MORTGAGE Blog & ARTICLES
MORTGAGE: Simple and Basics
Every first-time home buyer needs advice. Purchasing your home is not as complicated as it may seem, but there are things you need to know about the mortgage process.
1. Down payment: every financial institution requires you to make a down payment on a home purchase. Even “no down payment” mortgages do, in fact, require a down payment. Where the money comes from for the down payment is the issue. The smallest down payment a purchaser can make is 5% of the purchase price. The money for this down payment can be: cash you have saved, RRSP’s, a gift of cash, or borrowed. What “no down payment” means is the financial institution lends you the money or gives it to you in some form of “cash back” payment. These types of mortgages usually involve large fees, higher rates, and not everyone can qualify for them.
High Ratio mortgages, which require a minimum of 5% down and are insured by one of three mortgage insurers (Canada Guaranty, Genworth Financial or CMHC). There is an insurance premium (plus HST) – payable to the mortgage insurer, not to the bank or lender – and an insurance premium, which can be added right onto your mortgage amount and calculated into your regular payments. Please note that lenders do not charge a higher rate for High Ratio mortgages. In most cases because mortgages are insured, rates can be lower.
If you can provide 20% of the purchase price, your mortgage will be a Conventional mortgage, with no outside fees or premiums.
2. Appraisal: every mortgage lender will require a current appraisal of the property you are purchasing. With a conventional mortgage, the bank or lender orders the appraisal for you but you pay the fee. With High-Ratio mortgages, the mortgage insurer does their own appraisal and the fee is included in your insurance premium fee.
3. Registration: When first purchasing a property, the bank or lender requires you to choose a lawyer in order to perform title searches to protect our interest in your mortgage loan and to make all necessary registrations on the property. Lawyers charge their own fees for services rendered in ensuring that your title to the property you wish to purchase is properly registered. Please contact your lawyer of choice to find out how much they charge for their services. If refinancing your current mortgage or transferring into a new bank or lender, lenders will use a company called First Canadian Title (FCT) to make the appropriate searches and registration. Their fees are substantially lower compared to lawyer’s fees. It’s just another way that lenders hope to save you money.
4. Mortgage Application: as with any loan, we need a completed application from you along with any supplemental documentation, such as confirmation of income and a copy of your purchase agreement (“Agreement of Purchase and Sale”).
5. Terms: once your mortgage has been approved, you need to decide what “terms” you would like. Banks and lenders usually offer two types of mortgage terms:
- VARIABLE RATE: which have flexible repayment terms and a fluctuating rate.
- FIXED RATE: where you choose a rate to “lock in” to for a specific period of time, and which are restricted to a fixed repayment amount but allow you to increase that amount by 10-20% each calendar year AND/OR make an annual lump-sum principal payment of 10-20% of your original mortgage amount.
Lenders and Banks also offer the following mortgage-related loans:
Bridge Loan: if you have SOLD your home and have PURCHASED another, but your sale date is AFTER your purchase date and you temporarily need money to close the purchase of your new home, you need a Bridge Loan. Bring us your signed, unconditional offers for the sale AND the purchase, and we can help you “bridge” the gap between the two.
Interim Financing: if you would like to PURCHASE a new home but have NOT SOLD your current home, you may qualify for Interim Financing. This loan is secured by your current home and is paid off with the eventual sale of it. We will need a copy of your Purchase Agreement and all documentation needed for a typical mortgage application.
Refinancing: instead of taking out a loan or using your credit cards for a large purchase or renovation project, you can Refinance your current mortgage. You go through the same steps as with your first mortgage, but you add money to the existing balance. A new appraisal may be required and you will have to use a lawyer or First Canadian Title (FCT) to keep the legal end clean, but you can take advantage of a better rate (vs. loans and credit cards) and one simple payment to take care of your expenses.
Mortgage Pre-approval: if you’re just shopping for a home and want to know the mortgage amount you are eligible for, bring us a confirmation of your income, how much of a downpayment you intend to make and we’ll help you come up with a reasonable purchase price. Once you have signed a purchase agreement, your information will be re-evaluated and the regular mortgage approval process will commence.
If you have any questions or inquiries please contact 1-888-882-0786 (toll free) for assistance.
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