Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the...

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Page 1: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Mortgage Questions

By: Vennugha & Ahmad

Page 2: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Renting to Owning 1) Purchasing your own home may be the single biggest

investment you’ll ever make, one that could pay of significantly in the long run. Give an example of this considering that there has been a 65% increase in the value of the average Canadian home in the past 10 years.

o Purchasing a home is the single biggest investment one will ever make

o It pays off in the long run due to many factors that cause the value to appreciate over time

o Example: If you purchased a home in 1995 at $300 000 and there had been an appreciation in the housing market of 65% over the 10 year time period, then your new house would be valued at $495 000. This is almost $200 000 increase and represents a significant investment.

By: Vennugha & Ahmad

Page 3: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Renting to Owning2) What does “building equity in your home” mean?

o One of the primary goals of home ownershipo Equity is simply the difference between the current value of a

property and the balance of all mortgage obligations.o For example, if you have a home that is valued at $175,000 and a

mortgage balance of $147,000, you have $28,000 in. That $28,000, as long as the market remains stable, is like money in the bank.

o Over time as you pay off your debt and the value of the house appreciates you build equity in your home as the over all balance shifts more to the value of the house rather than the mortgage balance.

o Building equity over your home means to build value of your home

By: Vennugha & Ahmad

Page 4: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Renting to Owning3) Why is purchasing a home, a good investment compared to the

stock market?

o Housing is a typical stable investment which offers good rates of return

o As to the stock market, the investments that you make towards it can fluctuate

o This way your home normally offers you a dependable rate of returno You cannot live in a stock portfolio when in a house you can do

many things inside and outside your beautiful home that you owe

By: Vennugha & Ahmad

Page 5: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Renting to Owning4) The article talks about no roller coaster ride for today’s

buyers…is this true even today? Explain.

o As this article talks about the no roller coaster ride for today’s buyers, as of now we may want to think if the same situation occurs even today.

o After the recession that we just had, it seems to be true as of today that as demographics, immigration and a sound economy are all factors supporting the belief that a home will continue to be a good investment, at lease in most parts of Canada

o But before the recession, it was the total opposite of this situation

o A while ago, we had a period of time where we had low inflation and high interest, as both help to maintain a strong, but as it is steady, market for homes without huge difference of the prices from time to time

By: Vennugha & Ahmad

Page 6: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

5. What is the tax advantage to purchasing a home?

• If you sell your home for more than you bought it for, then you don’t have to pay taxes on the difference you make

By: Allison and Shajitha

Page 7: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

1. What are the four new financial obligations that you should be

prepared to assume as a homeowner?

• Property taxes

• Utilities

• Condominium Fees

• Maintenance and Upkeep

By: Allison and Shajitha

Page 8: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Property Taxes

• This is a payment that must be made semi-annually

• Can be paid directly to municipality or included in your monthly mortgage payment

• This amount is calculated by using 1/12 of your previous year’s tax bill amount

By: Allison and Shajitha

Page 9: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Utilities

• Monthly bills for items such as:

• Heating• Gas• Electricity• Water• Telephone• Cable

By: Allison and Shajitha

Page 10: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Condominium Fees

• Monthly fee used to pay for upkeep of exterior and common areas (pool, shovel snow, hallway maintenance)

• This fee is paid by anyone living in a condo or certain town houses

By: Allison and Shajitha

Page 11: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Maintenance and Upkeep

• Includes interior and exterior aspects such as painting, roof repairs, electrical and plumbing, lawn care, snow removal, walks and driveways, and periodic renovations

• These fees depend on the person because some of these costs are optional

• Ex. If you choose to shovel snow yourself you’re excluded from paying this fee.

By: Allison and Shajitha

Page 12: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

2. Generally how much of a down payment is needed? Are there

exceptions to this? Explain how these types of a mortgage differ.

• Conventional mortgage - at least 20%

• Low down payment mortgage - minimum 5%

• Exception- No Down payment- at least 1.5%

By: Allison and Shajitha

Page 13: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Explain how these types of a mortgage differ.

Conventional– Offers variable or fixed interest rate basis– Lowest carrying cost because don’t need to be

insured against default

Low down payment– Must be insured to cover potential default of payment – Higher carrying cost because they include the

insurance premium

No down payment– Covers initial deposit and closing costs

By: Allison and Shajitha

Page 14: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

3. Why is it beneficial to put a larger down payment down when

purchasing a home?

• Because then you end up paying less in the long run since you have a smaller mortgage so the accumulated interest costs are less

By: Allison and Shajitha

Page 15: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

How much would you save in interest costs on the purchase of a $100,000 home if you put 25% down versus 5%?

