In order to purchase your home most people are going to require a mortgage. There is a tremendous number of mortgage options available and it is in your best interest to familiarize yourself with the various products.
The mortgage market is highly competitive and most financial institutions are prepared to reduce their posted rates by ½ to 1 %. It is important, therefore that the borrower get quotes from a number of institutions.
Rather than contacting all the financial institutions yourself you may want to use the services of a mortgage broker. A mortgage broker is an independent agent, an intermediary between you the consumer and the mortgage lender. The mortgage broker will shop the available lenders to find the mortgage product that offers the best combination of features, options and rates to suit your individual circumstances. The best part – depending on your credit picture – there is no charge to the consumer for the service! The mortgage broker’s fee is normally paid by the lender. I have been dealing with Tom Hogg at RDM Mortgages and have found him very helpful to my clients. Tom can be reached at 905-949-4949.
Mortgages are available in with either open or closed prepayment options, can be set up with fixed or variable interest rates and are available in terms from 6 months to 10 years. The terminology used in the industry can be difficult to understand , I hope the following list helps clarify some of them:
Number of fixed payments or years it takes to repay the entire amount of the mortgage loan. Most mortgages are amortized over25 years although 35 and 40 year amortization mortgages are now available
Equal payments consisting of both a principal and an interest component, paid each month during the term of the mortgage. The principal portion increases each month, while the interest portion decreases, but the total monthly payment does not change.
A mortgage which cannot be prepaid, renegotiated or refinanced until the end of the term. Most closed mortgages allow for a prepayment of 10 to 20 % per year without penalty
A mortgage loan which does not exceed 80% of the appraised value or purchase price of the property, whichever is the lesser of the two. Mortgages that exceed this limit must be insured.
Gross Debt Service Ratio
The percentage of gross annual income required to cover payments associated with housing (mortgage principal and interest, taxes and secondary financing). Most lenders prefer that the GDS be no more than 32%.
High Ratio Mortgage
A mortgage loan that exceeds 80% of the value of the property. High ratio mortgages must be insured, usually by CMHC. The insurance premium of up to 3.5% of the mortgage is added to the total amount of the mortgage
A mortgage which can be prepaid at any time, without penalty.
The right to prepay specified amounts of the principal balance. Penalty interest may be incurred on prepayment options. Term In a mortgage, “term” is the actual length of time for which the money is loaned, at that particular rate of interest. After the termexpires, you can either repay the balance of the principal then owing or renegotiate the mortgage at current rates and conditions.
Total Debt Service Ratio
The percentage of gross annual income required to cover housing payments and other debt obligations (credit card and car pmts etc.)Most lenders prefer that the TDS be no more than 42%
Variable Rate Mortgage
A mortgage where payments can be fixed from one to five years, but the interest rate could change from month to month depending on market conditions. If interest rates go down, the monthly principal is reduced; if rates go up, the monthly payments might not cover the interest owing and payments may be increased for the next term.