GLOSSARY    R

REFINANCE

A new mortgage that pays off the old mortgage(s) and may leave excess funds for use by the borrower.

You should talk to a mortgage broker if you are considering refinancing your mortgage. Issues to consider are: penalties, blended rate mortgages, current interest rates... and more!

RENEWAL

When your mortgage comes up for renewal at the end of every term always shop around - it could save you thousands of dollars! The best way to do this is to consult a mortgage broker about switching (also called transferring) your mortgage to another institution.

Your present lending institution will probably guarantee you an interest rate approximately 30 days (or less) before your renewal date, usually at current posted mortgage rates - either with no discount, or a small discount.
You will receive a form in the mail showing your current balance, the posted mortgage rates, and what your payments will be.

As long as you have been paying on time, the lending institution will usually renew your mortgage even if your circumstances have changed (e.g. you are presently unemployed).

If you switch your mortgage you can qualify for the extended rate guarantee time period of between 2 to 3 months, a great benefit if it looks like rates are going up.
Your mortgage broker will also be able to negotiate a rate discount for you.

  alphabetical index  |  return to top  |  site plan  

RENEWAL DATE

The renewal date (or maturity date) is the last day of the term of the current mortgage contract.  On, or before, this date the mortgage must be repaid in full,  renewed with the present lender,  or   switched to another lender.

RENEWAL FEES

Many lending institutions will charge you an 'administration fee' to renew your mortgage with them. This is disgusting considering how much interest you are paying them!
Most institutions will waive this fee if you complain.

If your payments have been on time you should also get a rate discount from your lender. Always shop around - it could save you thousands of dollars! The best way to do this is to consult a mortgage broker!
There are no legal fees involved in renewing a mortgage.

  alphabetical index  |  return to top  |  site plan  

RENT TO OWN / LEASE TO PURCHASE

Part of the rent you pay to the property owner becomes your equity when purchasing that property.

However, CMHC's rules are quite specific as to what they consider acceptable.

• The agreement to purchase must acknowledge that a portion of the rent includes a prepayment of equity on a monthly basis.
• The agreement must show the monthly payment of rent is an amount in excess of the current market rent for the property.
• The agreement should also contain at least a partial refund in the event the purchaser does not exercise their right to buy.

These transactions can be complicated and a lawyer should be consulted before signing. If property values decrease there is no guarantee the surplus rent will be accepted by a lender as equity, when eventually applying for a mortgage.

  alphabetical index  |  return to top  |  site plan  

RENTAL PROPERTIES

Lending requirements about the purchase of rental properties are almost as varied as the number of lending institutions. I would definitely discuss your present circumstances and the kind of rental property you would like to buy with your mortgage broker.

If you are looking to buy a house for you to move into, and it contains an ILLEGAL SUITE, some lenders will 'offset' a portion of the rent (e.g. 75%) to help you qualify to buy the property.

If the suite is LEGAL some lenders will allow you to 'offset' the whole rental income from your mortgage payments. Other lenders will only add the rental income to your total income - so they are only using 32% of the rent to help you qualify.

If you are considering buying separate rental property then there are generally two ways to consider whether you qualify.
First - You own your present house, you want to rent it out and buy another house for you to move into.
Second - You own your present house and want to remain living in it plus you wish to purchase a rental property.

With the first scenario, you need to qualify for the new house under the 'normal rules' - the amount of equity available; GDS of 32% and TDS of 40% of your total income. If you currently have a mortgage on your existing home then the 'proposed' rental must cover those payments and expenses.

With the second scenario, your excess income (after the mortgage on your house plus other liabilities are deducted) plus a portion (usually 50% to 70%) of the proposed income are used to calculate your maximum purchase price. This usually qualifies you for a smaller mortgage than the first scenario.

If you have less than 15% equity to invest in the rental property, you will need to insure it under CMHC.
Some of CMHC requirements are:

• Loan to value may not exceed 85%
• The underwriting fee for 1 to 4 units is $600 payable with application
• insurance premiums are much higher than normal purchase premiums and are due when mortgage funds are advanced (premiums may be added to the mortgage loan)
  • up to 65%    1.75
  • up to 70%    2.00
  • up to 75%    2.25
  • up to 80%    3.50
  • up to 85%    4.50
• The borrower should have a net worth at least equal to 25% of the loan with a minimum of $100,000 though flexibility as to the minimum net worth can be applied

  alphabetical index  |  return to top  |  site plan  

RISK

When lending money a financial institution evaluates the potential risk involved in not being repaid. With a first mortgage the risk is minimized because the mortgage amount is either less than 75% of the appraised value of the property, or the mortgage is insured if the loan exceeds 75%.

ROLL OVER MORTGAGE

When your mortgage comes up for renewal you will receive some papers from your lending institution. If you do not return your papers on time, the lender must do something with the balance you owe because your term has run out. If you do not notify the lender, they are entitled to 'payment in full.'

In some cases the lender will renew for a 6 month term until they hear from you. In other cases the contract allows the lender to constantly repeat your original term until you notify them differently.

  alphabetical index  |  return to top  |  site plan