Appraisal - Lenders sometimes require appraisals to be done on homes. This estimate is to confirm the value to confirm the sale price. The lender needs to be assured that the $300,000 house you are purchasing is actually worth what you are paying for it. The cost for this typically ranges from $350 to $500 or more in special cases.
Amortization Period - The number of years it will take to pay off your mortgage through regular payments: most mortgages are amortized over 25 years although if you have 20% equity 30 year mortgages are still available.
Closing Costs - These are the costs paid to your lawyer on closing. It includes lawyers fee, title insurance, land transfer tax ( if applicable ) , appraisal costs, PST on the High Ratio mortgage insurance and property tax/heating adjustments.
Closed mortgage - A mortgage that cannot be paid off or renegotiated before the end of the term without paying a penalty – usually 3 months interest or the interest rate differential (whichever is greater).
Collateral Mortgage - This refers to how a mortgage is registered on title. It could be a conventional or high ratio mortgage. A collateral mortgage has the ability to be re-advanced at a later date when there is enough equity to do so. This can save the cost of refinancing in the future but can also limit transferability at renewal.
Conventional mortgage - A mortgage loan to a maximum of 80% of the lending value of the property. Mortgage insurance is usually not required in this situation, but some lenders still do insure mortgages on loans of 80% or less of property value.
Down payment - A down payment is the amount of money you put towards the price of your home. The remaining amount left over is your mortgage.
Fixed Rate - This means the interest you pay towards your mortgage won't change thought the term of your mortgage.
High ratio mortgage - Any mortgage where the purchaser is supplying less than 20% for a down payment. In most cases the mortgage must be insured against default by CMHC, Genworth or Canada Guaranty.
Loan to Value ratio (LTV) - The ratio of the loan to the lending value of the property expressed as a percentage. For example, if a property is worth $200,000 and the mortgage is $160,000 the LTV is 80%.
Maturity date - The last day of the TERM of the mortgage agreement. On this day you must either pay off the loan, renew it with the same lender, or move it to different lender for another term.
Mortgage insurance - If your mortgage is hi-ratio (greater than 80% of the purchase price), you must have mortgage loan or default insurance. The insurance premium is a one time charge that can either be paid up front or added to the loan amount and paid as part of the regular monthly payment.
Mortgage life insurance - This insurance guarantees that if any person with coverage dies the mortgage will be paid in full. It is available through the lender or broker and the premium is added to your monthly payments. However, you may wish to compare rates for an equivalent product, such as term insurance, through an insurance agent.
Mortgage Term - The Length of time you are committed to a mortgage rate, lender and conditions of your mortgage. Usually terms range from 6 months to 10 years, with 5 years being the most popular choice. Once you complete your term, you can renegotiate for a new term, renew your mortgage or pay out the existing principal.
Open mortgage - A mortgage that can be renegotiated, prepaid in any amount or paid off at any time without penalty. The interest rate is usually variable and higher than a closed variable rate mortgage with the same term.
Payment frequency - Payment schedule in which you would like to pay your mortgage. Choose from weekly, bi-weekly, semi-monthly and monthly and accelerated options are available too, to pay help off your mortgage faster.
Title insurance - Protects against loss or damage caused by occurances affecting title to the property. This could include, but is not limited to, a defect in title or the existence of a lien or encumbrance.
Variable Rate - Floating rate or adjustable rate mortgage, this type of mortgage has an interest rate that fluctuates with the prime lending rate. One potential benefit of variable rate mortgages is lower interest rates, but in return, mortgagors (homeowners) take on risk: if the prime rate goes up, a larger chunk of your mortgage payment will go toward the interest, not paying down your principal. The result: your mortgage could take longer to pay off and cost you more in interest.
Many people ask what credit is, what their credit score is and how can they improve it.
A good credit score is very important when applying for a mortgage. You must have good credit in order to purchase a home and get a great interest rate. If you don’t have enough credit, long enough credit history or if you have had a history of late payments, the mortgage companies and insurers may not approve you. Credit is a very important part of the mortgage financing approval process.
Lenders rely heavily on your history as an indication on how you will manage your mortgage and financing in the future. Unfortunately, lower credit ratings can decrease your chances of getting approved for a mortgage and may result in needing a co-signor or having to pay a higher rate and lender fee. This is why we suggest talking to one of our Licensed Mortgage Agents to learn about your credit score and to make sure it’s where it needs to be to secure a mortgage. It’s also a good idea to find a trusted credit monitoring website to keep an eye on your balances, credit cards and loans. A few suggestions are:
Some sure-fire ways to help your credit score are:
Have at least two types of credit at all times. Some examples would be a credit card (with a minimum limit of $2000), car loan or lease or a line of credit. This will show that you can manage your credit. Not having any credit at all is challenging, lenders need a track record of your credit in order to properly judge you for your mortgage financing.
Make your payments each month and on time. NEVER skip a payment and always make at least the minimum payment owing.
Do not exceed more then 70% of your available credit on your line of credit or credit cards and if you can, try to pay the credit cards off every month to avoid high interest charges. This is hard for some people to do, but if you can get in the habit of never charging more than you can pay then you won’t get caught in the credit trap. Exceeding your credit limit can substantially decrease your credit score and lenders view this as not responsibly managing your credit. There are always occasions where a credit card has to be used for an emergency expense, so keeping available credit open for these instances is important so it doesn’t hurt your credit score.
Do not let your credit be pulled too often. Each credit pull affects the score so if you are searching for credit this will be reflected in your score. Your mortgage agent is required to take a full application and pull a credit bureau in order give you an idea of what a lender will offer you but we use the same credit bureau for multiple lenders so this is better than going from bank to bank looking for a mortgage. It’s also advisable NOT having your credit pulled for credit cards, line of credits or car loans often as this will lower your credit score and raise red flags. If you are declined for credit seek to learn why before applying at the next place.
Our licensed agents can discuss your credit file with you and provide suggestions on how to build, maintain or improve your credit scores.