A charge on land
as security for the
payment of a debt
with certain
remedies for
nonpayment. A
mortgage is a claim
or encumbrance upon
the real property
given by the owner
of the property to
the lender as
security for money
borrowed and
typically registered
in the applicable
provincial land
registration system.
The two parties
to a mortgage
transaction are
referred to as the
mortgagor (borrower)
and the mortgagee
(lender). The lender
gives or lends the
money and registers
the mortgage against
the property. In
return, the borrower
gives the mortgage
as security for the
loan, receives the
funds, makes the
required payments,
and maintains
possession of the
property. The
borrower has a right
to have the mortgage
discharged from the
title once the debt
is paid off.
The assigning of
a mortgagee’s
rights, ownership
and interest in a
mortgage to a new
mortgagee. The
mortgage is an
interest in land and
can be sold,
transferred, or
assigned without the
consent of the
mortgagor. The
mortgagor is given
notice in writing of
the assignment and
thereafter makes
his/her payments to
the assignee. The
assignee acquires
all the rights of
the mortgagee and
can exercise these
against the
mortgagor. This
individual acquires
only the rights that
the mortgagee had
and no agreement
between the
mortgagee and the
assignee changes any
rights that the
mortgagor already
has, nor can it
impose any
additional burden on
the mortgagor.
The assignee
takes the mortgage
subject to the state
of accounts between
the mortgagee and
mortgagor. If, for
example, due to a
prepayment
privilege, the
mortgagor had made
an additional
payment off the
principal of which
the assignee was not
aware, the assignee
would have no claim
on the mortgagor.
After the mortgagor
is expressly
notified of the
assignment and if he
or she continues to
make payments to the
original mortgagee,
the assignee can
take legal action
against the
mortgagor to collect
the money.
An investor
holds a mortgage on
property owned by
Smith. Thompson
assigns the mortgage
as of February 1,
20xx to ABC
Investments Ltd. and
formally notifies
Smith. The mortgage
amount is $24,512 as
at February 1, 20xx
and the mortgage
payment date is the
fifteenth of each
month. Thompson’s
interest of $24,512
is transferred to
ABC Investments Ltd.
Smith’s February
payment is
apportioned using
the February 1, 20xx
date. All future
payments should be
made to ABC
Investments Ltd.
Smith is liable to
ABC following that
date even if he
inadvertently keeps
forwarding payments
to Thompson. As a
protection, the new
assignee may require
a guarantee of the
mortgage by the
original mortgagee
and an
indemnification
agreement to further
support his/her
position in the
event that the
original mortgagor
defaults.
Existing
mortgage financing
may be assumed by
the buyer provided
that the mortgagee
agrees and, in most
instances, the buyer
qualifies by being
eligible to obtain a
loan of this nature
from the lender,
just as the original
mortgagor did. When
a buyer assumes the
mortgage, he/she
takes over the
mortgage balance and
becomes responsible
for the payments,
terms, and all
monies owed. By
assuming an existing
mortgage, the buyer
may save appraisal
fees, some legal
costs, and survey
costs. The advantage
to the seller may be
a savings of any
payout penalty or
interest
differential that
may apply.
In
accordance
with federal
and
provincial
legislation,
chartered
lending
institutions
entrusted
with public
funds are
not
permitted to
arrange
first
mortgages in
excess of
75% of the
appraised
value of the
property.
Loans above
this amount
must be
insured.
Privately
Insured or
High Ratio
Mortgages
(Conventional
Insured
Mortgages)
Mortgages up
to 95% of
lending
value may be
insured by
private
mortgage
companies
(subject to
rules,
regulations,
and changes
within the
financial
markets).
Currently,
GE Capital
Mortgage
Insurance
Canada
provides
this
service.
CMHC Insured
(NHA Loans)
Mortgages up
to 95% of
lending
value are
insured by
the
government
through the
National
Housing Act.
Mortgagees
are provided
certain
statutory
rights when
the
mortgagor is
in default
on a
mortgage.
Such rights
and
procedures
are detailed
under
provincial
legislation.
Six
commonly
used avenues
for the
collection
of monies or
legal
remedies
under a
mortgage
include:
Quit
claim
deed
(release
of the
equity
of
redemption).
