The Complete Mortgage Home Buyers Guide

8/8/2019 The Complete Mortgage Home Buyers Guide

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THE COMPLETE

Home Buyers

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A. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

B. MORTGAGE QUALIFICATION PROCEDURES . . . . . . . . . . . . . . . . . . . . 4B1. General Information 4

B2. Job Stability 4

B3. Sources Of Income 4

B4. Employment Income Verication 4

B5. Other Sources Of Income 5

B6. Credit History 5

B7. Source Of Down Payment 6

B8. Income And Expenses (GDS/ TDS Ratios) 7

B9. Property Information And Documentation 7

C. MORTGAGE AND PROPERTY DEFINITIONS . . . . . . . . . . . . . . . . . . . . 8

C1. Conventional 8

C2. High Ratio 8

C3. Freehold Ownership 8

C4. Leasehold 8

C5. Condominium 8

C6. Co-operative 8

C7. Joint Tenancy 9

C8. Tenants In Common Or Undivided Owner Ship 9

C9. Fractional Interest Properties 9

D. MORTGAGE OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

D1. Closed Mortgage 10

D2. Open Mortgage 10

D3. Convertible Mortgage 10

D4. Fixed Rate Mortgage 10

D5. Variable Rate Mortgage 11

D6. Payment Options 11

D7. Amortization And Payment Frequency Comparisons 11

D8. Portable & Assumable Mortgage 12

TABLE OF CONTENTS

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TABLE OF CONTENTS

E. CMHC POLICIES & PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . 13

E1. What Is CMHCs Role? 13

E2. CMHC Fees & Premiums 13

E3. Extended Amortization Options 14

E4. CMHCs 1 - 4 Unit Rental Program 14 - 15

E5. High Ratio Financing For Self Employed Applicants 15 - 16

E6. CMHC Second Home Lending Program 16

F . OTHER GOVERNMENT INCENTIVES . . . . . . . . . . . . . . . . . . . . . . . . 17

F1. Using Your RRSP For Down Payment 17F2. Property Transfer Tax Information 17

F3. First-time Home Buyers Tax Credit 17

F4. HST Information 18 - 19

G. CLOSING THE DEAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

G1. Estimated Costs 20

H. MORTGAGE PAYMENT CALCULATOR . . . . . . . . . . . . . . . . . . . . . . . 21

I. NON-RESIDENT LENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

I1. Non-resident Lending 22

I2. Whistler Condo Financing 22

I3. How Canadian Mortgages Work 23

J. CONSTRUCTION FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

J1. Understanding the Construction Financing Process 24 - 26

J2. Construction Financing Example Sheets 28 - 30

K. GLOSSARY OF MORTGAGE & REAL ESTATE TERMS . . . . . . . . . . . . . . . . . 31 - 37

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For most people, buying a home will be the largest purchase they will ever make Besidesbeing a necessary source of shelter for you and your family, it may also be an importantinvestment for your future

As mortgage brokers it is our job to nd you the best possible mortgage nancing for yourown unique situation The following is a list of just a few of the lenders we work with on yourbehalf:

CIBC Concentra First National FirstLine Mortgages Home Trust ICICI Bank Canada

ING MCAP Merix Financial National Bank of Canada North Shore Credit Union Presidents Choice Financial Scotiabank Squamish Savings (owned by Vancity) TD/Canada Trust VanCity

We would be pleased to assist you with your home purchase Application can be made bytelephone, fax, or on-line We even do house calls

This guide has been developed to assist and guide you through the home buying andnancing processes. It will provide you with the information necessary to make an informeddecision about purchasing and nancing your new home.

We are able to arrange 1st / 2nd mortgages for purchases and/or renance for bothresidential and commercial property. Construction nancing, transfers/switches, & lines ofcredit are also provided In some cases broker / lender fees may be charged, but not withoutyour consent

A. INTRODUCTION

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B1. GENERAL INFORMATION

There are many factors taken into consideration when a lender is qualifying you for a mortgage Among thedeciding factors are: family income and job stability, past credit history, net worth (assets minus liabilities),source of down payment, the amount of the mortgage and its percentage of the value, and nally your debt

service ratios. You will be asked to ll out a mortgage application and authorize the institution to perform acredit investigation (also called a Credit Bureau or Bureau for short) There are many sources of funds fornancing: banks, trust companies, life insurance companies, other nance companies and private lenders.

B2. JOB STABILITY

Lenders like to see the progression of your employment over a two to ve year period. Generally speaking, minimum length of time on your current job that is considered acceptable is 1 year If you have been employless than 1 year in your current job, the lender may make an exception provided your current job is related tyour previous one (ie in the same industry) or you were previously in school

B3. SOURCES OF INCOME

Whether you are a salaried, hourly or commission-based employee, the lender will require proof of yo

income. In order to use your income for qualication purposes, the lender must be condent that it

a) Stable and likely to continue over a reasonable period of time, and

b) Declared to the government on your income tax return

Any income that is earned as cash or under the table cannot be used to qualify you for a mortgag

It is up to the lender to decide what is appropriate in each case If you are self-employed, the income

verication process is a bit more complicated in that you will have to provide a minimum of 2 yearsworth of business nancial statements and tax returns.

