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Understand Mortgage Basics
By understanding these basic mortgage concepts, you’ll be better able to tailor your mortgage to your specific needs.
Variable and Fixed Rate Mortgages
From the security of a fixed rate mortgage to the flexibility of a variable rate mortgage, you have several choices when it comes to interest rates.
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Mortgage Amortization
Choosing the length of your amortization period, which means the number of years you will need to pay off your mortgage, is an important decision that can affect how much interest you pay over the life of your mortgage.
Read More about Mortgage AmortizationMortgage Rates
Your mortgage rate can have a big impact on your monthly mortgage costs. Rates will vary depending on the length of your mortgage term and the type of mortgage you select.
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Related Articles
How you can manage higher mortgage payments
As interest rates remain elevated, we have resources to help you manage the possibility of higher mortgage payments.
What you need to know when renewing your variable rate mortgage in a rising rate environment
Variable Rate Mortgage
Renewing Your Variable Rate Mortgage
In this video we're going to talk about what happens to your mortgage payments when you renew your variable rate mortgage during a time when interest rates are rising. And, we'll cover some of the options you have for managing those payments. First, let's talk about what happens when you renew your mortgage. Your mortgage comes up for renewal when your mortgage term ends. The term refers to how long your rate is set for. Amortization, which is another part of your mortgage, is the total length of time it takes to pay off your mortgage in full. Say you originally chose a 5 year term and 25 year amortization. When your mortgage first comes up for renewal at the end of 5 years, there would be 20 years left on the amortization. At renewal, you will choose a new term at mortgage rates available at that time. This term, along with your new rate, mortgage balance and remaining amortization are all used to calculate your new payment amount. Now, if your mortgage is coming up for renewal in a rising interest rate environment, your new mortgage payment could be higher than what you pay now. How much higher will depend on a few factors but some of the key ones include: Your current mortgage type - whether it is fixed or variable. And your new interest rate. If you have a variable rate mortgage, your interest rate may have already increased during your term. As a result, during at least some of the term, more of your payment would have been applied to cover your interest and less to paying down the principal. This means your principal balance is being paid down at a slower pace than it otherwise would have been had interest rates not changed. Consequently, your principal balance at the time of renewal will be higher than it would have been had interest rates stayed the same. Let's say your variable interest rate increased from 2% to 4% in year 4 and 5 of your mortgage, which means that more of your payment has gone to paying the interest versus paying down your principal over these years. At the time of renewal, the interest rate rises further to 5%. If you started with a $478,000 mortgage with 25 year amortization, your remaining principal after 5 years would be $17,348 higher than if the rates didn't change during the term. And, your monthly payment would increase from $2,026 to $2,758 upon renewal. Nobody likes to see payments increase. Fortunately, there are a few steps you can take to help lower your payment before it's time to renew. You can make a lump sum payment; you can Double Up your payments; or you can increase your regular mortgage payment. Any of these actions can help reduce your principal balance and help lower the impact of a higher payment at renewal.In addition to these options, there may be other ways to manage your mortgage payments, depending on your personal circumstances. Some clients may be eligible to increase their amortization to help lower the payment amount. We can help you take steps to manage your cash flow and your mortgage. Talk to an RBC advisor today!
What you need to know when renewing your fixed rate mortgage in a rising rate environment
Fixed Rate Mortgage
Renewing Your Fixed Rate Mortgage
In this video, we're going to talk about what happens to your mortgage payments when you renew your fixed rate mortgage during a time when interest rates are rising. And, we'll cover some of the options you have for managing those payments. First, let's talk about what happens when you renew your mortgage. Your mortgage comes up for renewal when your mortgage term ends. The term refers to how long your rate is set for. Amortization, which is another part of your mortgage, is the total length of time it takes to pay off your mortgage in full. Say you originally chose a 5 year term and 25 year amortization. When your mortgage first comes up for renewal at the end of 5 years, there would be 20 years left on the amortization. At renewal, you will choose a new term at mortgage rates available at that time. This term, along with your new rate, mortgage balance and remaining amortization are all used to calculate your new payment amount. Now, if your mortgage is coming up for renewal in a rising interest rate environment, your new mortgage payment could be higher than what you pay now. How much higher will depend on a few factors but some of the key ones include: Your current mortgage type - whether it is fixed or variable And your new interest rate. When you have a fixed rate mortgage, the higher payment could be due to the higher interest rate you are renewing at, compared to the interest rate you had before your renewal. Let's look at an example where you start with a $478,000 mortgage and a 25 year amortization. After 5 years, your fixed rate increases from 2% to 5%. As a result, your monthly payment would increase from $2,024 to $2,631. Nobody likes to see payments go up. Fortunately, there are a few steps you can take to help lower your monthly mortgage payment before it's time to renew. You can make a lump sum payment; you can Double Up your payments; or you can increase your regular mortgage payment. Any of these actions can help reduce your principal balance and help lower the impact of a higher payment at renewal. In addition to these options, there may be other ways to manage your mortgage payments, depending on your personal circumstances. Some clients may be eligible to increase their amortization period to help lower the payment amount. We can help you take steps to manage your cash flow and your mortgage. Talk to an RBC advisor today!
