Mortgages, Initial Costs & Financing

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Getting a Mortgage

Arranging a mortgage is your responsibilty. It is a good idea to obtain a mortgage pre-approval before you submit an offer. If you have not obtained mortgage pre-approval prior to submitting an offer, your agent may advise that you insert a condition on financing into the offer.

Once you have a signed offer, you should obtain a mortgage committment letter from your lender that specifies the principal amount, the interest rate, the term, and other features of your mortgage and send it to us. Your lender will send “mortgage instructions” to us giving us the details of how your mortgage is to be completed.

Mortgage Pre-Approval

It is a good idea to get pre-approved for a mortgage before you begin your search for a home.  Your lender will look at your financial situation and will figure out the amount of a mortgage that you can afford.  Your lender will give you confirmation of your approval and the interest rate at which they will charge you.  Remember, this is only for a set period of time.

Your Lender

Once your Offer to Purchase has been accepted, go to see your lender. Your lender will verify (and update, if necessary) your financial information and put together what’s needed to complete the mortgage application. Your lender may ask you to get a property appraisal, a land survey, or both. You may also be asked to get title insurance. Your lender will tell you about the various types of mortgages, terms, interest rates, amortization periods and, payment schedules available.

Depending on your down payment, you may have a conventional mortgage or a high-ratio mortgage.

Mortgage Term

Your lender will tell you about the term options for the mortgage. The term is the length of time that the mortgage contract conditions, including interest rate, will be fixed. The term can be from six months up to ten years. A longer term (for example, five years) lets you plan ahead. It also protects you from interest rate increases. Think carefully about the term that you want, and don’t be afraid to ask your lender to figure out the differences between a one, two, five-year (or longer) term mortgage.

Types of Mortgages

Conventional Mortgage

A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. The lending value is the property’s purchase price or market value — whichever is less. For a conventional mortgage, the down payment is at least 20% of the purchase price or market value.

High-ratio Mortgage

If your down payment is less than 20% of the home price, you will typically need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan insurance. CMHC is a major provider of mortgage loan insurance. Your lender may add the mortgage loan insurance premium to your mortgage or ask you to pay it in full upon closing.

Open or Closed Mortgage

An open mortgage allows you to pay off your mortgage in part or in full without any penalties at any time. Also, you have the option to renegotiate your mortgage at any time. There is more flexibility in an open mortgage, however it is at a higher interest rate.

A closed mortgage has less flexibility than an open mortgage. Some lenders may allow additional payments without penalty. A closed mortgage typically has a lower interest rate than an open mortgage.

Amoritization Period

Amoritization refers to the length of time that you will pay your mortgage off in. Typically, the longer the amoritization, the less the amount of your payments will be. However, keep in mind, the shorter the amortization, the higher your interest costs will be.

Mortgage Interest Rates

Mortgage interest rates are fixed, variable or adjustable.

Fixed Mortgage Interest Rate

A fixed mortgage interest rate is a locked-in rate that will not increase for the term of the mortgage. This rate is typically a higher rate.

Variable Mortgage Interest Rate

A variable rate fluctuates based on market conditions. The mortgage payment remains unchanged, rather the portion of your payment that goes towards your payment versus interest will change.

Adjustable Mortgage Interest Rate

With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions.

(source: CMHC)

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