Throughout 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 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?), your short-term goals, and your desire for long-term security.
This is the amount of time over which the entire debt will be repaid. Most mortgages are amortized over 15, 20, or 25-year periods. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run.
This type of mortgage offers a great deal of flexibility, as it can be repaid in part or whole at any time without penalty. This is an outstanding mortgage if you believe interest rates are moving down or if you plan to move soon. The term may be limited to six months or one year.
Here the interest rate is fixed for the entire mortgage term, and you will have to pay a penalty to change the agreement conditions. This type of mortgage is ideal for buyers who believe that interest rates will rise, or who are not planning to move in the near future. This type of mortgage is usually available in a wide variety of terms.
With this mortgage, you'll enjoy the same peace of mind as a closed mortgage, plus the flexibility to convert to a longer closed mortgage at any time without penalty. If you think rates will drop, this will allow you to wait until you feel they have hit bottom, or if rates rise, you can lock-in.
Before you calculate the amount of your down payment and determine what you can afford, it's a good idea to set aside funds to cover the extra costs that accompany a purchase.
If the seller has paid a portion of the taxes in advance, you will be responsible for reimbursing them on closing. Plus, if you have a high-ratio mortgage, your lender may require that you have your property taxes added to your mortgage payments.
Land Transfer Tax
This applies in most provinces and ranges from 1% to 4% of the purchase price. For instance, in Ontario, you'll pay 1% of the first $55,000 - $250,000 and up to 2% of any amount over $400,000.
Your lender will require an up-to-date survey. You can make it a condition of the Offer to Purchase that the seller provide a survey, or you will have to have one created. If there is no survey available, you may purchase "Title Insurance" in place of a survey which saves you about $500 - 700.
A basic appraisal usually costs under $250.
Your lender will insist that you have insurance on your property because your home is used as security for the mortgage.
You'll be charged for telephone, cable and a variety of other services that you hook up at your new home.
Lawyer & Notary Fees
Each real estate transaction requires the assistance of a legal professional to review the Offer to Purchase, search the title, draw up the mortgage documents and take care of the details on the day of closing. Lawyers' fees range widely depending on the complexity of the transaction. Ask your sales representative to recommend a lawyer. And remember, fees can be negotiated.
Mortgage Loan Insurance Premium and Application Fee
Mortgage loan insurance will be necessary if you have a high-ratio mortgage (less than 25% down payment). The application usually costs $75 with a valid appraisal; otherwise, it's $235. The actual insurance premium will range from .5% to 3.75% of the purchase price and is added to the mortgage.
Mortgage Broker Fee
Some brokers may charge as much as 2% of the total mortgage to find you a lender. In most cases, though, the broker is paid by the lender. Buyers with good credit should not have to pay a fee.
Whether you've decided to do it yourself or hire a moving company, now is the time to budget for the costs involved.
If you're moving into a condominium, this certificate outlines the condominium corporation's financial and legal state. It will cost you up to $100, usually paid for by the seller if agreed to in the Offer to Purchase.
These monthly fees vary from complex to complex. The fees are applied to everything from grounds keeping and carpet cleaning to security personnel and health club maintenance. Depending on the type of structure, these fees will usually be a few hundred dollars.
Home Inspection Fee
For around $300, depending on the size of your home, you'll receive a complete written report about the condition of the structure. Do your research and hire a reputable firm.
Renovation and Repairs
Your home inspection may indicate the need for some general repairs or a major project. Have some money set aside, particularly if you purchase an older home.
Your taste will be different from the previous owner's. Set aside money to paint and wallpaper. Prepare a list of things you can live with for now and decorating faux pas that need immediate alteration.
Water Quality Certification
If you are purchasing a home with a well, you'll want to ensure the quality of the water. This will cost approximately $50 to $100.