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Understanding and negotiating a mortgage for your first home can be an intimidating experience. It can also be expensive and can affect your lifestyle for years to come if you don't understand the terms and conditions associated with the wide variety of mortgage programs and sources. The following is a brief explanation of some of the things you need to know. For more complete information and free professional assistance, contact me and I will put you in touch with some of the best mortgage professionals. Types All mortgages are of two basic types. Conventional: Insured or High Ratio: Costs For a conventional loan, the purchaser is required to pay for a property appraisal at an approximate cost of $250 plus GST, depending on the type and size of the home. For a high-ratio mortgage, Canada Mortgage & Housing Corporation (C.M.H.C.) carries out its own assessment of risk, which may or may not include a property appraisal at a cost of approximately $235. Under Canadian law, an insured lender can not provide first mortgage financing in excess of 80% of the purchase price unless the mortgage is insured. Lenders are also more confident in making loans of up to 100% of the value of the property when borrowers obtain mortgage loan insurance. The cost of mortgage loan insurance ranges from 1/2 % to 3 3/4% of the mortgage amount, depending on the ratio of the loan to the value of the property. Like auto insurance, the higher the risk (a low down payment), the higher the premium. The insurance cost can be added to your total mortgage loan or can be paid in a lump sum at the time of purchase. What is a pre-approved mortgage? Pre-qualification means having your mortgage lender calculate the amount of a mortgage that you can comfortably afford given your income and other debts. Pre-approval requires you to complete an application. Then your credit rating will be reviewed by the lender. Why do I need a pre-approved mortgage? A pre-approved mortgage gives you peace of mind when you are shopping for a home. First, it provides a guideline for the price range of home that you should be considering. A lot of time and opportunity can be wasted if you're looking at homes that are higher or lower priced than you can comfortably afford. Pre-approval also guarantees your interest rate for a specified period of time. This can protect you from fluctuations in the rates during your pre-approval period. A higher interest rate means higher payments or a decrease in the price of home for which you can qualify. Finally, when you're ready to place an offer on a home a pre-approved mortgage provides you with greater strength in negotiating.
Mortgage Terms and ConditionsOpen/Closed Mortgages An open mortgage lets you pay off as much of the principal as you want at anytime without penalty. A closed mortgage locks you into a specific payment schedule with a penalty applied if you wish to repay the loan in full before the end of the term. A closed mortgage usually offers a lower interest rate for the same term. Fixed/Variable Interest rates A fixed rate mortgage allows you to budget precisely for whatever term you select, while a variable rate allows you to speculate during a fluctuating market hoping for a lower average rate. Term This is the length of time for which the interest rate on your mortgage is fixed. At the end of the term, the outstanding mortgage can either be paid in full or renewed for another term at the prevailing rate. Prepayment Privileges An amortization period (the time it takes you to pay off the total mortgage) can range from one to forty years. The longer the amortization period, the more interest you end up paying. Prepayment privileges vary with the financial institution. The prepayments are deducted from the principal owing and can substantially reduce the amortization period and the total interest paid. Weekly/Bi-weekly payments Accelerated bi-weekly payments are calculated to allow you to make 26 payments per year instead of 12 monthly payments. This results in a huge interest savings and lets you pay off your mortgage sooner. Portability If you purchase another property, you can take your mortgage with you to help finance your new home. If you would like more information, please call me at 519-673-3390 or e-mail me. You can also find useful information regarding
mortgages and current mortgage rates at:
I would be very pleased to help you with any questions or concerns you have about buying a home, either now, or in the future so please contact me.
Contact Kathy
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