Down Payment % Down Payment Amount Mortgage Principal Total Interest Paid

5% $5 000 $95 000 $122 512

25% $25 000 $75 000 $96 717

Difference: - $20 000 $20 000 $25 795

You would save $25 795 from interest, however, the down payment amount is larger.

Gail & Stephanie

Page 16: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

List and briefly explain the sales closing costs and extras. Inspection Fee – The inspection may bring to light areas where repairs or maintenance are required and will assure you that the house is structurally sound.

Mortgage Application Fee –Some financial institutions will charge a mortgage application fee for processing your application. If your request for a mortgage is turned down, the mortgage application fee is returned to you. This fee is also charged by some institutions each time your mortgage is renewed.

Appraisal Fee –to ensure that the property you are buying meets its criteria a mortgage. You are generally responsible for the cost of the appraisal.

Legal/Notarial Fees –you will need a lawyer or notary to act for you in the purchase and mortgaging of the property, and you will be responsible for paying the legal or notarial fees and disbursements. Fees for these services may vary significantly, so shop around before you make your decision.

Closing or Adjusting Costs –These costs are payable, usually through the lawyer or notary, when the sale is closed. Standard adjustment costs include property and school taxes, utility bills and condominium common expenses, if applicable, that may have been paid by the vendor prior to closing.

Page 17: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

List and briefly explain the sales closing costs and extras. Cont’d Interest Adjustment Costs – cab be potential cash-flow killer so please take note of your lender’s policy. Most lenders expect the first mortgage payment one month after closing the purchase –however, if you close mid-month, some lender expect the first payment at the beginning of the month, two weeks before you would normally expect. Or they charge a pro-rated interest to make up the difference. When arranging your mortgage, ask how interest is collect to the interest adjustment date. By asking the right questions, you can avoid a cash-flow crisis on closing.

Land Transfer Tax –Sometimes known as the “Welcome Tax,” most provinces levy a one-time tax based on a percentage of the purchase price of the property.

Property Insurance – All homes must have adequate insurance coverage against fire and other risks off loss, theft and liability. Your mortgage lender requires that you provide your lawyer or notary with proof that your insurance is in place by the closing date.

Moving Costs – whether the move into your new home is a do-it-yourself affair or you hire movers, there will be costs involved. If you plan to move during the peak spring/summer months, you should contract for service two to three months in advance if possible.

Additional Costs –Depending on the type f mortgage you decide upon and the province in which you buy, there could be additional costs; for example, default insurance premiums (for low down payment insured mortgages), cost of a survey of the property- or a new home warranty fee.

New Home Costs – Most new homeowners will likely need to buy certain items early on. It’s a good idea to tally up the costs of items you think you’ll need in the short term and factor these expenses into your financial costs.

Page 18: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Aside from the actual mortgage payment, what are other monthly

obligations you will have as a home owner? Briefly describe them. Property taxes Property taxes are usually billed twice a year at six-month intervals and can be paid in two ways. You may remit them directly to the municipality, in which case you may be required to periodically show proof of payment to your financial institution. Alternatively, and some financial institutions make this a stipulation, you may include a provision for the payment of your property taxes in your monthly mortgage payment. Your financial institution will retain your tax contributions in a separate account, remitting them on your behalf as required by your municipality.

School taxesIn some municipalities, school taxes are integrated into the property taxes; in other municipalities, they are collected separately and are payable in a single lump sum. In the latter case, school taxes for the upcoming academic year are generally due at the end of the current school year.

Page 19: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Aside from the actual mortgage payment, what are other monthly obligations you will have as a home owner? Briefly describe them.

Cont’d

UtilitiesYou’ll be responsible for all the utility bills (including heating, gas, electricity, water, telephone and cable).

Condominium feesIf you have chosen to purchase a condominium unit or a townhouse, you will likely be required to contribute to exterior maintenance and upkeep of the common grounds and public areas on a monthly basis.

Maintenance and upkeepYou will also have to cover the costs of maintenance (including interior and exterior painting, roof repairs, electrical and plumbing, walks and driveway), lawn care, snow removal and, if you so choose periodic renovations.

Page 20: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

How does a prospective lender determine whether a borrower has the financial ability to meet a specific mortgage? (Explain both guidelines,

with examples)

The two most widely accepted guidelines used to estimate how much of a homebuyer’s income can be allocated to housing costs are the following:

• The Gross Debt Service ratio (GDS):GDS compares the total cost of your monthly mortgage payment, taxes, and heating with your gross month (Pre-tax) income from all sources. The general rule is that these monthly payments should not exceed 32% of your gross income.

