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Arranging a mortgage
Overview
What is a Mortgage?
A mortgage is made up of two parts: principal and interest. Principal is the actual
amount borrowed. Interest is the lender's fee you are charged for borrowing.
You'll have to decide on an amortization period (the length of time it will take
to completely pay off the mortgage) and the term, or length of time each mortgage
agreement guarantees the interest rate.
Before you go to a financial institution or mortgage broker, keep in mind that there
are many mortgage options available. Shop around for the best rates and the best
terms. Negotiate. Everyone wants your business, but it's up to you to look after
your interests. Of course, the key thing to remember is to negotiate a mortgage
that fits into your lifestyle, and doesn't take over your life! Your mortgage broker
can help guide you through this process and supply you with information.
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Amount of the Mortgage
With lower interest rates, you may qualify for a larger mortgage because your monthly
payments will be lower. But always keep in mind that the larger your mortgage, the
more interest you'll pay in the long run. That simply means your house will cost
more. Also, what if interest rates rise? Will you still be able to carry the payments
comfortably?
Down Payments
Before considering
any mortgage, consider your down payment. If you're a qualified home buyer, you
can purchase a house with a minimum 5% down payment. On a $160,000 home that would
be an $8,000 down payment, leaving you with a $152,000 mortgage. Assuming you negotiate
an interest rate of 8% for your mortgage, you're monthly payment for principal's
interest would be $1160. Now let's say you decide o wait until you save another
$10,000 before you buy because you think the bigger down payment will lower your
monthly payments. Well, at 8%, putting $10,000 more down on your house will only
save you $76.32 per month, you might be better off saving $10,000 for a rainy day
or a vacation or that hot tub you've been dreaming about. With today's interest
rates, it just doesn't make sense to tie up your cash to save $76.32. You might
be better off putting your extra money to work for you in another investment with
a higher rate of return.
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment
of the purchase price, with the mortgage not exceeding 75% of the appraised value.
If your down payment is less than 25%, then you qualify for a high-ratio mortgage.
This type of mortgage requires loan insurance, which can cost an additional 0.5%
to 3.75% of the mortgage amount. With this type of mortgage you could also be limited
to a maximum house price.
Pre-Approved Loans - Obtaining a Pre-Approved Mortgage
Why go house hunting only to find that you don't qualify for a mortgage on the dream
home you've found? Having a pre-approved mortgage will give you the confidence of
knowing exactly what you can spend on a home before you start looking. You will
also be protected against interest-rate increases while you look for your new home.
Once you've done your homework and shopped for the best rate, meet with the loans
officer to arrange a pre-approved mortgage and discuss the features you're looking
for to tailor payments to your needs. It could take a few days, but give your lending
institution about two weeks. It will eliminate potential headaches down the road.
Pre-Approved Mortgage Features to Look For
- Competitive interest rates. You may be willing to pay a little more to get the flexible
features you desire.
- A 90-day rate guarantee. This will protect you against rising interest rates while
allowing you to take advantage of falling rates.
- Flexible payment options. These enable you to tailor the mortgage to your lifestyle.
Discuss payment frequency and lump-sum payment options. Find out if your lending
institution will allow you to skip a payment in special circumstances or double-up
on your payments.
- Closing Costs: ask about the lender's policy with respect to realty tax holdbacks
on closing.
Arranging a mortgage
Overview
What is a Mortgage?
A mortgage is made up of two parts: principal and interest. Principal is the actual
amount borrowed. Interest is the lender's fee you are charged for borrowing.
You'll have to decide on an amortization period (the length of time it will take
to completely pay off the mortgage) and the term, or length of time each mortgage
agreement guarantees the interest rate.
Before you go to a financial institution or mortgage broker, keep in mind that there
are many mortgage options available. Shop around for the best rates and the best
terms. Negotiate. Everyone wants your business, but it's up to you to look after
your interests. Of course, the key thing to remember is to negotiate a mortgage
that fits into your lifestyle, and doesn't take over your life! Your mortgage broker
can help guide you through this process and supply you with information.
|
Amount of the Mortgage
With lower interest rates, you may qualify for a larger mortgage because your monthly
payments will be lower. But always keep in mind that the larger your mortgage, the
more interest you'll pay in the long run. That simply means your house will cost
more. Also, what if interest rates rise? Will you still be able to carry the payments
comfortably?
Down Payments
Before considering
any mortgage, consider your down payment. If you're a qualified home buyer, you
can purchase a house with a minimum 5% down payment. On a $160,000 home that would
be an $8,000 down payment, leaving you with a $152,000 mortgage. Assuming you negotiate
an interest rate of 8% for your mortgage, you're monthly payment for principal's
interest would be $1160. Now let's say you decide o wait until you save another
$10,000 before you buy because you think the bigger down payment will lower your
monthly payments. Well, at 8%, putting $10,000 more down on your house will only
save you $76.32 per month, you might be better off saving $10,000 for a rainy day
or a vacation or that hot tub you've been dreaming about. With today's interest
rates, it just doesn't make sense to tie up your cash to save $76.32. You might
be better off putting your extra money to work for you in another investment with
a higher rate of return.
Conventional and High Ratio Mortgages
To qualify for a conventional mortgage, you simply have to have a 25% down payment
of the purchase price, with the mortgage not exceeding 75% of the appraised value.
If your down payment is less than 25%, then you qualify for a high-ratio mortgage.
This type of mortgage requires loan insurance, which can cost an additional 0.5%
to 3.75% of the mortgage amount. With this type of mortgage you could also be limited
to a maximum house price.
Pre-Approved Loans - Obtaining a Pre-Approved Mortgage
Why go house hunting only to find that you don't qualify for a mortgage on the dream
home you've found? Having a pre-approved mortgage will give you the confidence of
knowing exactly what you can spend on a home before you start looking. You will
also be protected against interest-rate increases while you look for your new home.
Once you've done your homework and shopped for the best rate, meet with the loans
officer to arrange a pre-approved mortgage and discuss the features you're looking
for to tailor payments to your needs. It could take a few days, but give your lending
institution about two weeks. It will eliminate potential headaches down the road.
Pre-Approved Mortgage Features to Look For
- Competitive interest rates. You may be willing to pay a little more to get the flexible
features you desire.
- A 90-day rate guarantee. This will protect you against rising interest rates while
allowing you to take advantage of falling rates.
- Flexible payment options. These enable you to tailor the mortgage to your lifestyle.
Discuss payment frequency and lump-sum payment options. Find out if your lending
institution will allow you to skip a payment in special circumstances or double-up
on your payments.
- Closing Costs: ask about the lender's policy with respect to realty tax holdbacks
on closing.
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