The
mortgage
balance must
be insured,
at a cost to
the
borrower, in
all cases
where a
borrower
uses
high-ratio
financing,
i.e., the
loan to
value ratio
is greater
than 75%,
and for all
NHA loans.
This form of
insurance is
not for the
protection
of the
borrower,
but rather
for the
lender.
Should the
borrower
default on
payment, the
loan will be
repaid by
the insuring
company who
then assumes
the title to
the property
and disposes
of it to
settle as
much of the
debt as
possible. Do
not confuse
this form of
insurance
with the
life
insurance
offered by
many lenders
that repays
the loan in
the event
that the
borrower
dies.
The
mortgage
insurance
premium,
payable by
the
borrower, is
based on the
loan amount.
Insurance
premiums
vary with
market
conditions
and the
rates are
determined
by the
insuring
company. The
premium may
be paid by
the
mortgagor
either in
one lump sum
in advance
or added to
the loan
amount and
amortized
over the
life of the
mortgage.
Currently,
Canada
Mortgage and
Housing
Corporation
and GE
Capital
Mortgage
Insurance
Canada,
insure
mortgages.
Mortgage
insurance
protects the
lender in
the event of
borrower
defaults,
often
referred to
as the
mortgage
insurance
fee and is
underwritten
by
CMHC and
GE Mortgage
Insurance.
This
coverage is
required for
high ratio
mortgages
exceeding
70% of
value.
Mortgage
insurance
should
clearly be
distinguished
from life
and
disability
insurance
offered to
borrowers by
the lender.
The mortgage
insurance
fee is a
percentage
of the
mortgage
amount,
varies
according to
a graduated
scale based
on on
loan-to-value
(LTV) ratio,
the higher
the LTV, the
higher the
premium.
Mortgage
insurance
percentages
vary but
typically
range from
0.50% to
3.75% of the
mortgage
amount.
Mortgage
insurance is
due on
closing and
can be paid
either
separately
or added to
the
mortgage,
provincial
sales tax
will apply
and must be
paid on
closing.
Mortgages
are
described
according to
priority as
registered
against
title in the
provincial
land
registration
system. The
earliest
mortgage
registered
against the
title is
referred to
as the first
mortgage
(also
frequently
referred to
as the
senior
mortgage ).
Subsequent
mortgages,
such as
second and
third
mortgages,
are
sequentially
registered
against the
property
based on
time of
registration.
There are no
restrictions
as to the
number of
mortgages
which can be
registered
against a
title.
Mortgages
registered
after the
first are
often
referred to
as secondary
mortgage s
(also called
junior
mortgage s).
Secondary
mortgages
are
important
where:
A
borrower
requires
additional
funding
but does
not wish
to
disturb,
or
cannot
prepay,
an
existing
mortgage;
Additional
funding
is
required,
but the
conventional
mortgage
limits
have
been
reached;
or
The
primary
lender
does not
want
increased
exposure
due to
condition,
location,
or type
of
property.
However,
a
secondary
lender
will
assume
the risk
in
consideration
of a
higher
rate of
return.
Provinces
using the
registry
system have
traditionally
referred to
first
mortgages as
legal
mortgages
and
secondary
mortgages as
equitable
mortgages.
The legal
mortgage
transfers
the estate
or interest
in the
property as
security for
the debt.
Since the
legal title
can only be
transferred
once, all
subsequent
mortgages
rely on
equity as
security for
the debt,
hence the
term equity
or equitable
mortgage.
Under land
titles,
mortgages
are
registered
as charges
against the
property and
no actual
conveyance
of title
occurs.
Priority is
only
distinguished
by date of
registration.
Municipal
taxes in
arrears have
priority
over
mortgages.
Consequently,
most sets of
standard
charge terms
specifically
outline
precise
methods for
payment of
taxes and
provisions
for
maintaining
these
payments,
even when
the loan is
in default.
Mortgagees
often insist
on paying
the taxes
themselves
to protect
their
security in
case of
nonpayment
of taxes by
the
mortgagor.
Typically,
mortgagors’
payments
include
principal,
interest,
and taxes
(PIT). If
taxes are
not part of
the monthly
payment, the
mortgagee
will require
proof each
year that
taxes have
been paid in
full.
