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What is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and Housing Corporation (CMHC), a crown corporation, and Genworth, an approved private corporation. This insurance is required by law to insure lenders against default on mortgages with a loan to value ratio greater than 80%. The insurance premiums, ranging from .50% and up depending upon your down payment & amortization, are paid by the borrower and can be added directly onto the mortgage amount. This is not the same as mortgage life insurance.
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What is a Mortgage Agent?
A Mortgage Agent is an independent Real Estate financing professional who specializes in the origination of residential and/or commercial mortgages. Typically, they do not fund or service the loan itself, but instead, they act as an Agent or Manager for capital sources who act as loan wholesalers.
A Mortgage Agent is also an independent contractor working, on average, with 40 lenders at any one time. By combining professional expertise with direct access to hundreds of loan products, a agent provides consumers the most efficient and cost-effective method of offering suitable financing options tailored to the consumer's specific financial goals.
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What is a pre-approved mortgage?
A pre-approved mortgage provides an interest rate guarantee from a lender for a specified period of time (usually 60 to 90 days) and for a set amount of money. The pre-approval is calculated based on information provided by you and is generally subject to certain conditions being met before the mortgage is finalized. Conditions would usually be things like 'written employment and income confirmation' and 'down payment from your own resources', for example.
Most successful real estate professionals will want to ensure you have a pre-approved mortgage in place before they take you out looking for a home. This is to ensure that they are showing you property within your affordable price range.
In summary, a pre-approved mortgage is one of the first steps a homebuyer should take before beginning the buying process.
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What is a fixed rate mortgage?
The interest rate on a fixed-rate mortgage is set for a pre-determined term - usually between 6 months to 25 years. This offers the security of knowing what you will be paying for the term selected.
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What is a variable rate mortgage?
A mortgage in which payments are fixed to bank prime rates, which can fluctuate several times a year. If interest rates go down, more of the payment goes towards reducing the principal; if rates go up, a larger portion of the monthly payment goes towards covering the interest.
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What are closing costs?
On the day one actually purchases their new home they are required to pay certain costs associated with this endeavor. In addition to one's down payment, the prepaid property tax and homeowner's insurance premiums there will be other fees to consider:
- Survey Charges.
- Land Transfer Taxes.
- Attorney Fees and Disbursements.
- Garbage Disposal Fees.
- Title Insurance.
- Fire Insurance.
Your real estate transaction may be subject to GST! Check with your real estate agent for this.
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What is the difference between Pre-approval, Pre-qualification, and Mortgage Commitment?
If you are just getting started in the hunt for a new home, it is important to know the difference between pre-qualifying, pre-approval and a loan commitment. It is not enough to simply begin looking for the home of your dreams. It is critical that you determine the price range that you can afford, get qualified for a loan, and understand all of the steps to assist you in securing that perfect property when you find it.
Pre-Qualification
Pre-qualification does not mean that you have been approved for a loan, but it is an important component of the home buying process. You have to know what you can afford before you look. Pre-qualification will save you time and ultimately money.
A mortgage professional can help you determine your qualification. You should candidly discuss your financial situation with him or her and not withhold any information. Most likely, your mortgage consultant will want to know your yearly household income as well as your assets and liabilities. If you can discuss your finances candidly and determine what you can reasonably qualify for a loan, then no one's time will be wasted. Otherwise, your agent may end up being a tour guide, showing you beautiful houses that you will never be able to get a mortgage for rather than helping you find an appropriate property to make an offer on. However, pre-qualification does not mean that much to sellers. It is more of a tool to help potential buyers figure out their price range.
Pre-Approval
Pre-approval is a firmer commitment that is based on more information than pre-qualification. A mortgage broker or lender will need to do a thorough credit investigation and it is particularly important that you disclose all financial information that is requested. The amount that you are approved for will be the amount that the lender is committed to loan for the purchase of a house. Getting pre-approval may give you more bargaining power when you are negotiating the price of a home.
If the seller knows that you are approved for the loan, already you may have more leverage. In fact, it is a good idea to plan to get pre-approved. Some real estate agents will not waste their time showing homes to potential buyers who do not have a pre-approval, especially in a hot market. However, pre-approval does not necessarily mean that you will ultimately get the loan. The final approval will still depend on verification of the information provided and approval of the home you wish to purchase.
