Mortgage

When buying a house, unless you have cash to spare, typically you will need to borrow money from a bank to afford it. This means lending the bank your intended house as security.

A mortgage payment calculation includes the principal and the interest. In some cases, this can result in making payments more frequently, such as bi-weekly or weekly. A typical mortgage is for an amount that does not go over 80% of the appraised value of the property or the purchase price, whichever is lower. A minimum 20% of the purchase price is required for the down payment. However, with a high-ratio mortgage you can make a only a 5% down payment on the home.

Home mortgages are available from several types of lenders: banks, mortgage companies, trust companies and credit unions. Different mortgage lenders may quote you different prices, so you will need to take a lot of personal time and effort and contact several lenders to make sure you’re getting the best price. You may also get a home loan through a mortgage brokerage like Cascade Mortgage Capital. Mortgage brokers arrange financial transactions rather than lending money directly; in other words, they find a lender that’s right for you. At Cascade’s we have access to a host of lenders, including institutional lenders that are exclusively available to brokerages. What this means to you is a much wider selection of loan products and terms from which you can choose.

Mortgage processing usually only takes a few days, but it’s still advised to get pre-approval to avoid the risk of waiting for days if the application is not approved. When you put in your offer to purchase, it should come with a good idea of your standing of being able to get mortgage approval. Therefore, it is a wise investment to call Cascade Mortgage Capital to get your pre-approval. This ensures everyone involved that you have a high chance of obtaining a mortgage approval considering the very strict government-imposed qualifications to getting a mortgage.

Qualifying for a Mortgage

Once you’ve filled out all the necessary paperwork for a mortgage, your broker at Cascade Mortgage Capital will submit it to a lender to obtain a pre-approve of your mortgage for a predetermined amount. The pre-approval agreement may also guarantee an interest rate for a mortgage taken out during the pre-approval term, which lasts 60 to 120 days. This pre-approval can help you plan and make smart decisions because it helps you stay on budget. The application process for a mortgage includes some inquiries into your reason for taking out the loan, such as your marital status and dependents age, current employment (including how long you have work there), salary, and other sources of income. The credit check is to see if you pay your bills on time and have enough personal credit to meet the loan requirements. They will also assess what assets are available (i.e., vehicles, cash…) and liabilities (i.e., credit card balances, car loans, etc.).

Getting a mortgage is clearly a very complicated process and there are many factors that determine your result. One of the most important depends on your gross annual income, assets & liabilities (past or present). Online calculators can give you an idea of how much you’ll be able to borrow appropriate to your financial situation.

Types of Mortgages

Fixed Term Mortgage

For fixed rate mortgages, the interest rate will typically stay the same for the duration of your mortgage, meaning your monthly payments of principal & interest will remain unchanged. Regardless of whether rates go up or down, you know how much your mortgage payments will be. This means it’s easier to balance your personal budget when rates are low. It may also be better to take a fixed-rate mortgage when interest rates are escalating higher so you can protect yourself from future increases

Open Mortgage

If you want to be able to make a payment at any time without incurring a fee, you can consider an open mortgage. The term lengths are shorter (mostly 6 months or 1 year), and the interest rates are higher than closed mortgages by as much as 1% plus. This type of mortgage is often favoured by those who have inherited the property or planning to sell in the short term but still living in their property for the meantime, or those who are looking to buy another home.

Closed Mortgage

A closed mortgage is less risky because you have a steady monthly payment for its duration and the interest rates are lower. You normally have the privilege to prepay up to 20% of the original principal each year, which means that you’ll save on interest charges over time. Breaking a mortgage early means paying a penalty. This is usually three months’ worth of interest, or the Interest Differential Rate (IRD).

The Adjustable-Rate Mortgage (A.R.M.)

Adjustable rates are an option when considering a mortgage. You might want to get an adjustable-rate mortgage (A.R.M.) when the Prime Lending interest rate is going down. The monthly interest rate on your loan will be Prime minus a certain percentage, if varies from lender to lender, this is because we use a floating interest rate. The mortgage payments usually remain consistent, but the ratio between principal and interest fluctuates. When interest rates go down, you pay less interest and more principal. If rates increase, you pay more interest and less principal.

Mortgages allow you to purchase a property while paying back the cost of it over a period of years. Payments can be adjust depending on how much of the principal loan is paid off and the remaining amortization.

If rates go up substantially, it may in the inability to cover the principal and interest of your loan. You can avoid this by increasing your monthly payments now if you have the ability to do so. You may not be able to restructure your mortgage at any time without incurring penalties and meeting the lenders guidelines. You may also apply to pay off part of your mortgage using the prepayment privilege on any occasion during the year.