Traditional and Collateral Mortgages
Find out the differences between traditional and collateral mortgages and decide what is right for you.
Mortgage Basics: Open or Closed Mortgages
Closed, Open and Convertible Mortgages
There are many factors to consider such as your financial goals and how soon you want to pay off your mortgage.
Protect all that you’ve acquired
Buying a home is a tremendous achievement. It’s also one of the biggest…
Protect your mortgage with insurance
Variable and Fixed Rate Mortgages
Variable and Fixed Rate Mortgages
When it comes to mortgage rate types, you have two main choices: fixed rate and variable rate. With a fixed rate mortgage, your interest rate is locked in - or fixed - for the term of your mortgage and your payment amount will stay the same for the entire term. Because the interest rate does not change throughout the term you know in advance the amount of interest you will pay and how much you will owe at the end of your term.
With a variable rate mortgage, the interest rate will fluctuate with the prime rate set by your bank. A variable rate will be quoted as prime plus or minus a certain amount. Your payments will still stay the same for the entire term, but if interest rates go down, more of your payment will go towards paying down the principal. If they go up, more of your payment goes to paying interest. Because the interest rate changes throughout the term, it is not possible to know in advance how much interest you will pay and how much principal you will owe at the end of the term. It's also important to be aware that your regular mortgage payment may be adjusted if the amount of your variable payment is not enough to cover the monthly interest on your principal.
And you can convert your variable rate closed mortgage to a fixed rate closed mortgage that has a term equal to or longer than the remaining term of your existing mortgage at any time during your term -- without additional cost.
For most people, the type of rate selected often depends on their comfort level with risk and their expectation as to whether rates will increase or decrease over their mortgage term. Fixed rate mortgages are a good choice if you expect interest rates to rise during the term and you want to lock in a lower interest rate now. Variable rates are good if you are confident that interest rates will remain stable or that the average of the variable interest rate over your term will be lower than the fixed rate you would have paid. Some people prefer the potential money-saving opportunities that may come with variable rates, while others want the stability of a fixed rate.
Talk to your RBC mortgage specialist for personal advice about the best mortgage rate type for you.
Mortgage Amortization
Mortgage Basics: Understanding Amortization
When you apply for a mortgage, you'll need to decide how long your amortization period will be - this is the number of years it will take you to pay off your mortgage in full. If your down payment is 20% of the purchase price of the property or more, you can choose up to a 30-year amortization. If you are putting down less than 20%, the maximum allowable amortization period drops to 25 years - and you'll also need mortgage default insurance.
You can consider a shorter amortization if your goal is to pay off your mortgage faster. With a shorter amortization you'll save money because you'll pay less interest over the life of the mortgage. The trade-off here is that your regular mortgage payment will be higher. On the other hand, with a longer amortization, your payments will be lower, but it will take longer to pay off your mortgage, and your total interest expense will be greater. It really comes down to balancing what you're comfortable with from a payment perspective with what your goal is for the amount of time it will take to pay your mortgage off.
Here's an example: A mortgage of $200,000 at an average fixed rate of 5%, and a 30-year amortization, will have a $1,067 monthly payment, and you will pay $184,253 in interest over the 30-year period. If you shrink your amortization period to 25 years, your monthly payment is higher at $1,163, but your total interest expense will shrink to $148,962 - you'll be saving $35,291.
You may choose a 25 or 30-year amortization to start with, but it's a good idea to take advantage of prepayment options that allow you to pay off your mortgage faster. Even a few small changes can make a big difference in the amount of time it takes to pay off your mortgage and the amount you pay in interest. A few options to consider are: increasing your regular payment amount, choosing an accelerated payment frequency, or making annual lump sum payments. All of the extra funds will go towards reducing your principal so you'll be mortgage free faster. Every bit helps - because let's face it, nobody wants to be paying a mortgage forever.
