Financing

Mortgage Pre-Approval

Before you start searching for online house listings or start viewing homes, it’s crucial to know what you can afford. Realtors and loans officers will suggest that you get pre-approved for a mortgage loan by a lender or mortgage broker.

Lenders use a simple formula, referred to as your debt-to-income ratio, to determine the price range in which you should be shopping. This involves taking all of your recurring monthly debts, i.e. monthly rent, loans for any property you own, property tax, heat, car loans/leases, personal loans or lines of credit, credit cards, student loans or any other loans, measured against your monthly gross income – with the result not exceeding 32 percent.

It is very important not to increase this ratio during the period between receiving your letter of pre-qualification and the final closing date on your new home.  Buying or leasing a new car with an increase in monthly payments or any other large purchase demanding an additional loan, could have negative last minute consequences and affect your ability to finalize the purchase.

Getting the Best Rate

What’s the trick to a better mortgage rate? That’s what folks at the Bank of Canada (BoC) wanted to know.

So, in 2011, it led them to undertake an extensive study on mortgage discounting, with this as the most interesting finding …

Use a Mortgage broker

  • The report states that brokers lower the “search costs” of getting multiple quotes. Multiple quotes (lower search costs) are strongly correlated with lower rates.
  • “Over the full sample the average impact of a mortgage broker is to reduce rates by 17.5 basis points.”  That’s $1,670 of interest savings on a typical $200,000 mortgage over five years.
  • Bank “mortgage specialists offer convenience to consumers, although they do not reduce search costs.  This is because they work for one lender only.”

Types of Mortgages

There are so many different types of mortgages that it’s almost impossible to name them, but we’ve included a few here. You can check out this site for a definition of each.   http://www.calumross.com/mortgages-101/types-of-mortgages/

  • Pre-Approved
  • Conventional Mortgage
  • High-Ratio Mortgage
  • First Mortgages
  • Open Mortgages
  • Closed Mortgages
  • Fixed-Term Mortgages
  • The Adjustable or Variable Rate Mortgage
  • Secured Lines of Credit [also called Home Equity Line of Credit [HELOC]
  • Equity Mortgages
  • Collateral Charge or Re-Advanceable Mortgages
  • 6-Month Mortgages
  • Bridge Financing

“Full-Free” or Fully Featured Mortgage?

When acquiring a new mortgage, make certain to always as this question among others, of course: full frill or no frill?

What exactly does full frill or no frill mean?  Actually, exactly how it sounds.  A no frills mortgage comes with absolutely NO features.  At the cost of a lower rate you get no, or extremely little, flexibility, no extras, no considerations. On the other hand, a full frill (or sometimes called fully-featured) mortgage is exactly the opposite.  It allows for flexibility, pre-payment privileges, portability and assumability.

What you get with a ‘full frill’ or fully featured mortgage:

  • Pre-payment privileges
  • Payment top-up options—usually 20-25%
  • Extended closing deadlines – can be 90 to 120-days as opposed to 30 days with no-frill
  • The option to make extra payments on any payment date
  • No restrictions on which lender you can transfer from and still qualify for free legal fees
  • Availability in all provinces
  • Portability and assumability

Title Insurance

What is “Title?” … “Title” is a word lawyers use to describe the right of ownership to land. When you purchase a home, title is transferred to you, the new home owner.

What is Title Insurance? … Title insurance is an insurance policy that protects you, the home owner, against challenges to the ownership of your home or from problems related to the title to your home. The policy provides coverage against losses due to title defects, even if the defects existed before you purchased your home. A title defect is a problem with the title which prevents free and clear ownership. There are many types of defects such as rights of way, encroachments (from neighbouring properties), unpaid liens, etc.

Title insurance policies protect you for as long as you own the property. It protects against a number of risks that a solicitor’s opinion on title may not cover. These risks include:

Fraud and forgery, including someone taking your title through fraud or forgery

Encroachments that would be disclosed by a new survey (for example, a neighbour’s deck being partly on your land)

Easements (the right acquired for access to or over another person’s property for a specific purpose, such as for a driveway or public utilities. This is referred to as “servitude” in the Province of Quebec) over the property that would be disclosed by a new survey

Zoning non-compliance (i.e. where the property use does not meet the local municipal by-laws)

Someone other than the home owner having interest (i.e. a previous owner of the property not being discharged from title)

Title insurance is generally purchased when you buy your home or when you refinance it, although it can be purchased any time after you buy your home. You will only make one premium payment when you first buy the insurance. A title insurer can tell you how to purchase the policy. 

How Do I Know if I Need Title Insurance? … If you are purchasing or refinancing your home, you should discuss title insurance with your lawyer/notary to see if a title insurance policy is right for you. Your lawyer/notary can arrange the purchase of a home owner’s policy. 

Benefits of Title Insurance

Comprehensive coverage … The policy can provide broader coverage than a solicitor/notary’s opinion on title as well as post purchase fraud coverage.

Peace of mind … As the policy covers the items outlined above, you can rest easy knowing if there are defects affecting the title of your home that are covered by the title insurance policy, your title insurer will take steps to rectify the problem.

One time cost … The premium is usually due at the time of closing for purchases or refinances. Some insurers permit you to purchase title insurance at any time.