B4. EMPLOYMENT INCOME VERIFICATION

B. MORTGAGE QUALIFICATION PROCEDURES

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B5. OTHER SOURCES OF INCOME

As with employment income, you will also have to provide proof of any other sources ofincome you may have Below are some of the most common sources of income and thedocumentation required:

In all of the above cases, the lender may request 2-3 years copies of your Canada RevenueAgency Notice of Assessment to conrm the amount of these incomes.

B6. CREDIT HISTORY

Since your past credit activity is considered to be the best indicator of your future abilityand/or willingness to repay debt, the lender will rely heavily on your credit rating to make alending decision They will request a credit report from your local credit bureau This reportis referred to in the industry simply as a bureau The bureau will show all your past creditactivity including loans, credit cards, lines of credit, collections, judgments, and bankruptciesfor the past 7 years Each item on the bureau is given a rating from 0 to 9 Zero represents aninactive account and 9 represents a written off or bad debt The best rating is a 1 You willhear terms such as I2 or R9 which are the codes given to evaluate each debt reported onthe bureau The rating will start with either an R, I, or O depending on the type of debt, but

the number of ratings all mean the same thing

To avoid surprises or misunderstanding, it is best to be up front about any past creditproblems you may have had As long as your past credit problems are supported by a validexplanation, they will be considered to be part of your past and you may still be approved fora mortgage

There are two credit bureau reporting agencies, Equifax and Trans Union Their web sites areas follows:

www.equifax.ca www.tuc.ca

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B7. SOURCE OF DOWN PAYMENT

The lender will also want to know where your down payment is coming from That is, haveyou saved the funds yourself over a period of time? Do you have stocks, bonds, RRSPs,mutual funds or other investments that you are cashing? Are you receiving a gift from a

relative? Are you selling an asset you already own? Are you renancing an existing property?

The amount of down payment relative to the purchase price will also be evaluated A lendersdecision to approve the mortgage application will also take into account what percentage ofequity you will have in the property For example, are you putting down 25% of the purchaseprice from your own savings or will you be receiving a gift for 5% of the purchase price? Themore equity you have from your own funds, the stronger your application is considered to be

Wherever your down payment is coming from, the lender will require documented proof ofits source:

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B8. INCOME AND EXPENSES (GDS/TDS RATIOS)

Historically, lenders and high ratio insurance providers (CMHC, Genworth) maintained thequalifying formula shown below as a guide for income to debt ratios Recently, in the lastcouple of years, this formula has been relaxed Depending on your credit history (a minimum

beacon score of 680 is required) and your level of downpayment, you may be eligible for noGDS and a TDS of up to 44% What does this mean for you? It means that your income isrecognized to carry more for a mortgage which may help you purchase the property that youreally wish for

GDS (Gross Debt Service) and TDS (Total Debt Service) ratios are the two factors that lendersand CMHC take into consideration when they are determining how much of a mortgage youqualify for These ratios take into account your gross family income (before taxes) and dividethat into your expenses The maximum GDS ratio is 32% and the maximum TDS is 40%These are the accepted industry guidelines GDS and TDS are calculated as follows:

GDS = Mortgage Payment + Property Taxes + Basic Heat + 12 Condo Maint Fee(Max 32%) Gross Family Income

TDS = Mortgage Payment + Property Taxes + Basic Heat + 12 Condo Maint Fee + Other Exp*

(Max 40%) Gross Family Income

*includes loan, credit card, and other monthly obligation

B9. PROPERTY INFORMATION AND DOCUMENTATION

After evaluating you as a mortgage applicant, the second part of the mortgage approvalprocess looks at the property you are purchasing As mortgagee, the lender will be concernedwith the property they will be using as security for their mortgage They will want to knowthe specics of the property, namely, the purchase price, location, and size. Your lender mayrequire some or all of the following documents:

1 A fully executed copy of the Agreement of Purchase and Sale along with all the attachedschedules, amendments and waivers Fully executed means that all the pages, additions,and changes have been signed and/or initialed by all parties

2 An MLS listing or feature sheet and picture of the property Among other things, thiscontains details of the location, condition, asking price and features of the home

3 A recent appraisal of the property to determine the lending/market value

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C. MORTGAGE AND PROPERTY DEFINITIONS

Below are the denitions of some of the more common terms you will hear with respect to your hompurchase and nancing.

C1. CONVENTIONAL

The conventional mortgage is one that is offered on new and existing homes for up to 80% of thepurchase price This means that the home buyer must have at least 20% of the purchase priceavailable for a down payment Conventional mortgages do not normally have to be insured throughCMHC or Genworth

C2. HIGH RATIO

The term high ratio refers to mortgages that represent more than 80% of the value of the purchasedproperty High ratio mortgages must be insured through CMHC (Canada Mortgage & HousingCorporation), or Genworth The insurance premium that is paid to CMHC is to protect the lender in th

event that the mortgage is not paid and the bank has to take back the property This is not the samemortgage life insurance. The benet to the borrowers is that it allows them to purchase a home with little as 5% down

C3. FREEHOLD OWNERSHIP

Owner has title to and full use of the land and buildings on it over an indenite period.

