Selecting the Right Mortgage
Choices in selecting a mortgage include:
Conventional vs. high-ratio or insured mortgages
A conventional mortgage is a mortgage that has a principal amount that is no more than 80% of the appraised value or purchase price of the property, whichever is less. The principal amount of a high-ratio or insured mortgage is usually more than 80% of the appraised value or purchase price. An insured or high-ratio mortgage may also be referred to as an NHA mortgage because it may be entered under the provisions of the National Housing Act and in many cases must, by law, be insured. In general, the borrower pays the insurance premium as well as application, legal, and property appraisal fees.
Closed vs. open mortgages
Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without paying a prepayment charge.
Short term vs. long term
The term you select is important, too. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This may be especially important for first time homebuyers.
Fixed rate vs. variable rate
You can choose a fixed or variable interest rate. A fixed rate mortgage makes it easier for you to budget for whatever term you select. A variable rate mortgage fluctuates with the market. Specialty mortgages creatively combine the best of all worlds. Your Mortgage Centre specialist can help you select the options that are best for you. Applying For Your Mortgage – A Checklist of some things you will need When applying for a mortgage, you will need:
- A copy of the accepted Offer To Purchase and the land survey.
- A salary letter from your employer (self-employed buyers may require financial statements for the past three years as well as personal income tax returns).
- Confirmation that your down payment came from your own resources (e.g. bank statements or a gift letter).
- A list of all your assets and debts along with account numbers.
- A copy of the Real Estate Listing if buying an existing home.
- Condominium financial statements, if applicable.
- If you are buying a home to be constructed, bring a picture of the property, a copy of the building plans and specifications, the land survey, plus your agreement with the builder.
Your Mortgage Centre specialist can help you determine how much you can afford, obtain a pre-qualified approval, and select the mortgage that’s right for you. This allows you to act quickly when you find the home you want. After your real estate agent draws up an Offer To Purchase between you and the vendor, contact your mortgage broker. Your deal is almost complete!
Before You Sign the Offer
Select a lawyer as you’d select a real estate agent: seek competitive fees, excellent service, knowledge, and approachability – in other words, value. Involve your lawyer before you sign the offer, which becomes a legal Agreement of Purchase and Sale once you and the seller sign it. Have your lawyer read the document carefully and review it with you. Once it’s signed and accepted, your lawyer will order a series of searches from various municipal offices to ensure that the vendors haven’t been sued, that they’ve paid all of their property taxes and major utility bills, and that there are no outstanding mortgages or liens on the property once you become the owner. Your lawyer will also draft a series of closing documents and review the closing documents drafted by the vendor’s lawyer. Your lender and lawyer will co-ordinate and draft the appropriate documents. Your lawyer should disclose whether he/she is representing the lender as well. Your lawyer will notify the property tax offices as well as the utility offices that you will be the new owner as of the closing day. A few days before closing, you’ll visit your lawyer’s office to sign the closing documents. Bring a certified cheque for the balance of the closing funds, because the lawyer pays the relevant parties on your behalf. Part of that amount covers the lawyer’s fee and disbursement costs. The lawyer obtains the mortgage funds directly from the lender funding your mortgage.
On Closing Day
Your lawyer will close the transaction with the vendor’s lawyer. At this time, the balance of the purchase price will be exchanged for the keys to your home and closing documents will be exchanged. Your lawyer will register the deed or title transfer and the mortgage. Finally, you pick up the keys to your new home! After closing, your lawyer will send you a reporting letter and copies of all the documents you signed including the deed, the mortgage, and the survey, as well as a summary of the flow of funds. Be sure to keep these important records in a secure location.
Mortgage Life Insurance
It’s a sound idea to seriously consider mortgage life insurance. Generally, the cost is low and can be incorporated into your mortgage payments. In the event of death, terminal illness, or permanent disability, your balance will be paid in full (because details vary among financial institutions, it’s a good idea to read the policy carefully). Quotes are available with each approved mortgage.
Financial institutions vary in their prepayment privileges, which let you pay down your mortgage faster. Your Mortgage Centre specialist can discuss your prepayment options with you, based on the mortgage you select. Also be aware that the longer the amortization period (the time it takes to pay off a mortgage), the more interest you’ll end up paying. Amortization periods usually range from 5 to 25 years. Weekly or biweekly instead of monthly payments could shave a considerable amount on your overall mortgage interest payments, depending on current interest rates. Another option to consider is portability, which may help to ensure that you have financing if you sell your original home and purchase a new one. You may also wish to consider whether, if you sell your home, your mortgage may be assumed by the buyer. This can be a major advantage if your mortgage rate is below current market rates.
Your house is like a savings account. Start making convenient withdrawals!