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Tag Archives: pre approved mortgage

Types of Mortgages

26 Friday Aug 2011

Posted by torontomortgagetrends in best interest rate, information exchange, Mortgage Brokerage, Mortgage FAQ, Uncategorized

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canada mortgage and housing, canada mortgage and housing corporation, convertible mortgage, high ratio mortgage, pre approved mortgage

Types of Mortgages

  • Pre-Approved Mortgage
  • Conventional Mortgage
  • High-Ratio Mortgage – CMHC / GE Capital Insured
  • First Mortgages
  • Open Mortgages
  • Closed Mortgages
  • Fixed-Term Mortgages
  • The Adjustable Rate (A.R.M.) Mortgage
  • Secured Lines of Credit
  • Equity Mortgages
  • Multiple Term Mortgages
  • The 6 Month Convertible Mortgage
  • All-Inclusive-Mortgage
  • Bridge Financing

Pre-Approved Mortgage

A Pre-Approved mortgage is a Free and No-Obligation deal that lets you know before you go looking for your home or signing an offer to purchase, how much you can afford to borrow based on your qualification and personal credit rating. We’ll arrange for you the most competitive rates with longest rate guarantee period that goes up to 120 days – if rates go higher, your rate will not be affected, and if rates go lower, you get the lower rate. This protection is solely responsible for savings thousands of dollars for many people who obtained a pre-approval and the rates increased afterwards.

Too often in the past, the mortgage was left to the very end, but with our Online Pre-Approval or by simply e-mailing us, we can take care of this important process within hours. Once you are Pre-Approved, you can confidently negotiate an offer on a home. A seller also prefers to negotiate an offer of a purchaser who has been pre-approved. With more lenders, lower rates, and no-cost, no-obligation, make us your choice for your pre-approval.

Conventional Mortgage

A conventional mortgage is a loan that does not exceed 75% of the purchase price or appraised value of the home, whichever is less. This type of mortgage does not have to be insured against default.

High-Ratio Mortgage – CMHC Insured / GE Capital Insured

A high-ratio mortgage is a loan that is above 75% and up to 95% of the purchase price or appraised value of the home, whichever is less. These mortgages must me insured against loss by either Canada Mortgage and Housing Corporation (CMHC), a Federal Government Corporation, or GE Capital, a private insurer. The premiums can be added to the mortgage amount or paid at closing, and are as follows:

For Mortgages Up To:     75%                         No Insurance Required
For Mortgages From:     75.1-80%                  Premium is 1.00%
80.1-85%                 Premium is 1.75%
85.1-90%                 Premium is 2.00%
90.1-95%                 Premium is 2.75%

If you obtained an insured mortgage after April 1’st, 1996, the premium you paid on the mortgage is now portable to another property (if you closed before this date, it is not portable, meaning that if you bought another home and your mortgage needed to be insured, you must pay the applicable premium again.) NOTE: This insurance is for the benefit of the lender against default. It is very costly and there is another way we can arrange a mortgage for you with a low down payment. That is with a 1’st mortgage and a 2’nd mortgage. For your unique situation, it may be less costly to consider this option. Banks, on the other hand, cannot offer you this option as they cannot provide secondary financing over 75% of the purchase price or value of the property.

First Mortgages:

A First mortgage is the first debt registered against a property that is secured by a first “charge” on the property. If a default on the mortgage occurs, the first lender has first right on the property to recover the outstanding principal and interest costs, and any other costs incurred during the process. Second Mortgages: A second mortgage is a debt registered after a first mortgage has been registered. In most cases, the interest charged on the second is higher than the first, reflecting the higher risk to the lender, but over a short term, still more cost effective than paying the high cost of the CMHC/GE Capital insurance premium. They can be used to finance up to 90% of the purchase price or value of the home.

Open Mortgages

An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgages are available in shorter terms, 6 months or 1 year only, and the interest rate is higher than closed mortgages as much as 1%, or more. They are normally chosen if you are thinking of selling your home, or if you are expecting to pay off the whole mortgage from the sale of a another property, or an inheritance (that would be nice).

Closed Mortgages

A closed mortgage offers the security of fixed payments for terms from 6 months to 10 years. The interest rates are considerably lower than open, and if you are not planning on any one of the above reasons, then choose a closed mortgage. Nowadays, they offer as much as 20% prepayment of the original principal, and that is more than most of us can hope to prepay on a yearly basis. If one wanted to pay off the full mortgage prior to the maturity, a penalty would be charged to break that mortgage. The penalty is usually 3 months interest, or interest rate differential (I.R.D. – please refer to glossary for detailed explanation).