GDS ratio = monthly mortgage payment + properly taxes +heating x 100

gross monthly income

Page 21: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

The following example, based on a family earning a gross annual income of $48,000 ($4,000 per month), will give you a better idea of how the GDS ratio is calculated.

Gross Debt Service ratio

Mortgage housing costs

Mortgage principal and interest $660

Property taxes $200

Heating costs $160

Total $1,020

Gross Debt Service Ratio should not exceed 32%. $1,020 x 100 = 25.5% $4,000

Page 22: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

• The Total Debt Service ratio (TDS)

-calculation made by your financial institution which examines the relationship between all monthly debts

-these total monthly payments should not exceed 40% of your income. TDS ratio = monthly housing costs + other liabilities (car loan, credit cards, etc.) x 100

gross monthly income

Total Debt Service ratio

Monthly housing costs $1,020

Other liabilities (car loan, credit cards, etc.)

$450

Total $1,470

Total Debt Service ratio should not exceed 40%. $1,470 x 100 = 36.8% $4,000

Page 23: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

8.) What is the general rule for GDS? Why do you think this is set as a rule?

• GDS stands for Gross Debt Service Ratio. • This ratio compares the total cost of your monthly

mortgage payment, taxes and heating with your gross monthly (before-tax) income.

• The general rule is to make sure that these monthly payments should not exceed 32% of your gross income.

• The GDS ratio is set in place to make sure that you have adequate income to cover other expenses. If your GDS ratio is too high, you may not have adequate money to cover both your mortgage payments, food bill, or cover your normal expenses.

Chris C, Troy T

Page 24: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

9.) What percentage should your TDS not exceed? Explain why you think this is the case?

• TDS stands for Total Debt Service Ratio

• The calculation is made by adding (monthly housing costs + other liabilities) divided by your gross monthly income * 100.

• This calculation examines the relationship between all monthly debts, and should not exceed 40%.

• This means that the TDS ratio states that your monthly debts and liabilities shouldn’t exceed 40% of your total income. This is in place because it prevents people from living outside their means, as well as preventing people from buying mortgages they cannot afford.

• Individuals must be comfortable handling a TDS ratio of 40%, and often some people try to get a ratio less than 40%, because they want extra money to handle unforeseeable expenses.

Chris C, Troy T

Page 25: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

10.) What is a pre-approved mortgage? Why would you want to

have one?• Many homebuyers find their “dream home” however are

later disappointed to learn that they do not qualify for the mortgage they require.

• By getting a pre-approved mortgage, you can receive a 60-day guarantee on the interest rate, protecting you against short-term interest rate fluctuations between the date of your pre-approval and the date you receive your mortgage funds.

• Pre-approved mortgages are a good idea, because if the interest rates go up during that 60-day period, you’ll automatically get the guaranteed rate; if they go down, you’ll pay the lower rate.

Chris C, Troy T

Page 26: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

11.) Why would it be a good idea to use a realtor?

• There are many advantages to seeking the assistance of a realtor who has experience in the neighbourhood in which you are house hunting.

• The realtor who will also arrange all visits and will assist you in making your offer once you’ve made your selection.

Chris C, Troy T

Page 27: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Mortgage Questions

Financial Securities

Jason Wong & Matt Torres

Page 28: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Pre-requisite to the Visit…

Before you visit your prospective home:

• Prepare a checklist of specific details to look for

• During the “home hunting” period keep a short list of potential homes you are interested in

Page 29: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

A Clean Bill of Health

• The assurance from a home inspector that the house is in adequate or good condition based on the inspection process.

Page 30: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Process to a Clean Bill of Health

• The inspector checks the roof, foundation, insulation, beams, gutters, bricks, siding and caulking; plumbing, heating, and electrical systems are tested.

• Any issues would be cited in an inspection report.

• To ensure a comprehensive view on the new home, you should accompany the inspector during the inspection of the prospective new home.

Page 31: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

An Offer to Purchase

• Once a personally qualified house is found, it is important to make an offer that clearly outlines:

– The proposed purchase price– List of all items included– Details of all financial arrangements– Closing date for the property– Full details concerning vendors mortgage if you are assuming it– Date of Occupancy– Any conditions attached to the sale– Any specific obligations to be fulfilled by the vendor before the

closing date– Time period for which the offer is in effect– A Certificate of Location for the financial institution to approve

mortgages

Page 32: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Determining a Proposed Purchase Price

The process is determined by a number of factors:

• Number of homes available

• Asking price of other comparable homes in area

• Unique selling features (i.e. a pool)

• General condition of property

• How long you need to purchase the home

Page 33: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Bargaining

• Most vendors’ asking prices are higher than what they’re actually willing to settle for, so prepare to bargain!