Condominium
Maintenance
Fees (Common
Expenses)
Provincial
condominium
legislation
typically
provides
that common
expenses in
condominiums
have
priority
over
everything
except
taxes.
Therefore,
many
mortgagees
collect
these fees
along with
monthly
payments of
principal,
interest,
and taxes in
order to
protect
their
security.
Registration
Priority
of a
mortgage
over any
other claim
is only by
registration
on title,
and the date
and time of
that
registration.
Liens
Lien
claims
registered
on title
prior to a
mortgage
have
priority
over the
mortgage.
Judgments
Judgments
against the
owner of the
land are
encumbrances
on the land,
as the land
can always
be sold for
the
judgment.
Judgment
executions
against the
mortgagor
that arise
after
registration
of the
mortgage do
not have
priority
over the
mortgage.
Judgment
executions
registered
before the
mortgage do
have
priority
over the
mortgage.
Leases
Leases
made prior
to the
granting of
a mortgage
have
priority
over the
mortgage.
Even when
the
mortgagor
defaults,
the
mortgagee
cannot get
vacant
possession
until the
expiration
of the
lease. The
mortgagee
can,
however,
give proper
notification
of
foreclosure
or
possession
and the
lessee must
then pay
rent to the
mortgagee.
Provincial
legislation
may impact
the
relationship
of tenant
and
mortgagor.
Various
common
privileges
are
associated
with
mortgages.
Prepayment
Privilege
The
concept of
prepayment
is not a
right under
the mortgage
document,
but a
privilege.
Unless
otherwise
specified,
the
mortgagor
has agreed
to make
payments
according to
a specified
schedule and
the contract
is written
to run for a
specified
period.
Renewal
Privilege
Some
mortgages
have a
built-in
renewal
privilege.
However,
this is an
exception to
the general
rule. Most
Canadian
mortgages do
not
specifically
spell out
the
opportunity
to renew,
and
consequently,
this
opportunity
does not
exist.
Normally,
lenders
prefer to
reserve the
right to
renew based
on financial
circumstances
of the
borrower at
the end of
the mortgage
term.
Transfer
Privilege
The
ability to
transfer a
mortgage
again
depends on
the wording
of the
mortgage
document.
Generally,
three
different
approaches
exist in the
Canadian
mortgage
marketplace.
First, the
mortgagor
may be able
to transfer
without the
consent of
the
mortgagee,
but he/she
may remain
liable
through the
personal
covenant.
Second,
lenders may
now insert
sale/approval
clauses
requiring
approval of
any person
who will be
assuming the
mortgage at
the point of
property
sale. Third,
certain
lenders
insist on
non-transferability,
e.g., in the
instance
where a
borrower has
mortgaged
his/her
property
with a
lender as
security for
business
loans, or in
the case of
a credit
union who
mortgaged a
member’s
property and
does not
wish to
continue
financing
the property
after the
member sells.
Postponement
Privilege
An
existing
mortgagee,
if provided
with a
reasonable
degree of
security,
may agree to
postpone the
priority of
his/her
mortgage in
favour of a
prior
mortgage
being
replaced or
another
mortgage
being
created.
When one
party lends
money to
another,
he/she may
lend the
money
without
taking back
any security
for the
loan. If the
borrower
defaults in
repaying the
loan, the
person
lending the
money may
sue the
borrower,
but the
lender’s
claim will
rank with
any other
debts owed
by the
borrower.
However, the
lender may
choose to
take
security for
the loan
that
provides a
claim upon
the security
and takes
precedence
over other
creditors in
relation to
that
security.
Accordingly,
the main
function of
a mortgage
is to
provide
security and
that
security may
be any type
of property.
Personal
property is
often
mortgaged in
the form of
a chattel
mortgage.
For example,
security is
usually
required
when a bank
lends money
for the
purchase of
a car. If
the borrower
defaults on
the loan,
the lender
repossesses
the
automobile.
The most
common way
of creating
a mortgage
is by
registering
the mortgage
document in
the
provincial
land
registration
office
(registry or
land
titles). The
mortgage
document
declares
that the
mortgagor is
the owner of
a piece of
property and
the
mortgagee
has agreed
to loan
money on the
security of
the
property.