Fixed-Term Mortgages

With a fixed-rate mortgage, the interest rate is set for the term of the mortgage so that the monthly payment of principal and interest remains the same throughout the term. Regardless of whether rates move up or down, you know exactly how much your payments will be and this simplifies your personal budgeting. In a low rate climate, it is a good idea to take a longer term, fixed-rate mortgage for protection from upward fluctuations in interest rates.

The Adjustable Rate Mortgage (A.R.M.)

The Adjustable Rate Mortgage (A.R.M.) provides a lot of flexibility, especially when interest rates are on their way down. The rate is based on prime minus 0.375% and can be adjusted monthly to reflect current rates, and for the first 3 months of the mortgage, a large discount on the rate is given as a welcoming offer. Typically, the mortgage payments remain constant, but the ratio between principal and interest fluctuates. When interest rates are falling, you pay less interest and more principal. If rates are rising, you pay more interest and less principal, and if they rise substantially, the original payment may not cover both the interest and principal. Any portion not paid is still owed, or you may be asked to increase your monthly payment. This mortgage is fully convertible at any time without any cost to you, if you choose a 3 year term or greater, and offers a 20% prepayment privilege at any times throughout the year. While traditionally, banks offer variable mortgages up to 75% of the purchase price or the value of the home, we can go up to 90% with this product.

Secured Lines of Credit

Use the equity in your home that you have built up to purchase investments (where interest costs would be deductible against the earned income), finance home renovations, buy a car, or any other reasonable needs, with rates as low as prime. They can be arranged up to 75% of the purchase price or value of the home, and should you need more, we can arrange another secured line of credit as a Second mortgage up to 90%. Accessing the available credit is as simple as writing a cheque, or using the issued credit and/or debit card. You do not have to draw the money until you need it, and once you make a withdrawal, you can pay of your balance at any time or make monthly payments as low as interest only. As you pay down the balance, you have that much more available credit (revolving credit).

Being a secured product, there are the normal legal and appraisal fees that are applicable. From time to time, there are promotions where a lender will cover for part or all of these costs.

A word of caution:

Although these lines are very flexible and versatile products, great caution and care should be taken. It is very easy and very tempting to use it for everything whereas normal restraint would have been exercised, and suddenly, there are thousands of dollars more that have to be repaid.

Equity Mortgages

These are mortgages that are assessed on the equity of the home (market value minus the mortgage amount). They can be as high as 75% of the purchase price or value of the property and if more is required, we can look at a small Second mortgage. These are generally offered to applicants that do not meet the normal income and/or credit qualifying guidelines. You may have little or no income verification, self-employed, and/or your credit may be less-than-perfect.

Multiple Term Mortgages

If you wanted the lower rates of a short term mortgage but wanted the security of a long term, why not choose both. Yes, “build your own mortgage” product. You can split your mortgage in to as many as 5 parts, all having different terms, rates, and amortizations, but one total monthly payment. This way, you are spreading the risk. But, be prepared to be “hands-on” and watch the market very carefully here. This is not for everyone, as the time and stress levels are quite high.

The 6 Month Convertible Mortgage

When rates are on their way down, or you may feel that they will in the near future, a 6 month convertible mortgage offers you the short term commitment at fixed payments, with an added advantage that while within the term, the mortgage is fully convertible to a longer term from 1 year to 10 years. At the end of the 6 month period, the mortgage becomes fully open, where one can renew with the existing lender or transfer to another lender. Even though it is offered at many financial institutions, there are differences from one to the next.

All-Inclusive-Mortgage (A.I.M.)

The AIM mortgage takes care of everything automatically. For Purchases, it includes: Solicitor’s legal fees and standard disbursements to close the purchase and mortgage; Title transfer; Title Insurance from LandCanada for the clients; CMHC application fee or Appraisal fee; 1% Cash-Back to cover Land Transfer Tax; Registration of Deed and Mortgage. For Refinances, it includes: Legal fees and standard disbursements to prepare and close the mortgage; Title Insurance from Land Canada; CMHC application fee or appraisal fee; 1% Cash-Back; Registration of new first mortgage; Registration of discharge of existing first and second mortgage. The minimum term available is a 5 year term.

Bridge Financing

Bridge financing refers to a special, short-term loan needed to cover the time gap when two properties, both firm sales, are involved and the closing dates don’t match. The property being purchased closes before the one that was sold. There is a small set-up fee charged by the lender to have the bridge loan arranged, plus the cost of the interest as now you are carrying both properties for a short time. The rate charged on the bridge loan is about 2-3% above the bank’s prime.

