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There are 2 Types of Mortgages
1. Conventional Mortgage
With a conventional mortgage the purchaser has to have saved at least 25%
of the purchase price as a down payment. You are allowed to borrow up to
75% of the purchase price or the appraised value of the property,
whichever is less. Whenever a mortgage exceeds 75% of the value of the
property it must be insured, thus becoming a high-ratio mortgage
2. Insured or High-Ratio Mortgage
With a high-ratio mortgage the purchaser has less than a 25% down payment.
These mortgages are often referred to as NHA mortgages because they are
granted under the provisions of the National Housing Act. You can borrow
up to 95% of either the purchase price or the appraised value of the
property (whichever is less) but are required by law to insure the
mortgage and pay a one-time insurance premium based on the total value of
the mortgage. For insurance you can either use the Canada Mortgage and
Housing Corporation (CMHC) or a government approved private insurer.
Mortgage loan insurance premiums range from 1.25% to 3.75%, depending upon
the size of the down payment.
Basically, a mortgage is a promise you give to a lender, which he uses
to grant funds sufficient enough to purchase a property. The property
itself is used as security to ensure repayment. Title or deed to the
property is held by the lender for the life of the mortgage loan.
Mortgage Features
Lenders constantly add additional features and incentives to their
mortgage products to attract business in what is a highly competitive
market. You should look for the mortgage that best suits both your cash
flow and your personal long-term goals. There are many types of mortgage
payment structures available, offering both flexible monthly payments and
pre-payment options that can save you significant amounts of money over
the long term. It is definitely worth looking into your options before
signing up. Most mortgages are very similar to one another and have these
common features
- Portability:
You can sell your home and move the mortgage to another property
without breaking it and having to pay a penalty. This feature is very
attractive if your mortgage has a good interest rate and you want to
take it with you to your new home.
- Assumability:
The new purchaser can take over your mortgage and assume the payments.
Usually the lender's approval is required before this is allowed.
- Pre-payment privileges:
Such as up to 10% extra payment against the principle on the yearly
anniversary date or monthly double-up payments. All prepayments are
deducted from the principal amount owing and do not go toward accrued
interest.
- Automatic renewal privileges:
You don't need to re-qualify financially when the mortgage term is up
in order to renew the mortgage. This could be very important if your
financial situation changed or if your debt load increased and you
don't re-qualify under current rules.
Allow weekly, bi-weekly or monthly payments:
By switching your payment schedule from monthly to weekly or biweekly you
are able to shorten the mortgage amortization period and save a
substantial amount on interest payments.
Amortization of a Mortgage
The amortization of a mortgage refers to the total number of years
required to pay back the entire amount borrowed. The most common
amortization period is 25 years; you can accelerate it in order to save on
interest charges as long as you are comfortable with the larger payments.
Term of a Mortgage
The term of a mortgage refers to the number of months or years that the
lender and borrower commit to one another at the quoted interest rate and
agreed-upon mortgage features. It differs from the amortization period in
that mortgage terms usually range from 6 months to 5 years, while it may
require a 25-year amortization period to pay back the entire borrowed
amount. Each time a term is up, you must either renew for another term
with your current lender at the new rates or find a different lender.
Glossary of Terms
The following glossary represents some of the more familiar terms you may
come across in your search for a home.
- ADVANCE
The funds put forth in the mortgage loan.
- APR
Annual Percentage Rate - a percentage calculation of the total charge
for the loan, including fees and interest.
- CAPITAL
The amount that you owe, excluding interest and other charges.
- COMPLETION
Either:
(1) The start of the loan.
(2) When ownership of the property is legally transferred to you.
- CONTRACT
The written document between any buyer and seller agreeing transfer of
ownership of the property.
- CONVEYANCING
The legal work involved in the purchase and sale of land or the
transfer of a mortgage.
- DEPOSIT
A sum paid to the seller by the buyer, on exchange of contracts, to
guarantee that the sale will be completed. The buyer may forfeit the
deposit if they do not complete.
- EQUITY
The difference between the value of your property and the amount that
you owe on your mortgage(s).
- FREEHOLD
You own the property, and the land on which it stands, if you have a
freehold for it.
- GUARANTOR
Any person who promises to pay the borrower's debt should he/she
default on payment.
- INTEREST ONLY MORTGAGE
A mortgage where interest only is paid to the lender and capital is
repaid at the end of the term or upon the sale of the property being
mortgaged.
- LEASEHOLD
The right to possession without ownership of a property for a
specified period of time, under the terms of a lease. Ultimate
ownership remains with the freeholder.
- LIFE ASSURANCE
An insurance policy that pays a lump sum on death to the
policyholder's estate.
- LOAN TO VALUE
The percentage of the loan against the value of the property.
- LOCAL AUTHORITY SEARCH
Enquiries to the local authority regarding sewage/drainage
arrangements, plans for new road building in the area of the property
and legality of any building work previously carried out.
- MORTGAGE
A loan secured against a property.
- MORTGAGEE
The lender.
- MORTGAGOR
The borrower.
- MORTGAGE TERM
The time over which the mortgage is to be repaid.
- PAYMENT INSURANCE PLAN
Insurance which pays your mortgage repayments in the event that you
lose your income through sickness, injury or unemployment.
- PENSION PLAN
An investment plan that provides an income on retirement and an
optional tax-free lump sum. This lump sum is sometimes used to repay
the capital of an interest-only/dormant mortgage.
- EARLY REPAYMENT CHARGE/PENALTY
A charge payable on some loans if the loan is repaid in full or
partial lump sum repayments are made within a specified period.
- REDEMPTION
When a mortgage is paid off.
- REMORTGAGE
Taking out a new mortgage with another lender, on the same property,
to repay your existing lender.
- STRUCTURAL SURVEY
A full inspection of a property by a registered home inspector on
behalf of and paid for by the buyer or the seller.
- SUBJECT TO CONTRACT
The phrase used before exchange of contracts, which allows either
party to withdraw from a proposed transaction without penalty.
- APPRAISER
The person who carries out valuations of properties. Must be a member
AACI Accredited Appraiser Canadian Institute.
- TITLE DEEDS/DOCUMENTS
The legal documents that provide proof of ownership of a property.
- LAND TRANSFER DEED
The form providing details of the transfer of ownership of a property.
These must be sent to the Land Registry / Land Titles for
registration.
- VALUATION
An inspection of the property by a valuer acting on behalf of the
lender to ensure its suitability as security against the mortgage.
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