removed? What if a child comes into the picture and your partner decides to become a stay-at-home parent? Consider all factors before deciding. Consider your down payment. Currently, you are required to have at least a 5% down payment when buying a house. The size of your down payment is one factor in determining the size of mortgage you can afford. Consider your debt. When determining How much can I afford? one of the other important factors to take into account is the amount of debt you currently have. The lower your debt-to-income ratio, the more money you ll likely have to put towards your mortgage. In addition, your debt level will also help to determine how large of a mortgage you will qualify for. Consider your credit history. A credit rating is a measure of how dependable you are when it comes to repaying your debts. For example, if you pay your bills on time or if you repay a loan, you will be in good standing with the credit bureau. So, when it s time to borrow, a lending institution will know that you are credit worthy. Contact one of Canada s credit bureaus, Equifax Canada or TransUnion Canada, to check your credit report. Consider your amortization period. If you are simply trying to keep your regular mortgage payments low in order to comfortably fit the payment into your budget, you will probably want to apply for a mortgage with a longer amortization period. However, if you don t mind a somewhat larger regular mortgage payment in order to save money on interest in the long run, you may want to consider a shorter amortization period. Consider your closing costs. Closing costs are an often overlooked expense that will definitely help determine how much money you can afford as a down payment. Consider your additional expenses. Lastly, there are a few additional expenses that may impact how much money you have to put towards your mortgage each month. Expenses like property taxes, homeowner s insurance such as damage, title etc, and even things like home maintenance should be factored in before making your final decision. These costs are often overlooked but should be considered before settling on the home of your dreams.

3 What are the monthly costs of owning a home? A list of common monthly expenses you can expect as a homeowner. Mortgage Payment Condo Fees or Home Owners Association Fees This will probably be your largest monthly expense. Several factors-the amount you financed, term and rate, amortization and payment schedule affect the amount of your payment. If you buy a home within a homeowners association or a condominium association, you ll be required to pay a monthly or quarterly fee. Property Taxes In some municipalities, these taxes are integrated into the property taxes. In others, they are collected separately and are payable in a single lump sum, usually due at the end of the current school year. Depending on your location, you ll get a property tax bill two, three or four times a year. You can usually pay your tax bill by a variety of methods: a cheque to your municipality, through online banking, with your mortgage payment, or (if your municipality allows) automatic debit from your chequing account. Property Insurance Your lender will require that you have property insurance in place at closing, but it s also an ongoing expense for as long as you own your home. School Taxes Utilities You may be responsible for utility bills such as heating, gas, electricity, water, telephone and cable. Maintenance and Upkeep You may have expenses such as painting, roof repairs, electrical and plumbing, walks and driveway, lawn care, etc. Tim Mohr

4 Estimated Additional Costs Definitions While your down payment and mortgage will cover the purchase price of your home, it s wise to consider the other expenses that may be involved in buying a home. You ll pay some costs at the beginning of the homebuying process and others, known as closing costs or disbursements, when your home purchase is finalized. A list of possible additional costs that could add up when you buy your first home: Appraisal fee: This is the fee for determining the property lending value for mortgage purposes. This value may or may not be the same as the purchase price of the home. Bridge financing (if applicable): If the purchase of your new home closes before the sale of your current home, you ll need to finance the purchase of your new home for a short period of time. Estoppel Certificate (for condominium/strata units): This certificate provides information required by law about matters such as common expenses and other charges, the condominium corporation s financial well-being and any lawsuits affecting the condominium corporation. GST/HST where applicable (sometimes included in sale price): Some properties are GST and/or PST sales tax exempt and some are not. Generally, GST or HST where applicable is charged on new homes, but not on resale properties. Always ask before signing an Offer. Home inspection fees (may not apply if you are purchasing a new home): The home inspector evaluates the structures and systems that make up your home and provides you with a written report. While not mandatory, many people make a professional home inspection a condition of their Offer to Purchase. Home insurance: Protection for your home and contents. Insurance costs for high-ratio mortgages: If your down payment is less than 20% of the value of your home, you must pay a one-time insurance premium based on your mortgage amount. Mortgage default insurance protects the mortgage lender in case you are not able to make your mortgage payments. It does not protect you. Usually, mortgage default insurance premiums range between 0.6% and 3.15% of the principal amount of your mortgage. The premium may be subject to provincial sales tax, which cannot be added to the mortgage amount. You can make arrangements to pay the premium to CIBC before closing, or it can be added to the principal amount of your mortgage. If it is added to the principal amount of your mortgage, you will pay interest on it at the same interest rate you pay on the principal amount of your mortgage.