To find the best solution for you, talk to an RBC Mortgage Specialist today.
Mortgage Basics: All About Rates
Mortgage Basics: All About Rates
When you're buying your first home, you're likely focused on the price of the property and getting the biggest down payment together. But your mortgage rate is another factor that can have a big impact on your monthly mortgage costs. Rates will vary depending on the length of your mortgage term and the type of mortgage you select.
The term is the length of time you agree to a specific interest rate and payment amount. Mortgage terms range from 6 months to 25 years, and generally move up or down in relation to the term length chosen. A 1-year term will typically have a lower interest rate than a 5 or 10-year term, so you need to think about the rate and term combination that you're most comfortable with.
The mortgage type is the other important factor to consider - specifically, whether you want a fixed rate or a variable rate? With a fixed rate, your interest rate is locked in for the term of your mortgage -- and you will know exactly how much of your payment is going to principal and to interest. With a variable rate the interest will change with the prime rate set by your bank but your regular payment will stay the same during the term -- it won't be possible to know in advance how much interest you will pay and the principal amount you will owe at the end of the term.
No matter which mortgage type you choose, it's important to remember that rates can go up, and even a percentage or two can make a difference to your payments. For example, say you have a $200,000 mortgage, a 25-year amortization period and a fixed-rate, 5-year term. At 5%, your monthly mortgage payment will be $1,163. But say after the 5 years is up, the going rate is 6% - that takes your mortgage payment to $1,261. If it climbs to 7%, your payment becomes $1,362. It's a good idea to consider how this might impact your overall budget.
Your RBC Mortgage Specialist can help you decide which mortgage option best fits your needs.
Mortgage Basics: Open or Closed Mortgages
Open or closed? What's best for you as a first-time buyer?
A decision you'll need to make is whether to go with an open or a closed mortgage term? This decision comes down to weighing your need for flexibility against possible cost considerations.
If you are planning to stay in your home for several years, a closed term mortgage may be a great choice. Interest rates are generally lower than with open term mortgages - helping you to save on interest costs and pay off your mortgage faster. If you choose a closed mortgage, and decide to pay off the outstanding balance that you owe before you reach the end of the term - you will pay what's called a "prepayment charge". A prepayment charge is also charged if you decide you want to pay off more than your closed term mortgage allows in a given year.
An open mortgage can be paid off in part or full at any time without any prepayment charge. As well, an open mortgage can be converted to another interest term at any time without incurring added costs. Because of this added flexibility, interest rates on open mortgages tend to be higher than closed mortgages of the same term and type.
It really comes down to what's important for you - the complete flexibility that comes with an open mortgage, or the lower interest rate that may come with a closed mortgage.
Talk to your RBC mortgage specialist to learn more and to find out what option best meets your unique situation.
Protect your mortgage with insurance
Protect Your Home with Insurance
Your home. It's where you relax, entertain, build memories and live your everyday life.
Have you thought about protecting all you've achieved in case the unexpected happens? Having insurance on your mortgage can provide a financial safety net when you and your family need it most.
HomeProtector insurance from RBC Royal Bank let's you choose from three different coverage options.
You can combine critical illness coverage with life insurance. Should you suffer a stroke, heart attack, or be diagnosed with a life-threatening cancer critical illness coverage pays a lump sum to the outstanding balance of your mortgage, up to a maximum of $300,000.
Or you can choose to combine disability insurance with your life coverage.
Disability insurance is designed to help protect your cash flow should you suffer an illness or injury and be unable to work. It can maintain your regular mortgage payments to a maximum of $3000 per month for up to 24 months - so you can concentrate on your recovery, instead of worrying about keeping up with your mortgage payments.
You can also opt for life insurance coverage only. Should you pass away, the life coverage pays off or reduces the outstanding balance of your mortgage, up to a maximum of $750,000 - helping to reduce your family's financial burden.
Your home is likely the biggest purchase you'll make in your life - and you worked hard to buy it. During what could be a difficult time for you or your family, HomeProtector insurance can protect your home, your family and your lifestyle - allowing you and your family to focus your energies on caring for each other.
Applying is fast and easy. Speak with your RBC mortgage specialist today, call us at 1-800-769-25231-800-769-2523 or visit a branch near you.