Borrowers

Open Term Versus Closed Term Mortgages

There are many things to consider when your mortgage is coming up for renewal. As the maturity date approaches, you will probably be offered the option of either an open term or a closed term.

Confused as to what the difference between the two might be?  Here is a breakdown of what each type of term involves:

Open Term

Open terms always have a higher interest rate. This is because it is expected that the mortgage will be paid out on or before the maturity date.  30 days’ written notice is generally required in the event of full or partial pre-payment.  A bonus calculated on a per diem (per day) interest basis will apply in the event that written notice of less than 30 days is provided.  Notice must be in a specific form. A written request from the mortgagor’s solicitor, a title insurance company, or a financial institution, specifying the amount and date of the prepayment would all be considered eligible notice.

Closed Term

Closed terms receive a lower interest rate, but it is expected the mortgage will remain until maturity. In the event of pre-payment in whole or in part prior to the maturity date, a pre-payment penalty will apply. This is equivalent to the greater of: a) three months’ interest at the interest rate prescribed in the renewal agreement; or b) the interest rate differential based on the difference between the interest rate prescribed in the renewal agreement and the lender’s posted interest rate for a closed term that is the next shortest to the remaining term of the mortgage will apply. The pre-payment penalty will be calculated on the principal amount to be prepaid.

Choose the type of term that works best for you and return the completed paperwork to your lender. It’s a good idea to make note of the first date and the new amount of your new payment.

About Magenta Capital Corporation

Magenta is one of Canada’s leading residential, private MICs. Since 1994, we’ve specialized in flexible mortgage solutions for Ontarians who fall just outside of bank lending criteria, while delivering on strong, consistent returns for shareholders across Canada. Our goal is to empower our customers, partners and employees to build a better tomorrow.

For more information, visit www.magentacapital.ca.

What to Expect During the Mortgage Renewal Process

The maturity date of your mortgage is fast approaching. The maturity of your mortgage gives you an opportunity to review your financial situation and make some decisions based on your financial goals and current situation.

If you discussed an exit strategy with your mortgage broker, you may be preparing to refinance with a new lender at a lower rate. If it suits your needs to renew your current mortgage, here are a few things to keep in mind both before and during the process:

Here are some tips to prepare for your renewal:

1. Ensure your account is current: If your mortgage account has fallen behind, make arrangements to bring it back into good standing. Work with your lender to find a solution that suits everyone.  Small changes, such as moving your monthly payment to a new day, can make a difference.

2. Keep your home insurance in good standing: If your insurer has changed since you originally obtained your mortgage, make sure you let your lender know!

3. Keep the home in a good state of repair with no deferred maintenance: Don’t put off those home maintenance projects, big or small. Touch up the paint. Mow the lawn. Make sure the roof, furnace, and electrical wiring are in good repair.

What to expect at renewal:

1. Renewal Options: Your renewal options will be sent to you in advance of the maturity date. Review the options you have been offered. You may wish to discuss your options with your bank or mortgage broker.

2. ‘Business-for-Self’ Income: If you are ‘business for self’ or have ownership in a business, you may be asked to provide confirmation that HST and Source Deductions are being remitted to Revenue Canada.

3. Second Mortgages: If you have a second mortgage you may be asked to provide a current first mortgage statement. Most lenders will either send these out annually, or provide a way for you to access the information on their website or via online banking.

4. Income Verification: You may be asked for updated income verification. Gather or print your two most recent pay stubs, just in case you need them.

5. Appraisals: You may be asked for a new home appraisal. Appraisals always make note of any instances of deferred maintenance that are noted during the inspection. This is why keeping on top of projects around your home is so important.

Following these tips can ensure your mortgage renewal goes as smoothly as possible.

Register for Magenta’s back-end portal to access useful tools and forms today!

About Magenta Capital Corporation

Magenta is one of Canada’s leading residential, private MICs. Since 1994, we’ve specialized in flexible mortgage solutions for Ontarians who fall just outside of bank lending criteria, while delivering on strong, consistent returns for shareholders across Canada. Our goal is to empower our customers, partners and employees to build a better tomorrow.

For more information, visit www.magentacapital.ca.