Arranging a Mortgage

Professionals Inc., Realtor

Independently Owned
and Operated

Milosov Lukaroski - Mike
Sales Representative

- Determining Your Needs
- Arranging a Mortgage
- The Offer
- Closing
- The Move

- Thinking of Selling
- Getting Ready
- Marketing Your Home
- Negotiating Offers
- Closing

- About REMAX
- About Me

Arranging a Mortgage

What is a Mortgage?
A mortgage is made up of two parts: principal and interest. Principal is the actual amount borrowed. Interest is the lender's fee you are charged for borrowing.
You'll have to decide on an amortization period (the length of time it will take to completely pay off the mortgage) and the term, or length of time each mortgage agreement guarantees the interest rate.
Before you go to a financial institution or mortgage broker, keep in mind that there are many mortgage options available. Shop around for the best rates and the best terms. Negotiate. Everyone wants your business, but it's up to you to look after your interests. Of course, the key thing to remember is to negotiate a mortgage that fits into your lifestyle, and doesn't take over your life! Your mortgage broker can help guide you through this process and supply you with information. With lower interest rates, you may qualify for a larger mortgage because your monthly payments will be lower. But always keep in mind that the larger your mortgage, the more interest you'll pay in the long run. That simply means your house will cost more. Also, what if interest rates rise? Will you still be able to carry the payments comfortably?
Before considering any mortgage, consider your down payment. If you're a qualified home buyer, you can purchase a house with a minimum 5% down payment. On a $160,000 home that would be an $8,000 down payment, leaving you with a $152,000 mortgage. Assuming you negotiate an interest rate of 8% for your mortgage, you're monthly payment for principal's interest would be $1160. Now let's say you decide o wait until you save another $10,000 before you buy because you think the bigger down payment will lower your monthly payments. Well, at 8%, putting $10,000 more down on your house will only save you $76.32 per month, you might be better off saving $10,000 for a rainy day or a vacation or that hot tub you've been dreaming about. With today's interest rates, it just doesn't make sense to tie up your cash to save $76.32. You might be better off putting your extra money to work for you in another investment with a higher rate of return.
Why go house hunting only to find that you don't qualify for a mortgage on the dream home you've found? Having a pre-approved mortgage will give you the confidence of knowing exactly what you can spend on a home before you start looking. You will also be protected against interest-rate increases while you look for your new home.
If your down payment is less than 25%, then you qualify for a high-ratio mortgage. This type of mortgage requires loan insurance, which can cost an additional 0.5% to 3.75% of the mortgage amount. With this type of mortgage you could also be limited to a maximum house price.
Of course, if you cannot add on to your mortgage, you may consider a second mortgage. Each mortgage uses your home as security and gives the mortgagee the right to take your home if you default on your loan. The first mortgagee gets paid first in cases of default and has the best chance of recovering all of its money. So it only goes to figure that subsequent mortgages usually come with a higher interest rate.
By assuming the existing mortgage, you may be able to save on the usual mortgage fees such as appraisal and legal fees. You'll save time, since you don't have to negotiate to arrange financing from another lender and the existing mortgage on the home may be less than the current market rates. Unless otherwise specified, you'll still have to qualify with the lender first!
Before you calculate the amount of your down payment and determine what you can afford, it's a good idea to set aside a few thousand dollars to cover the extra costs that seem to spring out of nowhere. Here is an overview of costs you could encounter. The good news is that not all of them will apply.

Property Taxes
If the Vendor has paid a portion of the taxes in advance, you will be responsible for reimbursing the Vendor on closing. Plus, if you have a high-ratio mortgage, your lender may require that you have your property taxes added to your mortgage payments.

Utility Fees
Utility fees are calculated through a meter so you will be responsible for paying what you have used up on the meter.

Land Transfer Tax
This applies in most provinces and ranges from 1% to 4%. For instance, in Ontario, you'll pay 1% of the first $55,000-250,000 and up to 2% of any amount over $400,000.

Survey Fee
Your lender will require an up-to-date survey. You can make it a condition of the Offer to Purchase that the Vendor provides a survey, or you will have to have one done. If there is no survey available, you may purchase "Title Insurance" in lieu of a survey which saves you about $500-700.

Appraisal Fee
A basic appraisal usually costs under $250.

Property Insurance
Your lender will insist that you have insurance on your property because your home is used as security for the mortgage.

Service Charges
You'll be charged for telephone, cable and a variety of other services that you hook up at your new home.

Lawyer (Notary) Fees
Each real estate transaction requires the assistance of a legal professional to review the Offer to Purchase, search the title, draw up the mortgage documents and take care of the details on the day of closing. Lawyers fees range widely depending on the complexity of the transaction. Ask me to recommend a lawyer.

Mortgage Loan Insurance Premium and Application Fee
Mortgage loan insurance will be necessary if you have a high-ratio mortgage (less that 25% down payment). The application usually costs $75 with a valid appraisal, otherwise it's $235. The actual insurance premium will range from .5% to 3.75% of the purchase price and is added onto the mortgage.

Mortgage Broker Fee
Some brokers may charge as much as 2% of the total mortgage to find you a lender. In most cases though, the broker is paid by the lender. Buyers with good credit should not have to pay a fee.

Moving Costs
Whether you've decided to do it yourself or hire a moving company, now is the time to budget for the costs involved.

Estoppel Certificate
If you're moving into a condominium (complex not necessarily a high-rise) this certificate outlines the condominium corporation's financial and legal state. It will cost you up to $50.

Condominium Fees
These monthly fees vary from complex to complex. The fees are applied to everything from grounds keeping and carpet cleaning to security personnel and health club maintenance. Depending on the type of structure, these fees will usually be a few hundred dollars.

Home Inspection Fee
For around $300, depending on the size of your home, you'll receive a complete written report about the condition of the structure. Do your research and hire a reputable firm.

Renovation and Repairs
Your home inspection may indicate the need for some general repairs or a major project. Have some money set aside, particularly if you are purchasing an older home.

Redecoration
Your taste will be different from the previous owner. Set aside money to paint and wallpaper. Prepare a list of things you can live with, for now, and decorating faux pas that need immediate alteration.