Mortgages
Unless you have been buying the right e-Shares recently, you probably will need to get a mortgage on your new property. There are basically three ways to go:
VENDOR TAKE-BACK MORTGAGE
If you are lucky, the person selling the property may agree to hold a mortgage for you. If they do, you may well avoid some of the complications that might arise from borrowing elsewhere. You may even be offered a bargain rate to encourage you to buy!
FINANCIAL INSTITUTION MORTGAGE
Your bank, a trust company or a finance company may be willing to give you a mortgage, but remember to shop around for the best terms.
PRIVATE MORTGAGE
It may be heaven to you, but if it doesn’t have hydro, a good road, a well or a septic system, the banks may balk. Local mortgage brokers are usually the ones to give you a connection to private lenders. Make sure you know exactly what taking this route will cost you!
A mortgage is a debt and often a big one. The banks usually have more money in the property than you do. It’s only natural that they want to be assured that the title is good and the property is worth it. Allow in your financial figuring for the costs of an Appraisal. Also be forewarned that they will probably be asking for proof of your employment and income, and a statement of assets.
Whichever way you go, you should do your best to determine exactly what your lender’s requirements are up front. I couldn’t count the time that clients have been shocked to find, a few days before closing, that their bank needed a survey, a well report or a zoning certificate before they would release the funds. Ask what exactly they need and ask early!
PLACING A MORTGAGE
From the debtor’s point of view, the best sort of mortgage is an "open" one. This would allow you at any time to pay off the whole or any part of the mortgage without notice or bonus.
From the lender’s point of view, an "open" mortgage looks a bit like a one way street. The lender is tied up, but you’re not.
As a result, most mortgages take a middle course. Yes, you get out of it early, but it will hurt a little. The banks have created all sorts of fancy prepayment terms depending on what mortgage you have chosen. If you pay a little higher rate, you can even get one fully open.
Typically, banks offer you the right to prepay part of your mortgage annually or to double up payments, or to pay off your mortgage, but with a bonus (as if they need it!).
HOW MUCH WILL MY MONTHLY PAYMENT BE?
Your mortgage payment is determined by the amount you are borrowing (the principal), the interest rate, and the length of time it would take to pay it off (the amortization period).
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TIP
A mortgage commitment is a legal contract, second only to your Agreement of Purchase and Sale in importance. Know what it says before you sign it.
MORTGAGE TERMS
MORTGAGOR: Borrower under a mortgage
MORTGAGEE: Lender under a mortgage
TERM: The length of time the mortgagee (who holds your mortgage) has agreed to hold it. Mortgages are available for terms from 6 months up to five or even more years.
AMORTIZATION: The length of time it would take you to fully pay off the mortgage if it was allowed to continue on. The shorter the amortization period, the higher the payments, but the shorter you pay it. Most people pick an amortization period of between 15 and 25 years.
AMORTIZATION SCHEDULE: A computer generated record of your mortgage payments, which will allow you to know where you stand after each payment, and how much interest and principal you have paid.
CLOSED MORTGAGE: If, for example, you get a three year mortgage and don’t have any special privileges written in, then both sides are tied to the mortgage for three years. Of course, you can both agree to end the mortgage, but you alone cannot insist that you want to pay it off earlier. If you don’t have a pre-arranged prepayment privilege, then you may find yourself at your lender’s mercy.