ARRANGING YOUR MORTGAGE

Making Mortgage Arrangements Made Easy ​ Purchasing a home in today's market is a highly appealing opportunity. With historically low interest rates and a wide range of homes to suit various budgets and family needs, the housing market holds great potential. However, navigating the complexities of mortgage financing can be daunting, whether you're a first-time buyer or an experienced homeowner. The ever-changing rules and extensive terminology can be overwhelming.

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But fear not! The basics of mortgage arrangements are actually quite straightforward, and you have a network of real estate professionals ready to assist you, with your REALTOR® and the mortgage specialist at your bank being the top resources.

Nevertheless, it's beneficial to familiarize yourself with the mortgage process, how to arrange one, and the different financing strategies involved.

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First and foremost, it's important to know which types of institutions are willing to lend you money. While banks and trust companies are the most common options, credit unions and private lenders also provide funds. Additionally, you have the option to consult a mortgage broker who has access to a wide variety of lending sources, including domestic banks, trust companies, pension funds, real estate syndicates, and foreign banks. In some cases, you may even have the opportunity to "assume" the existing mortgage held by the seller. Assuming a mortgage can expedite the buying process and lead to cost savings in terms of paperwork, legal fees, and closing costs, although it's essential to consider the current lending rate compared to the assumed mortgage.

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Once you understand the lending options available, it's time to explore the different types of mortgages. The most common type is the "conventional mortgage," where lenders offer up to 75 percent of the appraised value or purchase price of the property, and you contribute the remaining 25 percent. Many people save specifically for this purpose, but alternate or "secondary" financing options may be available in certain cases.

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If you don't have a 25 percent down payment, a "high-ratio" mortgage is an alternative. These mortgages allow you to borrow up to 95 percent of the appraised value or purchase price of the property, subject to government regulations. However, high-ratio mortgages must be insured, and the cost of insurance falls on you, typically ranging from one to three percent of the mortgage amount.

Both conventional and high-ratio mortgages can be offered as either "variable-rate" or "fixed-rate." Variable-rate mortgages have monthly payments that remain fixed for a specific term, while the interest rate fluctuates based on economic conditions. This means your monthly payments may increase if interest rates rise or decrease if rates fall. Fixed-rate mortgages, on the other hand, maintain a consistent interest rate throughout the negotiated term.

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Understanding additional concepts that impact your mortgage and financial well-being is crucial. Amortization refers to the time period assumed to pay off the mortgage. The most common amortization period is 25 years, which means your interest and principal payments are calculated as if you were repaying the borrowed amount over a 25-year schedule. A shorter amortization period results in lower overall interest payments.

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Prepayment privileges are essential considerations for borrowers. These arrangements allow you to make additional payments towards the principal, reducing the total interest paid over time. Open mortgages typically offer more flexibility with prepayment options, while closed mortgages have fewer or no prepayment opportunities.

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Don't be overwhelmed by the multitude of concepts and terms related to mortgages. Arranging one is not as difficult as it may seem. All it takes is a little research on your part and the guidance and expertise of a knowledgeable REALTOR® or mortgage professional.

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For further information on buying or selling a home, you can contact the Ontario Real Estate Association at 1-800-563-HOME to request a free copy of the How to Buy Your Home or How to Sell Your Home book.