Mortgage Commitment
A loan commitment is a letter that is issued by the lender that states that they will fund your mortgage. This letter may include details of your interest rate and the maximum amount of loan they will offer. This sort of commitment requires that both you and the house be approved. This means that the home will need to be appraised at the sale price or higher and must meet the lender's guidelines.
Regardless of what stage of home buying you are in, it is very important that you keep a few things in mind. Remember that just because you are approved for a large loan, does not necessarily mean that you should borrow at the upper limit of your loan approval. Homeownership involves more expenses than renting and some properties need more work than others need. Make sure you leave a financial cushion for repairs and upgrades to your new home.
Once you are approved, do not make any big changes to your finances. Changing jobs, banks and taking out other loans can lower your credit rating, change your debt-to-income ratio and ultimately keep you from getting the loan. Now is not the time to buy that new car, big screen television or to take an expensive vacation. The mortgage company may make one last credit check even if you have a loan commitment. If you are educated and prepared, you may find that the home buying process is easy and stress free.
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What is title insurance?
Protecting purchasers against loss is accomplished by the issuance of a title insurance policy, which states that if the status of the title to a parcel of real property is other than as represented, and if the insured suffers a loss as a result of title defect, the insurer will reimburse the insured for that loss and any related legal expenses, up to the face amount of the policy.
Title insurance differs significantly from other forms of insurance. While the functions of most other forms of insurance is to guard against future events (such as death or accidents or in the case of property, fire or flood), the primary purpose of title insurance is to eliminate risks and prevent losses caused by events that have happened in the past. To achieve this goal, title insurers perform an extensive search of the public records to determine whether there are any adverse claims to the subject of real estate. Either those claims are eliminated prior to the issuance of a title policy or their existence is exempted from coverage.
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What is a home inspection?
A home inspection is an examination of the structure and systems: heating and air conditioning, plumbing and electrical, roof, attic, insulation, walls, floors, ceilings, windows, doors, foundation, and basement. If the inspector finds problems, it does not mean you cannot sell your house, but you can be certain a buyer inspection will find them too. Finding problems before you list your property can avoid accusations of misrepresentation, low offers, and even lawsuits. A home inspection can also help sellers comply with new, tougher disclosure laws enforced in many states.
You may or may not want to make the repairs and you can always adjust the selling price or contract terms if the problems are major. This information will also help you determine what type of financing will or will not be available for your home. You can find home inspectors under Professional Services section.
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What is an appraiser?
A real estate appraiser is an impartial, independent third party who provides an appraisal -- an objective report on the estimate of value of real estate. The appraisal is supported by the collection and analysis of data. Most licensed appraisers will provide an advance estimate of the cost to perform the appraisal, and many will commit to a fixed fee for the appraisal. It is always wise to obtain a written contract for services that includes a description.
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What is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal to 20% or more of the purchase price, a loan to value of or less than 80%, and does not normally require mortgage loan insurance.
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What is the difference between Term and Amortization?
The "term" of the mortgage should not be confused with the "amortization". The amortization of the mortgage refers to the entire length of time that it will take for the mortgage to be paid and the house to be "free and clear". The term is the period for which your current payment obligations are valid. In other words, you may choose a five-year term and a 25-year amortization. This would mean that your interest rate, your payments, and your pre-payment options would be the same for the next five years. At the end of these five years, you would re-negotiate the term, and the amortization would now be 20 years. Fixed rate mortgages can be "closed" or "open".
Open Mortgages
Allow one to pre-pay some, or all of, their outstanding mortgage obligation at any time, without penalty. Generally, open mortgages have a six-month, and a one-year term option with higher interest rates than closed mortgages of the same term length.
Closed Mortgages
Generally, closed mortgages are offered in terms ranging from six months to ten years. Generally, closed mortgages offer more stringent pre-payment options subject to various pre-set regulations. For most people, such pre-payment options can be vital to reducing the amortization of one's mortgage and should be properly discussed with one's lender/agent.
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