A Guide to Real Estate Mortgages

Many people struggle with the decision to buy or lease a home. It’s important to know if you want to own a home before getting yourself entrenched in the process of a real estate mortgage.

But once you determine that you’re ready for homeownership, the next step is to choose a home you can afford. With each mortgage payment, you will be building equity in your own place. It’s essential to consult a mortgage professional to help you determine how much mortgage you can carry comfortably. This will help you evaluate your financial position and set achievable goals concerning the repayment timeline.

Whether you’re a first-time homebuyer or you want to ensure that you’re ready for your next property purchase, here’s a simple guide for the real estate mortgage process:

How much debt can you afford?

A mortgage has four components that affect the affordability of a property and the mortgage, namely: principal, interest, taxes, and insurance. The principal is the total worth of the property for which you hope to be financed. This is usually about 80% of the property’s value. The interest refers to the amount of money you pay the lender for financing your mortgage loan. Property taxes are paid in perpetuity, depending on the location of your home. Insurance is also a lifetime cost that depends on the value of your property.

Lending institutions and mortgage insurers use a formula to determine whether you can afford a mortgage. It can be assessed based on your gross debt service (GDS), which includes your total homeownership costs discussed above, including mortgage payments, property taxes, and other fees. The second measure is your total debt service (TDS), which includes the GDS and debt payments (credit cards, loans, lines of credit), relative to your income. In order to qualify for mortgage insurance, the maximum permitted GDS ratio is 39%, and the maximum allowed TDS is 44%.

How soon can you get the down payment?

For many Canadians, your home is the biggest single purchase you’ll ever make. Getting a mortgage allows you to stretch the payments out over a few years, so you don’t have to save the full $500,000 (national average home price) before moving into your own home. The minimum down payment required for a home is 5%, which translates to about $25,000.

Get Your Mortgage Pre-Approved

You must get a mortgage pre-approval before you can start looking for your new house. A pre-approved mortgage implies that the lending institution has already vetted you for a specific mortgage amount after investigating your financials, including credit rating and income. You will know how much you can spend, your interest rate, and even your monthly payments.

Mortgage pre-approval is the first step in your mortgage approval process and will allow you to move fast and place an offer, which is crucial in a competitive housing market. This, however, doesn’t mean that your mortgage is guaranteed. But if you make an offer on a home you’re interested in, the lender will assess its value to ensure it’s reasonably priced, update your application with specific figures from the property, and re-verify your financials before giving their final approval.

If you can’t put up at least 20% of the down payment, then you must get mortgage insurance. The final mortgage will then be signed off with the approval of the mortgage insurer.

Final Note

The mortgage pre-approval locks in the lender’s mortgage rate for a specific period of 60, 90, or 120 days while you look for a house. So, rising interest rates won’t affect the agreed rates during the period. Also, keep in mind that federal mortgage rules require all borrowers to pass a financial stress test of 200 basis points above the contracted rate (the 5-year Bank of Canada Benchmark) to qualify for a mortgage.

For more information on real estate mortgages, call Northwood Mortgages at 866-307-0747 or contact us here.

source: northwoodmortgage.com

How Monthly Payments Work for a 30-year Fixed-rate Mortgage

When looking for mortgage solutions, the number of options at your disposal can be daunting. For instance, some people may opt for a second mortgage, while others may opt for a 30-year fixed-rate mortgage instead. In Canada, the 30-year fixed-rate mortgage is more popular than the second mortgage option, and accounts for roughly 80% of all home purchases; its popularity has not waned since its inception. Here, we will focus on how monthly payments work for a 30-year fixed-rate mortgage.

What is a fixed-rate mortgage?

A 30-year fixed-rate mortgage is a loan issued by a financial institution that has an interest rate that is fixed for the duration of the loan. It usually has a repayment term of three decades, although the homeowner can refinance or sell their home before the 30-year term ends if they wish. The interest rate is determined when the loan is first issued to the homebuyer.

How Principal and Interest Payments Work

When you make your monthly mortgage payments, a part of the amount will be put towards the interest on the loan, while a portion will be invested towards the principal amount. During a conventional 30-year fixed-rate mortgage, you would be paying mostly interest payments during the first few formative years of your mortgage. As such, you are likely to struggle to reduce the principal by any significant amount during the first few years of the mortgage.

