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Arranging a mortgage
You Should Know
Assuming an Existing Mortgage
By assuming the existing mortgage, you may be able to
save on the usual mortgage fees such as appraisal and legal fees. You'll save time,
since you don't have to negotiate to arrange financing from another lender and the
existing mortgage on the home may be less than the current market rates. Unless
otherwise specified, you'll still have to qualify with the lender first!
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Vendor Take Back
With a VTB, the vendor also becomes a lender, holding
all or some of the mortgage. Sometimes the vendor will offer this loan at lower
than bank rates.
Rate of Interest
Quite simply, interest is the cost of borrowing money.
There are two types of rate structures: fixed and variable.
A fixed-rate mortgage will remain the same for the length of the negotiated term.
Your payment schedule is established in advance. You can choose either an open or
closed mortgage, depending on the term.
If you are going to need a high-ratio mortgage, the mortgage broker may require
that you take a longer term mortgage (usually, at least 3 years) so you don't get
into trouble if rates rise in the short term. The mortgage will always be closed
but with privileges. Often mortgages only come in two terms; 6 months and one year.
Both are generally at higher rates than a closed contract for the same time period.
A variable-rate mortgage fluctuates with the prevailing market cycles. Your monthly
payment will remain constant (usually for a year or two), but the amount allocated
to your principal will vary. If the market trend is toward lower rates, this may
be a good option. If rates are rising, you may choose to convert to a fixed-rate
mortgage. But if you're on a tight budget, you may not like the feeling of uncertainty.
You may be willing to pay more for peace of mind.
Mortgage Terms
Over the course of your amortization period, you may have many different mortgages.
The term is simply the length of time that interest rates, payment schedules and
obligations to the lender exist. When the term comes to a close, you will have the
option to renew your mortgage (taking into account current market conditions) at
your current or new lending institution. You can also put a lump sum toward the
principal without restriction, or pay off your entire mortgage without penalty.
If you wish to change the structure of your agreement during the term you may have
to pay a substantial fee to the lender.
Choosing Security or Flexibility
Mortgages are available with closed, open and convertible options, with fixed or
variable rates. The options you choose will reflect your beliefs about the market
-- is it going up or down? -- and your short-term goals and desire for long-term
security.
Arranging a mortgage
You Should Know
Assuming an Existing Mortgage
By assuming the existing mortgage, you may be able to
save on the usual mortgage fees such as appraisal and legal fees. You'll save time,
since you don't have to negotiate to arrange financing from another lender and the
existing mortgage on the home may be less than the current market rates. Unless
otherwise specified, you'll still have to qualify with the lender first!
|
Vendor Take Back
With a VTB, the vendor also becomes a lender, holding
all or some of the mortgage. Sometimes the vendor will offer this loan at lower
than bank rates.
Rate of Interest
Quite simply, interest is the cost of borrowing money.
There are two types of rate structures: fixed and variable.
A fixed-rate mortgage will remain the same for the length of the negotiated term.
Your payment schedule is established in advance. You can choose either an open or
closed mortgage, depending on the term.
If you are going to need a high-ratio mortgage, the mortgage broker may require
that you take a longer term mortgage (usually, at least 3 years) so you don't get
into trouble if rates rise in the short term. The mortgage will always be closed
but with privileges. Often mortgages only come in two terms; 6 months and one year.
Both are generally at higher rates than a closed contract for the same time period.
A variable-rate mortgage fluctuates with the prevailing market cycles. Your monthly
payment will remain constant (usually for a year or two), but the amount allocated
to your principal will vary. If the market trend is toward lower rates, this may
be a good option. If rates are rising, you may choose to convert to a fixed-rate
mortgage. But if you're on a tight budget, you may not like the feeling of uncertainty.
You may be willing to pay more for peace of mind.
Mortgage Terms
Over the course of your amortization period, you may have many different mortgages.
The term is simply the length of time that interest rates, payment schedules and
obligations to the lender exist. When the term comes to a close, you will have the
option to renew your mortgage (taking into account current market conditions) at
your current or new lending institution. You can also put a lump sum toward the
principal without restriction, or pay off your entire mortgage without penalty.
If you wish to change the structure of your agreement during the term you may have
to pay a substantial fee to the lender.
Choosing Security or Flexibility
Mortgages are available with closed, open and convertible options, with fixed or
variable rates. The options you choose will reflect your beliefs about the market
-- is it going up or down? -- and your short-term goals and desire for long-term
security.
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