According to a landmark 2001 study, the majority of Canadians who have maintained a variable mortgage rate throughout their entire mortgage term have paid less in interest than those who have stuck to a fixed rate. If you’re looking for reliability throughout your mortgage, a fixed rate may be more suitable for you.

Equity Mortgage

Equity mortgages apply to how much equity in your home you have. You can borrow up to 80% of the property value. These loans are generally used by people who can’t get a standard mortgage from a institutional lender, because they don’t have enough of an income, they’re self-employed, or they have a less-than-perfect credit rating.

Multiple Term Mortgages

The Multiple Term Mortgage lets you pay a lower interest rate on a portion of your mortgage that has an intermediate term. You can put other chunks at different rates or terms – the number of splits is dependent on the lenders policy. For this type of mortgage though, you need to be aware that there are a lot of changing variables in the market, so you should really understand all the pros & cons before deciding. This is not for everyone because it takes way more time and stress than other types of mortgages.

Secured Lines of Credit

Using your home’s equity via a secured line of credit to eligible investments that allow you to deduct interest costs from your earned income, renovate your home, buy a new car etc. Most lenders offer lower rates which make them very attractive for repaying the loan. Up to 75% of the property’s value can be arranged. You can withdraw or repay the money at any time, and there are different monthly payment options too. As your balance is paid off, you will have more available credit. This type of loan is secured and is therefore subject to legal & appraiser fees. Lenders will sometimes offer promotions where they cover some or all the legal and appraisal fees for a specific time. Be cautious that while this product is flexible and versatile you might have a lot of temptation to use it for impulse purchases.

Credit Scores

Credit scores are determined by stats and provide a general guideline for lenders to decide how much credit they will extend. Credit providers, mortgage companies, and banks set how much interest you’ll have to pay. Financial credit is broken down into two main categories: your past credit and the amount of credit you are currently using. When your credit score goes down, this will likely result in higher payments on your loans or credit cards.

The FICO score is a credit score that can help determine the level of risk associated with someone. Fair Isaac Credit Organization developed it and that’s where it gets its name.

Below is a table showing different score ranges

Score Range & Rating

780+ Perfect

720 – 780 Excellent

675 – 720 Average

620 – 690 Fair

Below 620 Low

Be wary of assuming that a minor credit issue or hardship like being sick or losing your job can limit your loan options to high interest rate lenders. If your report includes accurate, negative information that are beyond your control, be sure to provide appropriate explanations or documentation to your lender or mortgage broker. If your past credit problems are affecting the interest rate of your loan, find out what you would need to do to get a better interest rate. Nowadays, there are plenty of affordable mortgage options available which makes it easier for first-time buyers to buy a house. The restrictions in place before don’t even apply anymore. Lenders now have more options when they are considering mortgage loans to potential home buyers. These new options are for people who want to buy a home but can’t afford the typical mortgage. The new policies also work for people with some credit problems and long-term debt, as well as those who’ve had some unstable income.

Mortgage Glossary

1. Fees

Banks and mortgage companies usually include the following costs:

• The Lender fee – is the amount of money paid to the mortgage lender for processing mortgage paperwork.

• Insurance – This is your homeowner’s insurance policy, which protects you and your home against fire, theft, vandalism, or any other casualties or disasters.
• Lender fee – A fee is charged on the lending of money by a bank to give it. It’s often a percentage of the total loan.
• Closing costs – There are many extra expenses when buying or selling property that normally come with the price of the property such as legal costs, land transfer tax etc.

2. Down Payment

Not many people understand the down payment for a house; there’s no such thing as a standard payment. Some people think they need to make a down payment of 50% of the home’s price, but most loans are based on a 20% down payment. It’s common to finance homes with only 5% down, and if this done, you’ll need to buy private mortgage insurance. Ask about a broker at Cascade Mortgage Capital the requirements to provide as part of your down payment, including verifying with the lender that you have adequate and verifiable funds available. It’s important for everyone ‘considering a home loan to know about mortgage insurance requirements and its associated costs.

3. Interest Rate

The interest rate is the monthly cost of borrowing and is expressed as a percentage of the amount borrowed. The lower the interest rate is, the more money can be borrowed. It pays to shop around and ask lenders about their “lock-in” rates to be sure you’re getting the best deal. Remember that a lender will tell the APR (Annual Percentage Rate) of your loan to you. The APR shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It’s meant to let the potential borrower know about the rate and what it means for their budget. You’ll need to finance more than just the interest rate because there are a bunch of other fees you’ll have to pay. If interest rates start dropping significantly, a mortgage refinancing could be worth considering. If you can get a rate that is 2% less than your current one and plan to hold on to your property for the next 18 months or more, refinancing can save you money. Refinancing may, however, involve paying many of the same fees paid at the original closing, as well as origination and application fees.