• Don’t be afraid to counter offer

• It is not uncommon to go through several other factors during the negotiation process

Page 34: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

End of Negotiations

• Usually the process continues until an agreement is reached on an offer.

• You can however, choose to cancel the agreed offer if needed.

Page 35: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

15) How do you determine your proposed purchase price?

The proposed purchase price depends on a combination of factors:

• Number of homes available (in general and in the neighbourhood)

• Asking price of other comparable homes in the area• Recent history of sales of comparable properties in the area• Property’s unique selling features (pool, fireplace, etc.)• General condition of the property and the area• Immediacy of your need to purchase• Vendor’s need to sell

Alex Cho-Kee and Harry G

Page 36: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

16) What is a counter offer?

Before reaching a final agreement, the buyer and vendor go through a series of negotiations over the price and other selling conditions. During this period, the vendors usually respond to the buyer’s preliminary offer with a counter offer, an offer that details specific changes or alterations (usually price). In turn, the buyer is also given the freedom to present their own counter offer. These negotiations continue until both parties mutually agree upon one set of terms.

Alex Cho-Kee and Harry G

Page 37: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

17) What is an advantage to purchasing a new home from a

builder?• You get everything you want in a home right from the start• You know where everything is, how it works, and who built it.• Your home can be customized the way you want it now, no

need for future renovations• New homes are built with energy-efficient materials and

designed to stand the test of time• Have the benefit of moving into a ready-made modern

community• New homes are also under warranty by the builder so you are

partially protected in the future.

Alex Cho-Kee and Harry G

Page 38: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

18) What questions should you as before choosing a builder?

To protect yourself as a buyer, always ask the builder these types of questions.

• Are they professional by trade?• What is their track record and how long have they been in business?• What is the reputation of the trades people who work for the builder?• Are they members of the Canadian Home builders’ Association?• What do they offer in terms of after=sales service?• What kind of warranty do they offer?• Do they have solid references?• Will they allow you to visit their work site?

These ensure that you are making an informed purchase from a credible and knowledgeable source. The answers to these questions can sometimes be what makes and breaks a deal.

Alex Cho-Kee and Harry G

Page 39: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

19. What is the agreement of purchase and sale?

- The document details every aspect of your purchase. It also fixes the closing date when you take possession of your new home- You should not sign this legal document unless your lawyer has first reviewed it. Nothing said by a real estate agent or your builder’s representatives can be relied upon unless their statements are reflected in the agreement.- If you are purchasing a condominium; you will have a few other factors to consider, including your occupancy closing and the building registration. - You can make a firm offer (you are bound once the seller accepts) or a conditional offer (valid only if certain are met, such as securing financing, selling your existing home or getting a satisfactory building inspection). If the vendor changes the offer by making a counter offer, you will have a specified amount of time to accept or make your own counter offer.

Maria C. & Alex T.

Page 40: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Continued… Whatever kind of home you purchase, usually a

5% or 15% deposit is required along with the offer. This is an advance on your own down payment to prove that you are serious. Because it can take several months to build a home, builders require a deposit to protect themselves in case the deal does not go through.

Many provinces now offer insurance on deposits for new homes. If your province doesn’t, check whether your builder offers such insurance. If your builder does not, you may be able to protect your full deposit by purchasing a new home deposit bond from an insurance company. Maria C. & Alex T.

Page 41: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

20.What is a bond deposit and how does it work?

A builder will always request that you make a deposit on your new construction home and many will require partial payments throughout the construction period.

In some cases, the deposit is staggered. Say 10% on offer, 30% paid 90 days after the offer is accepted, etc. The total deposits can add up significantly and are likely to exceed the amount insured by your province’s new home warranty program, if any. In this event, you may want to consider protecting your deposit by purchasing a new home deposit bond from an insurance company- if available in your province.

Example: say you required to make a deposit of $100,000. instead, you would make a $20,000 cash deposit and buy a bond for the remaining $80,000. the builder doesn’t actually get the $80,000, but he has the assurance that the money will be paid by the insurance company if you fail to close the deal. It will cost you 1.5% of the value plus a $100 application fee, or $1,300. If you had to borrow the $80,000, not only would you have to pay several times that amount in interest, but the whole amount would be lost if the builder goes bankrupt before completing your house.

For a relatively small price, the bond allows you to buy a house that requires a large deposit without having to actually make the large deposit.

Maria C. & Alex T.