The document
contains
covenants,
or promises,
on the part
of the
mortgagor to
the
mortgagee in
return for
the
advancement
of funds by
the
mortgagee.
Many
standard
form
mortgage
documents
exist, but
most contain
basically
the same
covenants.
Examples of
such
covenants
are:
The
covenant
to pay
principal
and
interest
to the
mortgagee;
The
covenant
to pay
all
taxes
when
due;
The
covenant
to
insure
the
property
against
fire and
damage;
and
Registration
procedures
and
information
required in
a mortgage
document
being
registered
in the
registry or
land titles
systems will
vary by
provincial
jurisdiction.
All
documents,
including
mortgages,
registered
against a
title are a
matter of
public
record. A
search of
either
system will
reveal
ownership
and other
interests
including
mortgages.
A
provision
set out in a
mortgage
document
whereby the
lender may
extend the
term of the
mortgage
usually
subject to
revised
arrangements,
e.g., amount
of principal
repayment,
and interest
rate
amendment.
In
drafting a
renewal
privilege,
practitioners
must clearly
delineate
the terms
and
conditions
for the
further
renewal
period. For
example, a
renewal
clause might
permit the
mortgagor to
renew the
mortgage
when not in
default, on
the same
terms and
conditions
save and
except for a
further
renewal. A
more
restrictive
renewal
clause might
include a
requirement
that the
interest
rate be set
30 days
prior to the
expiration,
based on a
pre-determined
formula, and
the term be
specifically
identified,
e.g., one,
two, or
three years,
and that
such renewal
be subject
to the
continued
credit
worthiness
of the
mortgagor.
Various
types of
specialty
mortgage
financing
are
available to
serve
specific
purposes.
Selected
types are
identified
along with
encyclopedia
references
for
additional
information.
Blanket
Mortgage:
A mortgage
covering two
or more
specific
parcels of
real
property or
two or more
mortgages
Chattel
Mortgage:
A mortgage
on personal
property.
Collateral
Mortgage:
A collateral
mortgage is
a loan
backed by a
promissory
note and
then further
secured by
means of a
mortgage on
real
property.
Equitable
Mortgage:
A mortgage
subsequent
to the first
(legal)
mortgage.
Special
Purpose
Financing:
A range of
special
purpose
packages
have arisen
to meet
specific
needs.
Information
concerning
these
packages can
be found
under the
appropriate
heading.
Seller
Take-Back
Mortgage:
A mortgage
loan where
the seller
carries the
mortgage
(becomes the
lender), for
the buyer.
This allows
the buyer to
negotiate
mortgage
terms and
avoid some
of the
paperwork/regulations
imposed by
conventional
lenders.
Sets of
standard
charge terms
are
registered
in a
registry or
land titles
registration
system. Such
terms can
then be
referred to
in
individual
mortgage
documents
and do not
need to be
filed with
each
mortgage.
This
practice
results in a
significant
reduction in
the number
of pages
that would
otherwise be
processed
when
registering
a mortgage.
A
mortgage
having a
fixed
interest
rate for a
predetermined
term,
usually
between six
months and
25 years,
and cannot
be
renegotiated
except upon
payment of a
prepayment
penalty or
related
costs.
Variable
Rate (or
Floating
Rate)
A
mortgage in
which
payments are
fixed for a
period of
one to two
years,
although
interest
rates may
fluctuate
from month
to month
depending
upon market
conditions.
If interest
rates go
down, more
of the
payment is
applied to
the
principal.
If rates go
up, a larger
portion of
the monthly
payment goes
toward
interest.
Open
Mortgage
A
mortgage
that can be
prepaid at
any time
prior to
maturity,
without a
prepayment
penalty.
Closed
Mortgage
A
mortgage
that cannot
be prepaid,
renegotiated,
or
refinanced
prior to the
expiry of
the term,
except with
an interest
penalty or
other cost.
Securities packaged and
secured by pools of mortgages originated in
the primary mortgage market. This process is
commonly know as securitization, allows
mortgages to be converted into bond-like
securities of relatively small
denominations, thereby opening up financial
markets, long associated with institutional
lenders, to small investors.
