Mortgages, including refinancings, equity take outs and home purchase loans, in Calgary and throughout Alberta have rules and requirements that are specific to our Province. Wading through the minefield is difficult at best.
At LeClair Thibeault we have a strong background in mortgage and refinancing issues that can be put to work for you. Understanding the process is vital to you making the most of prepayment options, avoiding penalties and maximizing your equity. By providing these answers to your FAQ’s we can help you wade through these issue.
These Questions and Answer are provided to you by LeClair Thibeault Barristers and Solicitors.
- What is an insured mortgage?
- Should I pay my property taxes through the mortgage company?
- What is the Interest Adjustment Date or IAD?
- I have a CMHC insured mortgage, should I let someone assume it in the future?
- How can I pay down my mortgage faster?
- Are there penalties if I payout or switch my closed mortgage?
When you borrow more than 75% of the appraised value of a home your new mortgage must be insured by either Canada Mortgage and Housing Corporation or GE Capital. Occassionally, financial institutions require insurance even though your new mortgage is less than 75% of the appraised value. Besides the insurance premium that you pay, an insured mortgage typically has unique terms on it that your real estate lawyer will discuss with you when you meet.
We typically recommend that you avoid this option. Though each city is different, most now have an option where you can pay your property taxes directly through the municipality via monthly payments. If you want to pay monthly, this is recommended route because most mortgage companies reserve the right to use the money accumulated in your tax account with them and apply it against the mortgage if you miss any payments.
Unlike rent, when you make a mortgage payment you are paying after the interest after it accumulates. The interest adjustment date is the date that the mortgage company first adjusts the interest due or the start date if you prefer. Your first payment is due after the first payment period after the IAD. So if you pay monthly, your first payment is a month after the IAD, etc. If your purchase closes before the IAD the mortgage company will simply collect from you the interest that will accumulate up to the IAD.
Because of the way in which Alberta law is currently structured, you can let someone assume your mortgage without them having to qualify. However, there is a clause in most every mortgage called a “Due on Sale” clause. The effect of this clause is to give the lender the right to demand immediate repayment if the property is sold or transferred. So, even though the law isn’t technically adverse to an assumption, the reality is that the mortgage is not automatically assumable and the Buyer will have to qualify to take it over. Please note however that even if the lender approves the assumption if your mortgage is CMHC insured you remain liable under that mortgage if the person who assumed it from you defaults in any of their obligations.
Typically, mortgages are either closed or open. An open mortgage can be paid out at any time that you want or you can simply pay extra money against the principal whenever you desire. A closed mortgage, however, has limitations and if you pay over and above what those limitations are you will most likely have to pay a penalty to the mortgage company.
If you payout or switch a closed mortgage before the end of the term there will be a mortgage payout penalty. This can add significant costs to your decision so you should confirm what the cost is before you take any steps that might impact you. This should also be a factor in your original choice as the prepayment rights change with every bank.