What is the benefit of getting pre-approved?
A pre-approved mortgage is just like applying for a mortgage when you buy a home, but it is done ahead of time. A mortgage broker will take all the information it requires from you to determine how much you can comfortably afford to pay each month and what price range of home you can look at purchasing.
With a pre-approved mortgage you can shop with confidence, knowing that the biggest hurdle in home buying has been seen to ahead of time. Generally speaking, pre-approval terms and conditions are guaranteed by the financial institution for up to 120 days, giving you the protection of 'locking in' a certain mortgage rate should rates climb higher while you look for a home to purchase. If interest rates go down, the banks will generally give you the lower rate.
What is the difference between floating rate and fixed rate mortgages?
Variable or floating rate mortgages provide that the interest rate will change on a periodic basis during the term of the loan according to a pre-determined formula. This formula is typically based on the prime-lending rate set by the Bank of Canada.
Fixed rate mortgages provide that the interest rate will not change throughout the term of the mortgage, but is set at a fixed rate at the beginning of the term.
What are typical pre-payment privileges available with my mortgage?
Most lenders today offer pre-payment privileges of 15% of the original mortgage balance. There are a few exceptions that offer only 10% and others that offer 20% and even 25%. You can increase the payments by up to double the regular payment but it is not necessary to double up. Pre-payment privileges can typically be taken advantage of in the form of annual lump sum payments, too.
What are the early payout penalties that apply to my mortgage?
Either a three-month interest penalty or interest differential penalty will apply if you close out your mortgage prior to the maturity date of the term. The greater of the two applies. Interest differential is charged when interest rates have decreased relative to your rate, whereas three-month interest charges are typically charged when interest rates have increased relative to your rate.
What are closing costs?
Closing Costs are a miscellaneous collection of fees and charges that a buyer of property must pay upon closing of the transaction at the lawyer's office. Depending on the type of property and the nature of your deal these may include but are not limited to the items described below:
Legal Fees - the fee for the lawyer's time
Registry Fees - the cost of registering your mortgage and deed at the Registry Office, a division of the provincial government
Appraisal Fees - the cost of an appraisal if required by your mortgage lender.
Survey Fees - the cost of a property survey if required by your mortgage lender
Interest Adjustment - interest charged by your mortgage lender from the time the deal closes to the date of the first mortgage payment period.
Fuel Equalization - the cost of furnace fuel left behind by the seller.
Fire Insurance - it will be a condition of your new mortgage that you prove you have Fire Insurance coverage.
Property Taxes - for the balance of this year and, as well, the lender may require that you top up your property tax fund so that there are sufficient funds available to service the property taxes due for the next taxation year.
Land Transfer Tax - this is a 1% tax levied on the sale amount of your new home. The tax is collected by your lawyer and he or she can explain the details to you.
How Much Will My Closing Costs Be?
Lenders will want you to prove that you have Closing Costs equal to 1.5% of the cost of your new property by showing the appropriate funds are in your bank account; however actual Closing Costs vary greatly from transaction to transaction and you should be prepared for costs of between $3,000 and $5,000; your Centum Financial representative will help you estimate these costs.
Glen McQuaid
Century 21 Colonial Realty
(902) 388-0981