However, as time persists the financial tables turn, and the composition of your monthly payments will flip, as less money will go towards the interest and more is applied towards reducing the principal amount that you borrowed. As you enter the later years of your 30-year fixed-rate mortgage, more of your monthly payment will be put towards paying back the principal, which will allow you to build equity at an accelerated pace.

Your Monthly Payment Remains Constant

While the composition will change over the lifespan of your mortgage, in terms of the payment charges, the actual total amount that you will be expected to pay will not change whatsoever. Moreover, the interest rate that you are expected to pay will also not change. It is for this reason that this mortgage solution is referred to as a 30-year fixed-rate mortgage, as the rate amount remains constant.

Another option that some Canadians may decide to take is an adjustable-rate mortgage. As the name implies, the interest rate may fluctuate throughout the loan, which makes it a riskier option for many Canadians, while the fixed-rate mortgage option is arguably the safer of the two.

To learn more about fixed-rate and variable mortgages, call Northwood Mortgages at 888-492-3690 or contact us here.

source: northwoodmortgage.com

Home Equity vs. a Loan: How to Choose the Best Option

For many Canadian homeowners, their home is the biggest investment they will make in their lifetime. There are several options for loans for homeowners, and in this article we’ll look at two options: an equity mortgage versus a mortgage loan.

Home Equity Mortgage

A home equity mortgage is different than a regular mortgage loan in that it acts more as a line of credit. If you take out an equity mortgage, the bank will agree to lend you a certain amount, but with the equity in your home acting as collateral.

An equity loan will usually have lower interest rates than a line of credit, and these rates will usually be variable, fluctuating with the market.

An equity mortgage does not require a monthly payment like a traditional mortgage loan does. Rather, it works like a credit card where you will need to make a minimum monthly payment. Taking out only what you need rather than having to make a set monthly payment can help homeowners save money on interest rates.

Many homeowners prefer the flexibility of an equity mortgage. However, it can be riskier than a traditional mortgage in that if you cannot make your payments, your home is at risk.

Mortgage Loans

A traditional mortgage loan can come as a fixed rate mortgage or variable rate mortgage. First, you will need to be approved by your lender. Once you have been approved, your mortgage is calculated based on your income, any existing debt, and the price of the property. Mortgage rates are based on the mortgage market.

Whether you have a fixed or variable rate mortgage, you will make the same monthly payment for the duration of your mortgage term. With a variable rate mortgage, the interest rate fluctuates based on the rates set by the bank. A variable rate mortgage, though riskier than a fixed rate, can save homeowners money if interest rates fall, and offer greater flexibility.

The biggest factor in deciding which loan is right for you is your financial planning. A mortgage loan is best for people who want to pay off their mortgage in a specific amount of time and make the same payment each month. A home equity mortgage allows greater flexibility and can be more adaptable, especially if you have unexpected expenses.

There are many complex factors when it comes to choosing the right loan. Consult one of our professional, experienced mortgage agents today to discuss which option is right for you!

source: northwoodmortgage.com

The Difference Between Fixed Rate Mortgages And Variable Rate Mortgages

One of the first questions that homebuyers ask when taking out a loan is: Should I get a fixed rate mortgage or variable rate mortgage? It’s not something that should be taken lightly, because the difference between the two loans could translate into thousands of dollars over time. One is not necessarily better than the other. The one you eventually choose will depend on your personal taste, financial situation, and the prevailing economic climate.

Fixed Rate Mortgages

Fixed mortgage rates are as the name implies: fixed. The interest that is established when the loan is first taken out is the interest you will pay for the duration of the loan. This is regardless of the prime interest rate, which could be higher or lower than what you are paying on your mortgage.

Advantages: Fixed rate mortgages are a good choice for those who are seeking peace of mind when it comes to their finances. If your income is fairly stable and predictable in the near (and perhaps long-term) future, then you can afford the luxury of knowing that regardless of what happens, your rate won’t change.

Disadvantages: The major disadvantage is that you cannot take advantage of low interest rates and may very well end up paying more than you would if you had taken a variable rate mortgage.

Variable Rate Mortgages

Variable rate mortgages, on the other hand, are not fixed. The interest rates fluctuate according to economic conditions, and this could be above or below what you would be paying on a fixed mortgage. Variable rates do carry an element of risk, but they can be worthwhile if interest rates dip for a prolonged period of time.

