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Arranging a mortgage
Types of Mortgages
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment
of the purchase price, with the mortgage not exceeding 75% of the appraised value.
If your down payment is less than 25%, then you qualify for a
high-ratio mortgage. This type of mortgage requires loan insurance, which can cost
an additional 0.5% to 3.75% of the mortgage amount. With this type of mortgage you
could also be limited to a maximum house price.
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Second Mortgage
Of course, if you cannot add on to your mortgage, you may consider a second mortgage.
Each mortgage uses your home as security and gives the mortgagee the right to take
your home if you default on your loan. The first mortgagee gets paid first in cases
of default and has the best chance of recovering all of its money. So it only goes
to figure that subsequent mortgages usually come with a higher interest rate.
Mortgage Features - Here are some mortgage options you should know about:
Every lending institution is different, and each will have their own customizable
mortgage options. When you're hunting for a lender and a home, see how the following
features could be beneficial to you.
Prepayment
This is a wonderful option if you receive regular bonuses or if your income fluctuates
throughout the year. With a pre-payment privilege, you have the right to make payments
toward the principal portion of your mortgage over and above the monthly payments.
A mortgage with a pre-payment option is closed. An open mortgage means you can pay
the entire principal sum without notice of bonus.
Portability
If you still have time remaining on that fantastic loan you negotiated, portability
is one option you'll want to discuss with your lender. Quite simply, it means transferring
the balance of your current mortgage at the existing rates and with the existing
terms and conditions, to your new home.
Assumability
Let's say that the vendor has negotiated a dynamite mortgage. With an assumable
mortgage you, the purchaser, simply assume the obligations of the mortgage. This
is a wonderful feature especially if the terms are more favourable than the existing
market conditions would allow. Remember, when it is time for you to sell, you may
still be liable for any mortgage you allow the buyer to assume. This means if the
buyer stops making payments, you could be accountable for the payments. Be sure
to have the subsequent buyer approved for the assumption of the payments, thereby
avoiding this potential land mine.
Expandability
If you need additional funds down the road, will your mortgage terms allow you to
increase the principal amount? Usually, your new rate will be a blended amount of
the initial mortgage rate and the prevailing rates. It's a great option to discuss
with your lender if you foresee large expenses in your future like renovation or
education costs.
Arranging a mortgage
Types of Mortgages
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment
of the purchase price, with the mortgage not exceeding 75% of the appraised value.
If your down payment is less than 25%, then you qualify for a
high-ratio mortgage. This type of mortgage requires loan insurance, which can cost
an additional 0.5% to 3.75% of the mortgage amount. With this type of mortgage you
could also be limited to a maximum house price.
|
Second Mortgage
Of course, if you cannot add on to your mortgage, you may consider a second mortgage.
Each mortgage uses your home as security and gives the mortgagee the right to take
your home if you default on your loan. The first mortgagee gets paid first in cases
of default and has the best chance of recovering all of its money. So it only goes
to figure that subsequent mortgages usually come with a higher interest rate.
Mortgage Features - Here are some mortgage options you should know about:
Every lending institution is different, and each will have their own customizable
mortgage options. When you're hunting for a lender and a home, see how the following
features could be beneficial to you.
Prepayment
This is a wonderful option if you receive regular bonuses or if your income fluctuates
throughout the year. With a pre-payment privilege, you have the right to make payments
toward the principal portion of your mortgage over and above the monthly payments.
A mortgage with a pre-payment option is closed. An open mortgage means you can pay
the entire principal sum without notice of bonus.
Portability
If you still have time remaining on that fantastic loan you negotiated, portability
is one option you'll want to discuss with your lender. Quite simply, it means transferring
the balance of your current mortgage at the existing rates and with the existing
terms and conditions, to your new home.
Assumability
Let's say that the vendor has negotiated a dynamite mortgage. With an assumable
mortgage you, the purchaser, simply assume the obligations of the mortgage. This
is a wonderful feature especially if the terms are more favourable than the existing
market conditions would allow. Remember, when it is time for you to sell, you may
still be liable for any mortgage you allow the buyer to assume. This means if the
buyer stops making payments, you could be accountable for the payments. Be sure
to have the subsequent buyer approved for the assumption of the payments, thereby
avoiding this potential land mine.
Expandability
If you need additional funds down the road, will your mortgage terms allow you to
increase the principal amount? Usually, your new rate will be a blended amount of
the initial mortgage rate and the prevailing rates. It's a great option to discuss
with your lender if you foresee large expenses in your future like renovation or
education costs.
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