Mortgages can cause lots of questions. These are the Frequently Asked Mortgage Questions.
We have you covered with lots of answers! Below is a list of Frequently Asked Mortgage Question that we find many clients ask us when they come in to discuss their options. Take a look, and if it causes more questions, or we never answered it her, give us a shout and we will help.
A Mortgage Broker is a licensed professional working for a mortgage brokerage company. We work one-on-one with clients to get a mortgage for the purchase of a home. We can obtain a mortgage through traditional Banks and Credit Unions, as well as “virtual lenders” who don’t have a brick and mortar location.
A common question when people hear about Mortgage Brokers is “why should I use one?” The best explanation is that they are efficient, friendly, knowledgeable, and fast working. Most importantly, at Tekamar Mortgages, our services are FREE to the client! We choose the best mortgage rate and term that works for you, find a suitable lender, and then apply to that lender. If the mortgage is approved, the lender pays us a fee for bringing your business to them. Since we get paid by all the lenders, our only objective is to find you the best rate possible!
Fixed and Variable rates relate to the interest rate that you are charged on your mortgage.
A fixed rate is set for a pre-determined length of time, which is the length of term you sign your mortgage for. Fixed rate terms range from 6 months to 10 years. The benefit: by having a fixed rate mortgage, you never have to worry about the interest rate changing as your rate stays the same for the entire length of the term. If the rates go up, you still receive the lower interest rate you signed up with. The drawback: if by chance interest rates drop significantly during the term of your mortgage, your rate stays the same.
A variable rate mortgage is just that: variable. With a variable rate mortgage, your monthly payment stays the same, but as the interest rates rise and lower, the amount of monthly payment going towards the interest and principle changes. The benefit: if the interest rate lowers, a larger portion of your payment goes toward paying off the principle amount of the loan, and a smaller amount goes towards interest. The drawback: if the rates go up, a smaller portion goes towards paying off your mortgage and a larger portion goes towards the interest payments.
It depends on what your financial situation and lifestyle is. Many people prefer the security that comes with a fixed rate mortgage as they are always aware of how much of their payment is going to both principle and interest. In addition to this, the interest rate is guaranteed to stay the same. Those who choose the variable rate do so because posted rates for variable mortgages are lower than fixed rate mortgages. If rates are forecasted to stay low, you can realize greater cost savings with a variable rate mortgage. However, if the rates go up, you could end up paying a much higher interest rate than that of a fixed rate mortgage.
A down payment is money that you invest into the purchase of a home. When applying for a mortgage, banks will not give you 100% of the home purchase price. Many require you to provide a down payment of anywhere between 5% and 25% depending on many different circumstances.
Your down payment can come from a variety of places. Many people use their savings that they have set aside from working over the years. You may also use a monetary gift from another person towards your down payment. You also have the ability to withdraw from your RRSP up to a certain amount, given that you have enough funds and agree to pay the amount back into your RRSP. Other possible sources of a down payment include selling assets that you may own, like your boat or second car, cash in securities or investments, or borrow against a property you currently own.
You sure can! Gifts are a very good way for your loved ones, such as parents or grandparents, to help you with the purchase of your home. In most situations, there is no issue with receiving a gift as a down payment. In some situations, lenders want a portion to be from the applicants own funds, the amount of which depends on the lender. Whenever a gift is given as down payment, a gift letter must be filled out and signed by all parties involved. If you have any questions about gifts as a down payment or gift letters, please contact one of our Mortgage Brokers.
The amount you can afford to pay for a home differs on a case to case basis. It takes many things into account including your employment and wages, any debts you currently have, your down payment amount, your credit score, the assets you own, and the current interest rate.
A quick way to get a rough idea on how much you can afford to pay for a home would be to utilize our mortgage calculators located on our website. These calculators help give an estimate on how much you could afford to pay for a house, as well as how much the payments would be. For a more accurate and detailed estimate on these amounts, you can contact one of our knowledgeable Mortgage Brokers.
There are four types of mortgage insurance, and each have different aspects to them. The following are the four basic types.
1. MPP (Mortgage Protection Plan) – Provides both life and disability insurance. This plan provides both life and disability insurance for an individual to go directly to the mortgage. This plan is separate from normal life and disability insurance as this plan relates specifically to the mortgage. For example, if you have a mortgage for $250,000 and you pass away, regular life insurance would pay a benefit for whatever your coverage is. Regardless of when the payout occurs, the mortgage must still be paid for. Even if it takes three months to receive the death benefit, you are still required to pay the mortgage for those three months. With the MPP life insurance, if the borrower passes away, their mortgage is paid for. The premiums for both MPP life and disability insurance are dependent on multiple factors. More information can be obtained by your knowledgeable Mortgage Broker.
2. CMHC (Canadian Mortgage and Housing Corporation) – Provides insurance coverage for the lender against mortgage default by the borrower. The premium charged on the mortgage is dependent on the down payment for the house and the amount loaned for the mortgage. Any mortgage with under 20% of the purchase price as a down payment must have a CMHC insured mortgage. The premium can be paid in a lump sum, or included into the amount of the mortgage and added to the monthly payments.
3. Title Insurance- Provides Insurance that protects you against anything that may challenge your ownership of the home of from problems that are related to the title of your home. The insurance protects against problems preventing free and clear ownership. Title insurance is required by everyone and has a starting cost of $150 and goes up depending on the size and value of the home.
4. Home Insurance- This is home insurance that most insurance agencies can offer. It can cover fire, theft, vandalism, sewer backup, and for liability issues. It is purchased through independent insurance agencies and is always a requirement of mortgage lenders.
