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Obtaining a mortgage can be intimidating and confusing. Similar to the buyer and seller guides, I’ve outlined the mortgage process for you in 4 easy steps!


Step 1: Mortgage ApplicationMortgage Applican


Before an application gets filled out, it’s important to first asses yourself financially. Figure out how much money you have and how much you need to borrow. It’s always critical to sort out how much you can afford so that when you apply for a mortgage you will be able to financially sustain yourself. A mortgage associate will then take an application by phone, in person, or online. Once it has been received, the mortgage application process will begin by verifying the information you have provided.

Types of Mortgages

Conventional Mortgage 


A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. 
The lending value is the property’s purchase price or market value – whichever is less. For a conventional mortgage,
the down payment is at least 20% of the purchase price or market value.
 



High-ratio Mortgage


If your down payment is less than 20% of the home price, you will typically
need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan
insurance. CMHC is a major provider of mortgage loan insurance. Your lender may
add the mortgage loan insurance premium to your mortgage or ask you to pay it in
full upon closing.


Mortgage Term


Your lender will tell you about the term options for the mortgage. The term is the
length of time that the mortgage contract conditions, including interest rate, will be
fixed. The term can be from six months up to ten years. A longer term (for example,
five years) lets you plan ahead. It also protects you from interest rate increases. Think
carefully about the term that you want, and don’t be afraid to ask your lender to figure
out the differences between a one, two, five-year (or longer) term mortgage.


Amortization


Amortization is the length of time the entire mortgage debt will be repaid. Many
mortgages are amortized over 25 years, but longer periods are available. The longer
the amortization, the lower your scheduled mortgage payments, but the more interest
you pay in the long run. If each mortgage term is five years, and the mortgage is
amortized over 20 years, you will have to renegotiate the mortgage four times
(every five years).


Payment Schedule


A mortgage loan is repaid in regular payments – monthly, biweekly or weekly. More
frequent payment schedules (for example weekly) can save some interest costs by
reducing the outstanding principal balance more quickly. The more payments you
make in a year, the lower the overall interest you have to pay on your mortgage.



Step 2: Choose the Right Mortgage Program


Like all homes, Canadian mortgages also come in all shapes and sizes. You have to pick which loan is more aligned with your financial situation and goals. There are four basic types of Canadian home financing loans.

A) Fixed Rate Mortgage

A Fixed Rate mortgage usually has terms that can last from 1 year to 10 years. As the name suggests, the interest rate and monthly payments will remain the same for the specified term.

This type of loan should appeal to you if you:

  • Plan to live in the home for more than 5 years
  • Like the stability of a fixed interest payment
  • Think your income and spending will stay the same
  • Don’t like the risk of having a higher monthly payment

B) Adjustable Rate Mortgage

Adjustable Rate Mortgage (ARM) lasts for 3-5 years. But during these terms, the interest rate on the loan can go up or down which means monthly payments can increase or decrease.

This type of loan should appeal to you if you: 

  • Plan to say in your home for less than 5 years 
  • Don’t mind having your monthly payment increase or decrease
  • Are comfortable with risk of possible payment increases in the future
  • Think your income will probably increase in the future

C) Combination Rate Mortgage

A Combination Rate Mortgage combines fixed interest rates and adjustable interest rates.

This type of loan would appeal to you if you:

  • Want to manage interest rate risk
  • Choose to take advantage of both long and short term rates
  • Like the stability of a fixed interest payment
  • Don’t mind having monthly payment increase or decrease

D) Lines of Credit

Line of Credit is becoming an innovative way to finance your home purchase. You can take the amount you need from the credit limit that you were granted. You only pay interest on what you use and this money can be put towards things like home renovations, a child’s education, and debt consolidation.


Open or Closed Mortgages:


Closed Mortgage


A closed mortgage cannot be paid off, in whole or in part, before the end of its
term. With a closed mortgage you must make only your monthly payments – you
cannot pay more than the agreed payment. A closed mortgage is a good choice if
you’d like to have a fixed monthly payment. With it you can carefully plan your
monthly expenses. But, a closed mortgage is not flexible. There are often penalties,
or restrictive conditions, if you want to pay an additional amount. A closed mortgage
may be a poor choice if you decide to move before the end of the term, or if you want
to benefit from a decrease in interest rates.

Open Mortgage

An open mortgage is flexible. That means that you can usually pay off part of it, or
the entire amount, at any time without penalty. An open mortgage can be a good
choice if you plan to sell your home in the near future. It can also be a good choice
if you want to pay off a large sum of your mortgage loan. Most lenders let you
convert an open mortgage to a closed mortgage at any time, although you may have
to pay a small fee.


Step 3: Mortgage Submission and Approval


Once you select the appropriate mortgage program, you will submit this information to your mortgage associate along with any other required documentation. You will then wait for the mortgage approval from the mortgage associate either through email or fax. After the approval, the associate will also review your commitment to the mortgage. Any additional documents that are required by the lender should be sent to the associate no later than 10 days after the approval.


Step 4: Lawyer


The associate will send the mortgage instructions to your lawyer to review and sign the documents. First you will review all the terms and conditions prior to signing to make sure the interest rate and loan terms are what were promised. Double check to see that the names and address are correctly spelled on the documents. Signing takes place in front of a notary public or lawyer. There will be several fees with obtaining a mortgage and transferring property ownership which will be paid at closing. Bring a bank draft check for the down payment and closing costs if required. Personal cheques are not accepted. You will also need to show homeowners insurance policy and other requirements such as flood or fire insurance and proof of payment.

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