Mortgage-backed securities (MBS) are debt
obligations that represent claims to the
cash flows from pools of mortgage loans,
most commonly on residential property.
Mortgage loans are purchased from banks,
mortgage companies, and other originators
and then assembled into pools by a
governmental, quasi-governmental, or private
entity. The entity then issues securities
that represent claims on the principal and
interest payments made by borrowers on the
loans in the pool, a process known as
securitization.
The NHA
(National Housing Act)
MBS represents an undivided interest
in a pool of NHA-insured residential
mortgages. As mortgages, these financial
instruments are secured by the value of the
underlying real estate.
CMHC
provides Mortgage Loan Insurance on all
pooled mortgages and an unconditional
guarantee under the National Housing Act
(NHA) of timely payment to NHA MBS
investors.
A term frequently used to
describe activity n the secondary mortgage
market in which investor groups, finance
companies, and a host of private lenders
participate in the buying and selling of
mortgage paper.
The concept of mortgage
banking has become a major part of US
financial scene. These bankers develop
portfolios of mortgages and then sell them
to investors. usually, the sale of to an
investor includes a long term management
agreement with the mortgage banker to
service and generally administer the
portfolio.
Depository institutions have
traditionally originated residential
mortgage loans to hold in their loan
portfolios, and mortgagebanking is a natural extension of
this traditional origination process.
Although it can include loan origination,
mortgagebanking
goes beyond this basic activity.
Mortgage banking generally
involves loan originations, purchases, and
sales through the secondary mortgage market.A mortgage bank can retain or sell
loans it originates and retain or sell the
servicing on those loans. Through mortgagebanking, national banks can and do
participate in any or a combination of these
activities. Banks can also participate inmortgage banking activities by
purchasing rather than originating loans.
A person
or other legal entity who carries on the
business of lending money on the security of
real estate. A mortgage broker acts as an
intermediary who sources mortgage loans on
behalf of individuals or businesses, by
arranging financing between the borrower and
the lender. Mortgage brokers are usually
paid commission directly from the lender.
Most
mortgage brokers work with all major lenders
in the market place, and by using leverage
are able to obtain better terms, conditions
and lower rates for their clients.
We
strongly recommend that you visit a mortgage
broker close by before speaking to your
banker.
One of
several methods used in income approach when
appraising property. The rate expresses the
relationship between the annual debt service
and mortgage value (principal amount), at a
particular point in time.
The
formula to calculate rate is:Mortgage Capitalization
Rate = Annual Debt Service ÷ Mortgage Value
A written
commitment by a lender, confirming the terms
under which a loan or a mortgage will be
granted to a borrower. The terms typically
include specific interest rate together with
a time period that the lender is bound by
the commitment.
Letter of
commitment is not a mortgage loan guarantee,
and is not a legal document, and only states
that based on the facts that have so far
been provided (but are unverified) the
lender is willing to extend the funding.
It is
strongly advised against treating commitment
letters as loan guarantees, in case any of
the facts stated on the application can not
be verified, the lender has the right not to
provide any funding.
Loan
guarantees are those where the lender has
verified all the facts stated on a mortgage
application and is bound by the contract.
Limiting Conditions
Normally,
limiting conditions include verification
that the taxes are not in arrears, proof of
insurance, satisfactory evidence to title to
the property being mortgaged, and the
provision of a survey acceptable to the
mortgagee.
Payment of Taxes
The
lender normally specifies a method by which
taxes are paid, lenders may require the
borrower to include taxes within monthly
mortgage payments.
Fire Insurance
Usually
cancelled by the seller and rewritten by the
buyer, prior to closing date. Full
replacement coverage must be in place to
sufficiently ensure the lender.
Acceptance/Guarantee of Terms
The
commitment will contain a time limit for
acceptance. Normally, quoted interest rates
are good for a specific time period
(anywhere between 30-90 days from the date
of acceptance).
The
percentage of a loan that must be paid
periodically to pay off the debt. The
mortgage constant is typically expressed as
a yearly percentage. The constant for fully
amortized loans is calculated by dividing
yearly principal and interest payments by
the amount of the mortgage.