5 Interest adjustments: You will need to pay mortgage interest during the period of time between the closing date of the purchase and the first payment date of the mortgage. You can avoid an interest adjustment by arranging to make your first mortgage payment exactly one payment period after your closing date. Land transfer tax (if applicable): Levied in certain provinces whenever a property changes hands. In some cases, first time homebuyers may be eligible for a refund of a portion of this cost. Legal fees and related expenses: These fees vary by province and are subject to GST or HST where applicable. Ensure your lawyer s quote includes all related expenses and disbursements, not just legal fees. Make sure your interests are protected by discussing your Offer to Purchase with your lawyer or notary prior to signing. Mortgage life insurance: Mortgage life insurance is optional creditor s group insurance. It helps protect your family s financial security by paying off all or a portion of your mortgage (up to the maximum specified in the group policy) in the event of the premature death of you or another borrower on the mortgage. Costs vary but can be conveniently included in your regular mortgage payment. Prepaid property tax and utility adjustments: You will be required to reimburse the vendor for any prepaid property taxes or utility bills. Property survey: A survey indicates the boundaries and measurements of the land, the position of the major structures on the land, and any registered or visible easements (such as a driveway) or encroachments (such as a fence) by or onto the property. Title insurance: Title insurance is optional and covers many title problems that may arise; for example, due to encroachments on neighbouring lands, existing liens against the property s title, title fraud, undischarged mortgages and issues relating to the property s previous owners.

6 Making the Offer Some things to consider before you make your home offer: An Offer to Purchase is a legally binding agreement between you and the seller. Along with your mortgage agreement, this is one of the most important documents you ll sign. It locks you into the conditions of the purchase, so make sure your interests are protected by discussing your Offer to Purchase with your lawyer or notary prior to signing. Checklist Some things to consider including in your home offer: Your proposed purchase price. A list of items in the house (called chattels) to be included in the purchase price. For example, appliances, window coverings, and certain furniture items might be negotiated into the purchase price. Amount of your deposit. Financial details. For example, how the balance of the purchase price will be paid. Closing date. This is the date you will take possession of the house (usually 30 or 60 days from the date of the agreement). Time period for which the offer is valid. Conditions of the offer. You might want to make your offer conditional on arranging for financing, a building inspection, or the results of a survey. Make sure the offer can be cancelled if any of your conditions are not met and always put a time limit on the conditions. Keep in mind that a firm offer one with no conditions is usually more attractive to the seller. But remember that you need to feel comfortable with the offer yourself. A cheque, bank draft, or money order to accompany your Offer to Purchase as a deposit. When your home offer is accepted: Congratulations! Contact me to finalize your home financing options and to secure a competitive rate on your mortgage. T

7 Four Simple Ways to Pay Your Mortgage Down Faster1 Increase your payments / make double up payments You can increase your payment amount when you arrange your mortgage, or at any time during the term. This allows you to pay down your principal faster. Want to pay down your principal even faster? Double up your payments instead! For example, if you increased your mortgage payment amount by $170 from $830 to $1,000 you could save almost $48,000 in interest over the entire amortization period of your mortgage. You could also own your home about 8 years earlier. Accelerate your payment schedule You can make payments more frequently which saves you money in interest charges over the long run as it allows you to pay down your principal faster. CIBC offers monthly, semimonthly, bi-weekly and weekly payment frequency options. For example, if you made accelerated bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage. This would allow you to own your home about 4.5 years sooner. Apply your pre-payment privilege Use your pre-payment privilege to make a lump sum payment. A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing. This can save you money over the course of your mortgage.2 For example, if you made a $1,000 lump-sum payment, you could save almost $28,350 in interest over the entire amortization period of your mortgage. This would allow you to own your home about 4 years sooner. Take advantage of your renewal date You can pay as much as possible at renewal. All CIBC Mortgages become open at renewal. This means you can pay as much as you want on your mortgage before you renew into a new term. For example, if you chose 5-year, fixed-rate terms, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage, allowing you to own your home about 6 years sooner. 1 For illustration purposes only. Payment option scenarios assume a 5-year closed, fixed-rate mortgage of $120,000 with a 25-year amortization and a constant annual interest rate of 6.85% over the entire life of your mortgage compounded semi-annually, monthly payments of $830 and assumes no additional payments. Actual rates will vary, which will affect your payment amount, your mortgage payout date and the amount you could save. 2 Payment options are subject to the terms and conditions of your mortgage. In some cases, making a prepayment on your mortgage or paying off your mortgage early can lead to a prepayment charge, depending on the type of mortgage you have. Prepayment charges may also apply if you renew early or refinance your mortgage. Please contact us in advance to discuss all your options. The information in this article is general only; it is not intended as specific investment, financial, accounting, legal or tax advice for any individual. CIBC For what matters. is a TM of CIBC.

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