mortgage 

This post covers standard mortgage types and associated terms. Each bank, credit union and private lender may also offer their own specialized mortgages and terms.

 Brought to you by: Kristen White
 

Term

The period of time your mortgage agreement will be in effect, including your interest rate and terms and conditions. At the end of the term, you either pay off the mortgage in full, renew it or possibly renegotiate your mortgage agreement (for example, decrease your amortization period). Terms are generally for six months to 10 years.

Prepayment Charge / Penalty

Your lender may require you to pay a charge if you want to make a prepayment greater than the amount allowed in your mortgage agreement, or pay off or break a closed mortgage before the end of the term. Sometimes also called a penalty. Prepayment Privilege Terms of your mortgage contract that allow you to pay an amount toward a closed mortgage on top of your regular payments, without triggering a prepayment charge. For example, you may be allowed to make lump-sum payments up to a certain amount or increase the amount of your regular mortgage payments.

Prepayment Penalty

A fee charged to you by the lender for making a prepayment greater than the amount allowed in your mortgage agreement, or for paying off a closed mortgage before the end of the term.

Open Mortgage

A mortgage that can be prepaid at any time during the term, without paying a prepayment charge. The interest rate on an open mortgage may be higher than on a closed mortgage with a similar term.

Closed Mortgage

A mortgage agreement that cannot be changed before the end of the term. Your lender may let you make certain prepayments without paying a charge, but you will usually have to pay a charge to break or change your mortgage agreement.

We buy homes in British Columbia

 Should You Break Your Current Mortgage Contract to Take  Advantage of a Lower Interest Rate?

 By: RBC Advisory Services
With rates these days at historical lows, you may be wondering if it is  the right time to break your current mortgage and lock into a new term to take advantage of these low interest rates. Remember that if you have a closed mortgage, you will incur what is called a pre-payment charge.

Why do banks charge a penalty to do this?

Lenders incur significant sales, underwriting and funding costs to issue and renew mortgages.  Mortgage rates are designed to recoup these costs over the contractual mortgage term. Most of today's mortgages are 'closed' which, for similar terms, tend to have lower rates than open mortgages.  The lower rates are in large part due to the fact that there are prepayment charges which are designed to compensate the lender for the economic costs it incurs when a prepayment amount exceeds the prepayment privileges permitted under the mortgage.  These costs include prepayment transaction costs, plus the fact the lender will not receive the full term amount of interest that was designed, in part, to recover the lender’s costs to acquire the mortgage. In contrast, you can pay off an open mortgage at any time without penalty. However, rates tend to be higher than for closed mortgages with similar terms.
By: Gabor Palos - D&H Group LLP, Chartered Accountants

Owners of residential rental properties often spend significant money on the maintenance and improvement of their investments. And they often wonder whether they can deduct these expenditures on their income tax returns.

The answer is: it depends! The tax rule says that the cost of maintenance is deductible, but capital expenditures are not. How to tell the difference? Well, the difference is not always obvious and for that reason this area is the subject of frequent controversy between taxpayers and the Canada Revenue Agency (CRA). hammerMinor repairs and routine maintenance are considered “current expenses” and are deductible when incurred. A current expense simply restores the property to its original state, and has little or no long- term effect. These expenses usually recur after a relatively short period of time. On the other hand, renovations that extend the useful life of the property and improve it beyond its original condition are considered “capital expenditures” and are not deductible when they are incurred. Instead, these expenditures may be deducted in small portions over time by claiming “capital cost allowance” (tax depreciation).