Page 42: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

21. What is title insurance and how does it work?

Title insurance protects the individual or lender against loss or damage due to tile or survey defects. It provides coverage for building bylaw violations, work orders, major encroachments, legal rights of access and other title-related problems that could devalue the property. Title insurance can also insure against the lack of an up to day survey. Some benefits of title insurance are that it can reduce the client’s legal cost since a lawyer is not required to check title and it may also provide faster access to funds since a survey or title search is not required.

Maria C. & Alex T.

Page 43: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

22. What is a pre-delivery inspection? Why is it

important? A pre-delivery inspection is a process that

involves searching the new home that you have bought, inside and outside, prior to move in and checking for anything that is not to your satisfaction. This can be done on your own, by a professional building inspector or by an engineer. All the deficiencies you find need to be written down in an inspection report. This is important because it will ensure that you will not need to do a renovation or some sort of repair work that you had not anticipated and not budgeted for. Anything you record in the report must be fixed by the builder. If you fail to report something you will be held responsible for repairing it. Maria C. & Alex T.

Page 44: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Mortgage Questions

Buying at Home

Megan

Page 45: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

What is the certificate of completion and possession?

• The certificate of completion and possession is a document that your builder will submit that is states the warranty program that records certain information that also includes outstanding items or deficiencies.

• The builder should remove a sticker on the certificate and then place on the electrical panel of your home.

Megan

Page 46: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

What is the certificate of completion and possession?

Cont

• At the end of the inspection, you are asked to sign the certificated that does not limit your warranty rights.

Megan

Page 47: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

List and define the fundamental components of a mortgage

The fundamental components of a mortgage are:

• Principal • Interest • Mortgage Payment • Amortization Period • Term • Equity Megan

Page 48: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Principal

• the amount of money that you need to borrow which is usually calculated by finding the difference of the selling price and property and down payment

Megan

Page 49: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Interest

• the amount you will pay for borrowing money

Megan

Page 50: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Mortgage Payment

• a regular installment made up of principal and interest which you repay mortgage over its term to maturity

Megan

Page 51: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Amortization period

• It is the total period of time which your mortgage must be repaid

• The options of amortization periods vary but are usually 15, 20, or 25 years or anywhere in between

• Many choose 25 years so that their mortgage payments can be the lowest

• Although for early years of ownership of the house may be an advantage, the long term decision may be costly

Megan

Page 52: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Term

• The length of time that a specific mortgage agreement covers

• Usually between six months and 10 years

• When the term matures or expires, the term is renegotiated for another term at rates and condition in effect at that time

Megan

Page 53: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

Equity

• The value of the property over and above all claims

• It is the difference between market value and the outstanding principal of all mortgages relating to the property

Megan

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What is a closed mortgage?

• A closed mortgage is a mortgage that can not be prepaid.

• Lender may renegotiated or refinanced pier to the expiry of the term, unless breakage costs are paid to the lender.

• The interest rates are considerable lower than open.

Yakulan

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Who is a closed mortgage good for?

• A closed mortgage is for people who want a lower interest rate but unfortunately they do not have freedom and if the person intends to stay in the house for more than five years.

Yakulan

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What is a breakage cost?

• A sum of money paid to compensate the lender for the prepayment of a closed mortgage in part or in full prior to maturity of the term.

Yakulan

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#27: What are open mortgages? What would

you choose this type of mortgage? Mortgages that can be pre-paid at any time prior to maturity without breakage costs (pre-payment charges).

This type of mortgage would be appealing to individuals planning to pay off their mortgages in the near future or if they predict that the interest rates will go down.

However, interest rates are generally higher due to increased flexibility

Chelsea, KK, Jordan

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#28: What is a convertible mortgage?• A fixed-rate mortgage that offers the same

securities as a closed-mortgage but the only difference is that it can be converted to a longer closed-mortgage at any time without penalty.

• The advantages of this type of mortgage is that if you think rates may drop, this allows you to wait until you feel the time is right to lock in your rate and benefit from a lower rate.

Chelsea, KK, Jordan

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#29: What are fixed and variable rate mortgages?

• The interest rate is set for a pre-determined term, usually between 6 months and 25 years, and can be open or closed.

• The payment amount stays the same, making it easier to budget.

• The individual are informed exactly of how much the payment is applied to the principal and interest.

Fixed-rate Mortgages:

Chelsea, KK, Jordan

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#29: What are fixed and variable rate mortgages?

• Mortgages in which payments are set for a period of one-two years or longer, although interest rates may fluctuate.

• If the interest rate decreases, the majority of the payment goes towards reducing the principal.