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The Right Home/Investment

26 Friday Aug 2011

Posted by torontomortgagetrends in best interest rate, information exchange, Mortgage FAQ

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home investment, pre approved mortgage, real estate agents, real estate investments, several steps, The Right Home/Investment

The Right Home/Investment

www.vijaygandhi.com              for Real Estate Investments

You have a pretty good idea of the price range you can afford, and now it’s time to fine tune and have everything come together.

Step 1: Pre-approved Mortgage

Obtaining a pre-approval tells you exactly how much you can afford and guarantees your rate for up to 120 days. Now, you can buy a home with the confidence of knowing you qualify. It also shows the vendor you are serious about buying the home and keeps you several steps ahead of others in the market.

Step 2: Preparation

Now that you know your price range, you can begin the search. First, make a Checklist of your needs the home will fulfill, such as: type of home, type of ownership, location, inside and outside features, condition, and other matters such as property tax levels, etc. At this time, you should decide on a lawyer so that he/she will be ready to check all legal documents to ensure your interests are protected.

Step 3: The Search, for house and agent

With your pre-approval, personalized needs checklist, and lawyer at hand, you are ready to start looking at properties. At this time, it is important to find yourself a real estate agent to help you with your search. The real estate agents have a lot of information readily available for sale and the current selling prices. They can help you fine tune your personalized needs checklist; explaining the types of property and ownership, recommending neighborhoods, pointing out inside and outside features, and condition of a particular property.

The agent also is skilled at preparing the paperwork involved in making an offer to purchase and closing the sale (your lawyer will be handy here to review any offers). Make sure that you communicate your needs clearly, as you are responsible for all decisions. Choosing the right agent is important for you as you are placing a lot of trust on them to help you with your purchase. Ask friends and relatives if they could recommend someone. Chances are, if they are recommending them, there was something about the level of service and commitment they received from them.

Once you have found the right home, visit it at least twice, once in the daylight and once at night, and have your needs checklist with you.

Step 4: Making An Offer

If you have decided that this is the right home for you, decide on a figure and have your agent prepare the Offer (Agreement of Purchase And Sale). With your agent, list everything you want included (i.e., conditions on financing and inspection, survey clause, appliances, light fixtures, etc.). At this time, you may want your lawyer to check it out, and certainly prior to waiving any conditions to make the offer firm.

A firm offer : means that you will buy the property as outlined in the offer of purchase and that there are no conditions attached. Once the vendor accepts the offer, you are both bound to the agreement.

A conditional offer : means that you will buy the property if those certain conditions are met. We recommend that a condition on financing is included, especially for high-ratio insured mortgages. If you have a condition on financing clause, get in contact with us right away. We’ll get right on it to finalize the mortgage approval. At this time, you will need the following information:

  • Copy of the accepted Offer To Purchase
  • Copy of MLS listing (if listed on MLS service)
  • Completed and signed application (if one is not on file yet, so that we can run a credit check).
  • Confirmation of your earnings: if you are salaried, a signed letter of employment, 3 years tax returns and assessments if commissioned, and 3 years tax returns and financial statements if self-employed.
  • Confirmation of your down payment: it may be from your savings, RRSP, equity from sale of another home (copy of sales agreement), a gift letter for any money gift.
  • If purchasing a condominium, a copy of the financial statements for the condominium corporation

Once all conditions have been satisfied (the offer has been accepted), a deposit is required as a symbol of commitment to the offer of purchase, and it is made payable to the listing Real Estate Firm “In Trust”. Interest on the deposit can be requested, and this deposit will be applied towards your down payment on closing.

Step 5: Closing the deal and taking possession

After the mortgage has been approved and all conditions waived, you must deliver the following documents to your lawyer:

  • Copy of the complete accepted offer to purchase (all schedules, waivers, etc)
  • Certificate of Fire Insurance – The insurance company will need to know the details of property and Mortgage Company to prepare this. Lenders usually require you to arrange for full replacement value of the building.
  • A copy of a Survey, signed by a qualified land surveyor. In lieu of a survey, title insurance is acceptable with most lenders.
  • Advise us of the name, address, and phone number of your lawyer so that the mortgage instructions can be sent to him/her.
  • You should arrange for utilities (such as electricity, water, fuel, and telephone) to begin service in your name.
  • A few days before the closing date, you will meet with your lawyer to go over all details. At this time, you will also be provided with a dollar figure so that you can prepare your certified cheque, made in trust to the lawyer. This amount will cover for the balance of the down payment, closing costs and adjustments (please refer to section: “Closing Costs and Adjustments” for details and estimated costs).

On closing day, the lender will provide your lawyer with the agreed mortgage funds to close the transaction. Your lawyer will register the property and the mortgage in your name, and obtain the keys and the deed for you.

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