Bankruptcy can definitely effect your possibility of obtaining a mortgage, but it by no means eliminates your opportunity. The most important thing to remember is to be honest with your Mortgage Broker. If you have declared bankruptcy in the past, tell us. We need to know this information as it helps determine which lenders to submit your application to.
Things to keep in mind if you have declared bankruptcy.
Once you have declared bankruptcy, the main thing banks want to see is that you are making an effort to get back on your feet. This includes showing that you have been discharged from bankruptcy and the documentation to prove it. In addition, they also like to see stable employment and that you are taking steps towards rebuilding your credit.
When it relates to a down payment, the banks usually require that at least 5% of the down payment be from the discharged bankruptee’s own savings. This goes to further show the bank that you have the ability to manage your finances and will be able to take on mortgage payments.
A pre-approval means that you have begun the mortgage application process, and have initially been approved by a lender for financing based on your income, your debts, your employment history, and your property value (if applicable).
Why should I get pre-approved?
Pre-approvals are perfect for people who want to either purchase a new home, or move to a new home, and are not sure what they can afford to pay for a house. By getting pre-approved for a mortgage, you will have a better understanding on how much you can afford to borrow, what size of down payment you will require, and what price range you can house shop for.
In addition, if you are pre-approved, the banks will “hold” your interest rate for up to 120 days. This means that if the interest rates go up during this time, you are still entitled to the lower interest rate during the holding period. If the rates go down, no worries, we can still get a mortgage at the lower interest rate.
Pre-approvals give you the peace of mind that when you are searching for that perfect house, you will already know if you can afford it and that you will have access to financing once you do find it.
A rate hold is a guarantee that you will receive a certain interest rate on your mortgage for up to 120 days. This relates to the pre-approval process. If you get pre-approved for a mortgage but have not yet found the perfect house, a rate hold will make sure that you will know what interest rate you will be paying when you find that perfect house.
In order to receive a rate hold, you must first be pre-approved for a mortgage. The pre-approval process is the time when we submit your information to lenders and get them to commit to lending you money for a mortgage at a certain interest rate based on your income, assets, costs, excreta. For more information about rate holds and pre-approvals, please contact one of our Mortgage Brokers.
Absolutely you can! Depending on the mortgage, you are able to increase your monthly payments up to a maximum of 20% per year. This raises your monthly payment, but this extra amount goes directly towards paying off the principle amount on the mortgage, saving you tons of interest!
In addition, many banks allow customers to make a once a year lump sum payment that is applied directly to the principle of the mortgage. Each lender has different rules, but the average amount they will let you pay off in a lump sum is 20% of the mortgage. If you receive an annual bonus from your work, many customers choose to apply a portion of their bonus to paying off their mortgage, or use their annual income tax return to go towards paying down the mortgage amount.
Be cautious! Some lenders charge penalties for overpaying on your mortgage amounts. Talk to your Mortgage Broker about your pre-payment options to ensure you are making the most of your mortgage payments.
The first and most important step you will take during the mortgage process is to be honest with your mortgage broker! We can’t help you if you don’t provide us with accurate information. It does not matter to us where you work or how much you make, what your bills are or how many credit cards you have. We just want to ensure that if we get you a mortgage that you will be able to afford it and still live happily.
The next step to take to increase the chances you get approved for a mortgage is to get your debt under control! Pay down those credit cards, and don’t miss payments or make late payments! Banks like to see that you have the ability to pay your bills, and pay them on time.
Have stable employment. If you can show you have stable employment, such as being with the same employer for at least two years, banks will be much more willing to lend you money.
Go to a mortgage broker. When you talk to a mortgage broker, we pull your credit rating once. Once we have your credit rating we can shop around and find the best mortgage rates for you. If you decide to shop around yourself and go to multiple banks, each bank you go to will pull a credit report. This lowers your credit score and is a bad thing!
Know how much you can afford for a down payment. If you know how much you can pay for a down payment you will roughly know how much you can afford to spend on a house. If you talk to a mortgage broker, we can give you a much better idea. You can also talk to family members about the possibility of receiving a gift from them as a down payment.
The steps above do not guarantee that you will obtain a mortgage, but they are likely to increase your chances of having a smooth application process
The length of time that it takes from initial application process until a deal closes and you receive a mortgage varies from deal to deal. The initial meeting with your mortgage broker is a fairly quick process, usually taking a maximum of an hour. If you fill out the application online ahead of time this process is even quicker.
After your first meeting, your mortgage broker will send the deal to a number of lenders for approval. Depending on the lender, an approval or decline can take anywhere from 24 hours to 4 business days.
Once an approval is received, the client must gather the required documents to meet all of the conditions required by the lender. These conditions usually require the collection of documents and paperwork from the applicant relating to employment history, Notices of Assessment, and so forth. We highly recommend trying to locate as many of these documents prior to meeting your mortgage broker for the first time. By having these on file, the broker can speed up the process and take a lot of the work load off of you. A list of commonly required documents can be found on our website.
During the document gathering phase, the timeline begins to vary greatly. For well-organized clients, all forms can be delivered to the broker within a day, or even a few hours. For some other clients, it takes a few weeks to get all of the documents to the broker.
Once all of the documents are received and approved by the lender, all subjects are said to have been removed. This basically means that you have met all conditions set forth by the lender. After this is done, it usually takes at least ten business days to sign the final paper work with the lender, as well as any required legal documentation with a lawyer or notary. Once this is completed, the funds will be forwarded to the respective on the date of closing. All-in-all, the mortgage process can take anywhere from a couple of weeks to a few months depending on the situation.
Credt is a another way of saying reliability. It is the reliability that you will pay off your debts and pay them on time. Therefore your credit score is a number which is applied to you and reflects how good your credit is.