• If the interest increase, a larger portion of the monthly payments goes towards covering interest.

• They may be open or closed

Variable-rate mortgages:

Chelsea, KK, Jordan

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#30: Why is it important to consider the interest rate of your mortgage?

• The lower the interest rate, the less you will pay for the mortgage over time

• The higher the interest rate, the more you will pay for the mortgage over time

• Analyze the chart below for an $80 000 mortgage amortized over 25 years:

Interest rate Monthly Payment

5.00% $465.29

8.00% $610.58

11.00% $770.03

Chelsea, KK, Jordan

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31. How can you choose the best mortgage term? Give some examples.

• The decision on the best mortgage for an individual is based on their personal situation.

• It depends on their forecast of interest rates for the future, their ability to handle any increased mortgage payment after any renewals and the amount of risk that they are willing to accept.

• In general, the shorter the term, the lower the interest rate; the longer the term, the higher the interest rate.

• Some examples include: – fixed rate mortgage with a longer term (4 – 25 years), – fixed rate mortgage with a medium term (1-3 years), – six-month convertible mortgage, – six-month open mortgage – variable rate mortgage.

• Each type of mortgage may suit a different individual based on his/her circumstances.

Pravetha & Eveline

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31. How can you choose the best mortgage term? Give some examples. (cont’d)

The fixed-rate mortgage with a longer term assures the homebuyer that they will be protected from increases in interest rates for a longer period.

It also ensures the security of fixed regular payments. This kind of mortgage may be chosen by those who don’t wish to

take any risks regarding changing interest rates. If you are a first-time homebuyer, you may prefer the security of a

long term mortgage so that you are more capable of managing your budget and monthly expenses.

If you believe that interest rates have reached the lowest possible, and you think that it will not drop any further, you may choose to lock into a long-term mortgage.

This ensures that when interest rates rise you would not be affected by this movement and you will continue to pay the lower rate for a longer period.

Pravetha & Eveline

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31. How can you choose the best mortgage term? Give some examples.

(cont’d) The fixed-rate mortgage with a medium term assures that you will

be protected form increases in interest rates over the short term. It means that you have fixed regular payments for at least the

next few years It gives you the flexibility to take advantage of any future rate

declines by not locking in for a long period. This would be ideal for those who are afraid to take risks but

slightly more risk-averse than those who choose the long term fixed rate mortgages.

Although they don’t want to take the risk of higher interest rates, they don’t want to miss out on lower interest rates if they do happen to go down.

If you are purchasing a home at a time when you think that interest rates are high, this option would be suitable for you because you believe that interest rates will drop in the near future, helping you save money.

Pravetha & Eveline

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31. How can you choose the best mortgage term? Give some examples.

(cont’d) The six-month convertible mortgage or the six-month open

mortgage allows one to take advantage of further declines in rates

It gives them the option of fixing the interest rate and regular payments if rates begin to increase.

This shows that they are willing to take risks in hope of the interest rates going down.

Although this option does entail some risk, the homebuyer also has the option of fixing their rate and regular payments if the rates go up unlike what they had expected.

Since this option is a short-term commitment, it would be ideal for those who plan to sell their homes in the short term without buying another.

Pravetha & Eveline

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31. How can you choose the best mortgage term? Give some examples.

(cont’d) The variable-rate mortgage allows one to take

immediate advantage of further reductions in interest rates.

They can make a timely switch to a fixed-rate mortgage if they realize that interest rates are increasing.

This option is for those who are willing to take larger risks in hope of saving money.

This option allows them to switch to a fixed-rate mortgage if rates go up, but they are limited in how often they can switch their mortgage.

Pravetha & Eveline

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32. What is amortization period?• Amortization period is the total period of time over which

your mortgage must be repaid. • This period usually varies between 15, 20 and 25 years

or anywhere in between. • Since most people prefer to pay less on their regular

mortgage payments, they choose 25 year amortization periods.

• Although this may be advantageous during the earlier years, the decision ends up costing a lot more by the end of the term due to higher interest rates charged by banks or other financial institutions.

• The amortization period can affect the size of your regular payments and the total amount of interest paid by the end of the period.

Pravetha & Eveline

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33. The total amount of interest that you will pay over the life of your mortgage varies according to the length of the

amortization period. Explain what this

means. • This means that the shorter the amortization period, the more you will

pay on a monthly basis, but the less you will pay in interest costs over the period.

• Alternatively, the longer the amortization period, the less you will pay on a monthly basis, but the more you will ultimately pay in interest costs.

• Therefore if you choose a longer amortization period, at the end of the day you end up paying a lot more because of interest.