Mortgage Constant = Annual Debt Service ÷
Mortgage Amount
A
submission containing information relevant
to a lender in making a mortgage financing
decision regarding a specific project or
property.
Commonly Required Documentation
Site and property
information along with relevant
statistics, sketches, valuation
estimates and associated supporting
documentation
Fully completed
mortgage application, appraisal,
verification of income/salaries, credit
check, verification of resources and
other financial commitments and the
agreement of purchase and sale
In the case of
resale properties, the lender would
insist on financial statements for the
last 3 to 5 years along with review of
all leases on the property
For new
constructions, pro forma income
statements, letters of commitment from
perspective tenants, details concerning
principals involved in the project,
feasibility studies and applicable
construction information
Most
mortgage applications are designed to elicit
information about three items; the property,
the applicants, and their financial status.
The lender may ask for an application fee
from a client, especially those with less
then perfect credit scores and from
commercial borrowers (application fees are
not refundable).
Borrowers
should provide as much information as
possible on the mortgage application, as
mortgage brokers will only forward the
relevant information required for the
financing approval to the lender.
Appraisal and Credit Check
The
lender
reviews the application, applies
GDS and
TDS
ratios, and considers the stability and
future prospects regarding the income stream
as well as personal and financial
information of the applicant.
An
appraiser or a bank representative will
inspect the property to ensure that it meets
lender criteria and determine the lending
value of the property, providing both
comparison and cost approaches.
A credit
check is always performed to verify the
stability of the applicant.
Mortgage Commitment
The
mortgage commitment is usually a letter from
the lender agreeing to make the loan subject
to satisfactory title and other conditions
that the commitment may specify.
Lender Selection
Once all
the information has been received from the
borrower, the mortgage broker will select a
few, from its list of approved lenders to
submit the mortgage application.
Listing, Offer and Acceptance
Maximum mortgage
amount and interest must be set
Financial
circumstances of the buyer must be
assessed, including the amount and
source of the downpayment
A
statement send to the borrower by the lender
each year, quarterly or monthly, containing;
Mortgagor
information: name(s) and
address
Mortgage
information: mortgage number,
mortgage type (fixe/variable), maturity
date, interest rate, amortization
remaining in months, payment frequency
(weekly, bi-weekly, monthly), principal
and interest payments (and insurance if
applicable)
Principal:
Opening balance, amount of regular and
any lump sum payments, charges or
adjustments and closing balance
Interest:
interest paid and accrued
Property
Taxes: Obtaining balance of tax
account, tax payments received, taxes
paid, adjustments (tax rebates or
refunds)
Liquidation Statement: net
about to be paid by the mortgagor to
obtain a discharge of the mortgage and
includes: principal balance, interest
from last payment date to anticipated
payoff date, tax account/reserve
balance, prepayment penalty, service or
discharge fee
Assumption Statement:
represents the amount of the mortgage
loan that is outstanding and would be
assumed by the buyer, including;
principal balance as at the due date of
the last payment to be paid by the
seller
Unpaid
Principal Balance Statement:
this statement generally provides only
the outstanding principal balance.
Interest on tax account balances may or
may not be included
Information Statement for Listing
Purposes: principal balance,
interest rate, remaining portion of
term, remaining portion of amortisation,
monthly payments, name and address of
mortgagee, if the mortgage is open or
closed - any penalties on
prepayment/payout, can the mortgage be
assumed or transferable, are there any
arrears and if so have power of sale or
foreclosure proceedings commenced
Mortgage
activity both in the primary market, i. e.
the origination of mortgages through various
lenders in Canada/USA and in the resale o f
such mortgages and related securities in the
secondary market. CMHC and GE Mortgage
Insurance play major roles in the mortgage
market through the insuring of loans and
promote both activity in primary and
secondary markets.
The gradual
retirement of a debt by means of periodic
partial payments of principal and interest.
Amortized
loans are commonplace both for residential
and commercial properties. Detailed
printouts assist in explaining the gradual
retirement of the debt through periodic
payments of principal and interest. The
amortized mortgage provides for a blended
payment (weekly, bi-weekly, monthly,
semi-monthly, or other periodic installments
during the loan term). Amortized loans,
through the use of a blended payment,
provide a steadily declining interest
portion along with an increasing principal
portion for each successive payment. In
combination, these blended payments result
in the gradual reduction in the mortgage
balance over the amortization period.
