|Variable Rate Mortgage|
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Definition of Variable Rate Mortgage
Variable Rate Mortgage
A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage.
An insured mortgage protects only the mortgage lender in case you do not make your mortgage payments. This coverage is provided by CMHC [Canada mortgage and Housing Corporation] and is required if a person has a high-ratio mortgage. [A mortgage is high-ratio if the amount borrowed is more than 75% of the purchase price or appraised value, whichever is less.]
Commonly sold in the form of reducing term life insurance by lending institutions, this is life insurance with a death benefit reducing to zero over a specific period of time, usually 20 to 25 years. In most instances, the cost of coverage remains level, while the death benefit continues to decline. Re-stated, the cost of this kind of insurance is actually increasing since less death benefit is paid as the outstanding mortgage balance decreases while the cost remains the same. Lending institutions are the most popular sources for this kind of coverage because it is usually sold during the purchase of a new mortgage. The untrained institution mortgage sales person often gives the impression that this is the only place mortgage insurance can be purchased but it is more efficiently purchased at a lower cost and with more flexibility, directly from traditional life insurance companies. No matter where it is purchased, the reducing term insurance death benefit reduces over a set period of years. Most consumers are up-sizing their residences, not down-sizing, so it is likely that more coverage is required as years pass, rather than less coverage.
As non-smoking rates caused a major reduction in the cost of life insurance in the early 1980's, the emergence of preferred non-smoker rates in 1998 has caused another noteworthy reduction in rates. A growing number of insurance companies are offering better rates which go beyond simply looking at gender or smoking habits. Other health related factors such as physical build, lifestyle, avocation and personal and family health history indicating longer life expectancy can add up to significant cost savings to new life insurance applicants. Make certain to ask about these new preferred rates.
rate charged or paid for the use of money, normally expressed as a percentage
The death rates for various age groups of the population.
Decreasing term life insurance that provides a death benefit amount corresponding to the decreasing amount owed on a mortgage.
An agreement between a creditor and a borrower, where the creditor has loaned an amount to the borrower for purposes of purchasing a loan secured by a home.
A form of annuity policy under which the amount of each benefit is not guaranteed or specified. The amounts fluctuate according to the earnings of a separate investment account.
The National Housing Act (NHA) authorized Canada mortgage and Housing Corporation (CMHC) to operate a mortgage Insurance Fund which protects NHA Approved Lenders from losses resulting from borrower default.
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.
A mortgage that does not exceed 80% of the purchase price of the home. mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages (see below).
A mortgage for which the rate of interest is fixed for a specific period of time (the term).
If you don't have 20% of the lesser of the purchase price or appraised value of the property, your mortgage must be insured against payment default by a mortgage Insurer, such as CMHC.
An IRD amount is a compensation charge that may apply if you pay off your mortgage principal prior to the maturity date or pay the mortgage principal down beyond the prepayment privilege amount. The IRD amount is calculated on the amount being prepaid using an interest rate equal to the difference between your existing mortgage interest rate and the interest rate that we can now charge when re-lending the funds for the remaining term of the mortgage. For more information, click on compensation amounts.
mortgage Critical Illness Insurance is available as an enhancement to mortgage Life Insurance. It is usually underwritten by the Assurance Company. Complete details of benefits, exclusions and limitations are contained in the Certificate of Insurance. It is recommended for all mortgagors. It can pay off your mortgage -- up predefined limit -- if you are diagnosed with life-threatening cancer, heart attack or stroke.
Mortgagee and Mortgagor
The lender is the mortgagee and the borrower is the mortgagor.
Mortgage Life Insurance
A form of reducing term insurance recommended for all mortgagors. If you die, have a terminal illness, or suffer an accident, the insurance can pay the balance owing on the mortgage. The intent is to protect survivors from the loss of their homes.
The number of years or months over which you pay a specified interest rate. Terms usually range from six months to 10 years.
A mortgage which can be prepaid at any time, without penalty.
An independent individual (or company) who brings together borrowers and lenders together. Unlike a mortgage banker, a mortgage broker does not fund the loan. Instead, the broker originates and processes the loan, and places it with a funding source, such as a bank or thrift. Brokers typically require a fee or a commission for their services.
Private Mortgage Insurance (PMI)
Insurance that protects mortgage lenders against default on loans by providing a way for mortgage companies to recoup the costs of foreclosure. PMI is usually required if the down payment is less than 20 percent of the sale price. Home buyers pay for the coverage in monthly installments. PMI should be terminated when the home buyer has built up 20 percent equity in the property.
Annual Percentage Rate (APR)
Annual cost of credit over the life of a loan, including interest, service charges, points, loan fees, mortgage insurance, and other items.
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