• For this reason, choosing a shorter amortization period will save you a lot of money in the long run if you can afford the monthly payments.

• For example, by simply reducing the amortization period of a mortgage from 25 years to 15 years, a homeowner with an interest rate of 5% would save more than $26,000 in interest by the time the mortgage is completely repaid. If the interest rate was 8% rather than 5%, more than $46,000 in interest costs would be saved.

Pravetha & Eveline

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34. What is payment frequency? How can this affect how much your mortgage will cost over its

lifetime?• Payment frequency is how often you make payments

towards your mortgage. • This is another major characteristic that affects how

much your mortgage will cost over its lifetime. • More frequent payments can take years off your

amortization period and can save you thousands of dollars in interest.

• This is due to the fact that when you pay off your mortgage faster, there is less time for interest to accumulate.

• It also reduces the length of the amortization period, for the simple reason that the payments are made more frequently.

Pravetha & Eveline

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34. What is payment frequency? How can this affect how much your mortgage will

cost over its lifetime? (cont’d• Some common payment

frequencies chosen by homebuyers include:– monthly– semi-monthly– bi-weekly– weekly– accelerated bi-weekly– accelerated weekly

• The option of which payment frequency to use is dependent on the individual’s financial circumstances.

• The accelerated options give individuals the choice to make a higher payment in the respective payment frequency.

• This allows them to save money that would otherwise be spent on interest costs and also to take years off of their amortization period.

Pravetha & Eveline

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35. What is a prepayment clause?

A prepayment clause allows you to reduce your mortgage principal at specific time intervals or on specific anniversary dates, without incurring breakage costs, by making a lump-sum payment of at least 10% of the original principal. This option lends greater flexibility to closed mortgages.

Sumanija and Zachary

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36. Explain how making one doubled payment one time each year can reduce the

number of years in your mortgage? Your Double-Up payment is applied directly against the principal balance of your mortgage, which cuts down the life of your mortgage and saves interest costs.

Sumanija and Zachary

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37. List and explain the following terms: portability, assumable mortgages, add-

on, life and disability insurance.

Portability: Allows you to transfer the balance of your current mortgage - at the existing interest rate for the remainder of the existing term - to a new home if your sell your existing home. This option is subject to credit approval at the satisfactory property appraisal of the new property

Sumanija and Zachary

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Assumable Mortgage: allows any future buyers of your home to take over the balance of your mortgage if you sell your home, as long he/she meets the borrowing criteria of the lender and agrees to assume your obligation under the mortgage. This can be a particularly attractive selling feature if your existing mortgage provides a more favorable rate than is available at the time of the sale.

Sumanija and Zachary

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Add-on: to borrow additional funds against the equity you have established in your home. It permits you to increase the principal amount of your mortgage. This option is subjected to credit approval and satisfactory property appraisal at the time of the add on.

Sumanija and Zachary

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Life and disability insurance: its not mandatory both are highly recommended incase of death the balance of the mortgage is paid in full if you are insured while in the case of disability, a number of mortgage payments may be paid on your behalf.

Sumanija and Zachary

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38. What is a statement of adjustment?

Statement of adjustment is detailing the exact amount you owe the vendor on closing. It includes the balance of the purchase price and reimbursement for any prepaid utilities or other expenses paid by the vendor.

Sumanija and Zachary

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Mortgage QuestionsMortgage Questions

By: Chris DowsettBy: Chris Dowsett

Page 80: Mortgage Questions By: Vennugha & Ahmad. Renting to Owning 1)Purchasing your own home may be the single biggest investment you’ll ever make, one that.

What Happens on “Closing Day”What Happens on “Closing Day”

• Closing day is the day on which you officially become a Closing day is the day on which you officially become a homeowner. It greatly involves lawyers, notaries and homeowner. It greatly involves lawyers, notaries and even your bank. even your bank.

• On this day you will be expected to go over and finalize On this day you will be expected to go over and finalize all agreements and outstanding documents. all agreements and outstanding documents.

• You must go to your lawyer and contact your bank to You must go to your lawyer and contact your bank to ensure that your mortgage is available to you. ensure that your mortgage is available to you.

• Once the lawyer has all of the paperwork completed they Once the lawyer has all of the paperwork completed they will purchase the home on your behalf. After this day the will purchase the home on your behalf. After this day the property is officially yours and you are now a property is officially yours and you are now a homeowner.homeowner.

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What is your credit rating? What sorts of What is your credit rating? What sorts of things affect your credit rating?things affect your credit rating?