Visit mortgage amortization to see an
example.
Mortgage Averaging
A process of deterring
the average interest paid on two or more
mortgages, ideally having the same term and
amortization. By averaging the interest
rates, better comparisons of financing
alternatives is possible.
CMHC Insurance Fees
For most
people the hardest part of buying a home —
especially the first one — is saving the
necessary down payment. Many people
will not have 20% of the purchase price to
put down. With mortgage loan insurance,
you can put as little as 5% down. Mortgage
loan insurance protects the lender and, by
law, most Canadian lending institutions
require it. The way it works is if the
borrower defaults (fails to pay) on the
mortgage, the lender is paid back by the
insurer. The cost for this type of insurance
is in the form of a premium and can be paid
in a single lump sum or it can be added to
your mortgage and included in your monthly
payments.
CMHC is a
major provider of this type of insurance in
Canada and its current loan premiums are as
follows:
Financing Required
Premium % of Loan
Amount
Up to
and including 65%
0.50
Up to
and including 75%
0.65
Up to
and including 80%
1.00
Up to
and including 85%
1.75
Up to
and including 90%
2.00
Up to
and including 95%
Traditional Down
Payment
Flex Down
2.75
2.90
Up to
and including 100%
3.10
Secured Line of Credit
Surcharge
Non-amortized repayment
option:
5 years
10 years
0.25
0.50
Extended Amortization
Surcharges
Greater than 25 years,
up to and including 30
years
Greater than 30 years,
up to and including 35
years
Greater than 35 years,
up to and including 40
years
0.20
0.40
0.60
*Premiums in Ontario and
Quebec are subject to
provincial sales tax — the
sales tax cannot be added to
the loan amount.
Get a Mortgage
Pre-Approval
Once you've made the
necessary calculations and feel that you are
ready to obtain a mortgage, it's a good idea
to select a lender to get pre-approved. This
means that the lender will look at your
finances to establish the amount of mortgage
you can afford. At that time, the lender
will give you a written confirmation or
certificate for a fixed interest rate good
for a specific period of time.
Some buyers may not wish to pursue a
mortgage pre-approval until they have found
the home they want to buy. However, the idea
of having a pre-approved mortgage amount
makes the search for your new home much
easier and less time-consuming because you
have a good price range in mind.
Mortgage
payment factors per $1,000 of mortgage
amount are provided for selected interest
rates and amortized periods based on weekly,
bi-weekly, semi-monthly and monthly
payments.
A number
of mortgage payment plans are currently
available for the borrower;
Interest Only (or a straight loan)
Does not
require the borrower to repay any of the
principal of the mortgage until maturity
date, thus reducing the monthly mortgage
payment amount. This type of payment plan is
not recommended as the principal amount of
the original mortgage will never decrease.
Interest Plus Specified Principal
Sometimes
is also referred to as a straight
principal reduction plan. The
borrower agrees to repay fixed amount of
principal at specified intervals during the
term of the loan. At regular intervals, the
borrower is also asked to pay interest which
is payable only on the outstanding balance
of the loan during any given interval.
Blended (Amortized)
This plan
provides for equal payments that are made at
regular intervals, during the term of the
mortgage. Each payment is a blend of part
principal part interest.
Variable Rate
A
variation on the blended plan in which the
interest rate fluctuates according to the
market rate with adjustments either to the
payment or the term
A
collection of mortgages originated in the
primary mortgage market that is subsequently
sold as a group or portfolio. This packaged
grouping is then used as security for the
issuance of
mortgage backed securities in the
capital market.
Mortgage
pools are the simplest form of
mortgage-backed security. They are also
known as "pass-through"
and trade in the to-be-announced
(TBA) forward market.
Pass-through or pools are
comprised of mortgages with close to the
same maturity and interest rate. However, a
pool of mortgages that backs a more complex
mortgage-backed security or CDO might
consist of mortgages of more varying
interest rates and characteristics.
Mortgage
backed securities in smaller denominations
are then sold to investors.
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