Friday, July 5, 2013

Mortgage FAQs

Once you find your dream home in Ottawa you will need to look at your different mortgage solutions.

Mortgage solutions are provided by many bankers and mortgage brokers in Ottawa and other cities in Canada. Though there are many things you have to consider about mortgage payments, there are a few questions that are frequently asked by Canadians who are looking for a good mortgage plan and payment solution.

Why hire a mortgage broker when the Bank is there?

When you deal with a bank for the mortgage solution, you are bound by the list of products they have. It is possible that the list does not have the best solution for you. Also, banks have to think about their profit margin and will offer you the highest rate that is acceptable to you. A mortgage consultant on the other hand will have a list of lenders and mortgage products. You could potentially benefit from lower interest rates. However, if you are buying a new home or condo that is not built and you require a pre-approval letter, you must go through a bank, because a mortgage broker cannot guarantee the rate for long enough.

What fee charges are involved?

Typically there is no fee. The lenders who receive your mortgage application hand a certain amount of commission to mortgage consultants. If your application is not accepted because of job instability or bad credit, you are subjected to brokerage fee.

Do I have to wait for my mortgage to mature?

It is not a good idea to wait for that long. You should inform your mortgage consultant around 4 months before the time of maturity of your mortgage. During this time, the consultant can easily shop for other mortgage rates and your mortgage will be easily transferred if there is a possibility.

I recently heard of Mortgage Loan Insurance. What is it?

Mortgage loan insurance is required by law and is provided by three major companies in Canada: AIG Insurance, Genworth Financial Canada and Canada Mortgage and Housing Corporation (CMHC). Do not confuse this with mortgage life insurance. Here the lenders are ensured against default on mortgages with an 80% ratio of loan to value. Borrowers pay insurance premium between 0.5% and 3.7% which is directly added to the mortgage account.

What is a high-ratio mortgage and how is it different from conventional mortgage?

Conventional mortgage is the typical mortgage where the down payment is equal to 20% or more of the property’s purchase price and there is no mortgage insurance required for it.

High-ratio mortgages are where the down payment is less than 20% of the purchase price. You are required to attain mortgage loan insurance from one of the three companies that provide insurance. The borrower is allowed to purchase the house with a small amount of down payment and the lender is also protected with the loan insurance.

What form of down payment is acceptable?

If you have cash, then it is good. If, however, you do not have cash, you can use:

             Accumulated savings

             Sales proceeds that you gain from an existing house

             Your Registered Retirement Savings Plans (RRSP). Up to $20,000 can be used for down payment and if it is repaid within 15 years it will not be subjected to income tax.

             Investments that are not registered

             Borrowings from an unsecured Line of Credit.

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