• A credit rating is a record of your credit history and A credit rating is a record of your credit history and current financial situation, which typically turns into your current financial situation, which typically turns into your credit rating score. credit rating score.

• Lenders use this credit rating score to determine how Lenders use this credit rating score to determine how eligible you are for a loan and helps ensure that their eligible you are for a loan and helps ensure that their loan will be repaid.loan will be repaid.

• Good credit will ensure you get a low cost and fair Good credit will ensure you get a low cost and fair mortgage while bad credit could completely destroy your mortgage while bad credit could completely destroy your chances at a mortgage or greatly increase the cost of it. chances at a mortgage or greatly increase the cost of it.

• To ensure that you have good credit always pay off To ensure that you have good credit always pay off credit card bills, utilities and loans on time and in the credit card bills, utilities and loans on time and in the most effective manner possible. most effective manner possible.

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Why is it important to know your Why is it important to know your credit rating?credit rating?

• Knowing your credit rating is important for many reasons Knowing your credit rating is important for many reasons it helps you understand how effective you are at paying it helps you understand how effective you are at paying off your loans, if you deserve a loan and it helps push off your loans, if you deserve a loan and it helps push you to want to greatly improve your credit rating. you to want to greatly improve your credit rating.

• Your credit rating also directly effects your mortgage Your credit rating also directly effects your mortgage costs, payments and interest or if you will even be given costs, payments and interest or if you will even be given one. one.

• Knowing credit rating and understanding what it means Knowing credit rating and understanding what it means will help you throughout your life and hopefully will keep will help you throughout your life and hopefully will keep

it at its best.it at its best.

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Where can you go to find out what your credit

rating is?

You may check your credit rating at

www.equifax.ca or www.tuc.ca

• A credit rating is a record of your credit history and current financial situation, which typically translates into a credit

rating score.

Steve, Ranzel

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How can you avoid being unrealistic about how much you can afford to pay for your first

home?• You can go to official

banking websites and use their mortgage calculators. This allows you to cross reference your income and expenses. It lets you see if you can actually afford to buy a home.

Steve, Ranzel

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8 Common mistakes most first-time homebuyers make

• Not knowing your credit rating– lenders uses credit ratings to verify repayment histories and

sees if you qualify for a loan/mortgages• Being unrealistic about how much you can afford to pay for

your home– You should not be under- or over-estimating how much you

can afford to pay for your home • Not considering a mortgage pre-approval

– A pre-approved mortgage rate will be guaranteed for a certain amount of days, so if the rates go up during the period you are protected. If they go down, you will automatically get the lowest rate for the term selected

• Thinking you won’t qualify for a mortgage

Steve, Ranzel

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• Not knowing all the down payment choices• o There are different options available depending on how much of a down payment

you can afford.– > Conventional mortgage (20% down payment)– > Low down payment (5% minimum) this requires default insurance– > Taking from an RRSP (Home Buyer’s Plan; first time homebuyers for up to $20

000 in RRSP savings per person

• Focusing too much on the interest rate, rather than the overall solution• o Should also consider the different types of mortgages, their payment structures,

terms and flexibility– > Fixed rate mortgage – Main advantage: the interest rate stays the same,

therefore you know exactly how much of your payment is applied to principal and interest

– > Variable rate mortgage – Main advantage: most believe that this offers the greatest potential for long-term savings on interest costs

– > Combine fixed and variable – Main Advantage: allows you to take advantage of potential long-term savings, while the fixed rate portion protects you if rates rise.

8 Common mistakes (Cont...)

Steve, Ranzel

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• Not choosing your own mortgage payments schedule• o Paying off your mortgage sooner saves you interest costs, while a longer

amortization period reduces your regular payment amount and gives you more room to manage your cash flow

• Forget about closing costs• o By this time, you’ve selected a house, picked your mortgage options and are

letting ready to finalize everything and make an offer. Adding an additional 1.5% of the purchase price will help cover such things as:

– > Professional home inspection – Always make an offer conditional upon a home inspection

– > Lawyer or notary fees – work with an experienced real estate lawyer/notary for the legal aspects

– > Land transfers tax – most provinces levy a one-time tax, which is based on a percentage of the purchase price.

– > Property tax/utility bill adjustments – (for resale homes) any amount that the seller has already prepaid will be adjusted so you pay the excess amount back to the seller and vice versa.

– > Property insurance – protects your home, your personal belongings, and financial future

– > Moving costs – budget for a professional mover, decorating costs and fees for setting up cable, telephone etc.

– > Ongoing costs – budget for the cost of maintaining a home; costs of bills such as heating, electricity, etc.

8 Common mistakes (Cont...)

Steve, Ranzel