Advantages: If interest rates are set to fall in the coming months, then you would be much better off with a variable interest rate. It is good for those who have an appetite for risk and are in a position to pay the current rate in anticipation that it will drop in the coming months. Historically, variable rates have proven to be less expensive over time, but you need to be able to see things from a long-term perspective.

Disadvantages: Rates can go up instead of down, and if you aren’t prepared for the challenges that come with this, then you could be in a difficult position.

You should go over your financial situation as well as the prevailing economic conditions with a qualified financial advisor. At Northwood Mortgage, our agents will be happy to help you make the best decisions in light of your situation.

source:  northwoodmortgage.com

Purchasing Or Refinancing A Home? How to Play it Safe

When it comes to purchasing or refinancing a home, you want to play it safe because mortgage fraud is something you definitely don’t want to get caught up in.

Mortgage fraud takes places when a person intentionally provides erroneous data on a loan application in a bid to get a mortgage that he or she probably would not have qualified for had he or she entered accurate information on the loan application. You need to be aware of this sort of crime so that you don’t fall prey to con artists.


What is Mortgage Fraud? 


Various sorts of mortgage fraud exists. One very popular one involves a criminal finding an unsuspecting person with good credit to serve as a so-called straw buyer. As part of this scheme, the crook will seek to have the straw buyer place his or her name on the home mortgage form. The con artist may, in exchange for the straw buyer’s assistance, promise to pay a sum of money or offer some other incentive.

Although the promised payday may prove alluring to the straw buyer, the truth of the matter is that the straw buyer will be the one left to shoulder responsibility should the mortgage default. If it’s proven that the straw buyer understood that he or she will fully engaged in fraudulent activity, he or she could be forced to cover any post-property sale shortfall, and could also be dealt criminal charges.

How Can You Remain Safe From Mortgage Fraud?

Fortunately, there are plenty of ways to steer clear of mortgage fraud. For example, you should refuse to accept any payment or reward offered to place your name on a mortgage application unless you plan to buy the property in question.

Another tip is to work only with real estate agents and other industry professionals. You also need to, among other things, keep your personal information private. Nefarious people who have access to your personal information can potentially use ID theft in order to commit mortgage fraud — without your knowledge.

Don’t fall victim to mortgage fraud. When purchasing or refinancing a home, be sure to go through the proper channels to get your business taken care of properly. If you work with industry professionals, steer clear of too-good-to-be-true offers from potential con artists and guard your personal information. This way you’ll be able to safely purchase or refinance your home.

source: northwoodmortgage.com

Tips On How To Plan For Your Closing Costs

When you know that you are going to apply for a mortgage, it is best to begin saving for the closing costs. On average, closing costs cost anywhere from $2,500 to $6,000. These costs vary by location and other matters that also affect the rate. Fortunately, closing costs are usually the only upfront cash payment that usually needs to be made when a mortgage loan is cleared.

What Are Closing Costs For?

Closing costs are the fees due in order to close out a real estate transaction. When the title is transferred over to the soon-to-be-new home owner, the closing costs are then due. Closing costs are usually determined between the real estate agents whom are capable of wheeling and dealing at the cost in which you will ultimately be required to pay.

Considering that closing costs are almost never optional, it is best to assume that you will need to pay anywhere from 2% to 5% of the cost of the mortgage loan in closing fees. In some cases, you may be able to have the closing costs wrapped into the mortgage, but this isn’t common.

Closing costs cover lender’s fees, service costs, escrow, and settlement services, among other small fees. Basically it covers the costs of services for anyone involved with the transaction. It’s important that you prepare yourself as necessary to pay these costs as soon as they are due.

Begin saving money for the closing costs as soon as you learn that you were accepted by the mortgage lender. This should give you plenty of time to save up the thousands of dollars needed, unless you are in a hurry to make a deal on a property. Either way, save a little money out of every paycheck to cover the closing costs when they arise.

Other than the closing costs being due at the end of the transaction, you may also need a hefty down payment to put on a property. Make sure you consider all of these fees associated with a mortgage loan and save whatever it is that you need. It’s always safe to save about 25% to 30% of the mortgage loan to pay out in cash fees for closing costs and the down payment combined. Saving that much should be more than enough to cover all the costs.

For more information on closing costs, talk to Northwood Mortgage today!

source: northwoodmortgage.com