C4. LEASEHOLD

A person has use of the property for a limited time Usually, the land is owned by the federal, provincial ormunicipal government and land lease payments are made to them In the case of a residential home purchathe purchaser owns the building but not the land on which it sits The term leasehold can also refer tosituations where both the building and the land are being leased

C5. CONDOMINIUM

Owner has full and sole use of a housing unit The owner shares ownership of common space such asparking garage, and recreation areas with others who all belong to the same condominium group Sinceownership of common space is shared, so are repair, maintenance and replacement costs Usually theseexpenses are covered through the strata maintenance fees

C6. CO-OPERATIVE

Persons have a share in a residential project They do not have ownership of a particular unit, but asshareholders they each have use of a unit

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C. MORTGAGE AND PROPERTY DEFINITIONS

C7. JOINT TENANCY

If you buy a home with another person or with several other people, many types of ownershipagreements can be in place As joint tenants, each owner holds an equal share in the propertyregardless of his or her individual nancial contribution. If an owner dies without any specic

arrangements having been made, his or her share is automatically transferred to the other owner(s)

C8. TENANTS IN COMMON OR UNDIVIDED OWNERSHIP

Each owner holds a specic portion of the property but the portions do not have to be equal.Each individual owner can sell or assign his or her share to any other person, subject to anyrestrictions that were originally stated in the deed Rights of survivorship do not exist in thiscase, so upon the death of one of the owners, their share becomes part of their estate andis dealt with according to the provisions set out in their will Or, if no will, according to therelevant provincial law

C9. FRACTIONAL INTEREST PROPERTIES

Fractional Interest properties come in many varieties The most common are quartershare, tenth share, and time share (1/51st) The title structure for most Fractional Interestsincludes a proportionate share of the fee simple title, which is charged with a headlease toa management company or owners association, and a sublease of the headlease, whichdenes when occupation associated with the fraction actually takes place. In some instances(Montebello, Whistler, BC) the owner also receives a share of the company that holds theheadlease

The choice of Lenders may be limited for these Fractional Interest properties If the titlestructure is unconventional, then nding a lender may be much more difcult as there maybe no formal structure to allow the lender to foreclose if they have to

One lawyer cannot act for both borrower and lender in nancing Fractional Interests. Theborrower will have to pay for both their lawyer and the lenders lawyer, so the costs ofclosing a Fractional Interest property are greater

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D. MORTGAGE OPTIONS

D1. CLOSED MORTGAGE

The term closed mortgage refers to the fact that there are penalties incurred in theevent the mortgage is fully paid, either from sale of the property, a renance to a differentlender, or from your own resources Some closed mortgages can only be paid off from

the sale of the property The penalties can vary depending on if you are in a closedxed rate mortgage, or a closed variable rate mortgage. It is best to obtain the specicpenalty policy from your lender regarding the specic type of mortgage you are taking.Most lenders allow prepayments based on a certain percentage that can be paid eachyear, the percentage varying depending on the lender The usual range is 10 to 20%per annum, and based on the original amount borrowed. Closed xed rate mortgagesusually have a lower rate than open mortgages, and are a good choice for those whowant the security of knowing their mortgage rate and payments will not change until theend of the mortgage term

D2. OPEN MORTGAGEAllows borrowers to repay all or part of the total amount of their mortgage at any time withoutpenalty. Because of this exibility, this mortgage is ideal for borrowers who plan to sell theirhomes or otherwise pay out their mortgage in the near future An open mortgage also providesexibility for mortgagors who may wish to take advantage of lower rates and lock in (convert)to a longer term mortgage at a moments notice However, if the sole reason for wanting anopen mortgage is to allow conversion to a longer term, the mortgagors may be better servedby obtaining a convertible mortgage

D3. CONVERTIBLE MORTGAGE

A closed, short term mortgage, usually 6 or 12 months, which allows the borrower to switchinto a longer term at any time without penalty The rate is usually lower than the openmortgage because the only option available is to convert These mortgages are best suitedfor people who want to watch the market over the short term before deciding if and when tolock in

D4. FIXED RATE MORTGAGE

Both closed and open mortgages can have the feature of a xed rate. This means that therate of interest is set for the term of the mortgage, which may be as long as 25 years or as

short as 6 months Because of this, the regular payment amount of the principal and interestremains the same throughout the term

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D. MORTGAGE OPTIONS

D5. VARIABLE RATE MORTGAGE

The rate of interest changes from time to time as money market conditions change, butusually no more often than once a month This type of mortgage was developed in orderto provide maximum exibility to borrowers in times of volatile or uctuating interest rates.

Although the interest rate charged on the mortgage uctuates, the amount of the regularpayment usually does not change throughout the term of the mortgage Because of this,the rate uctuation will affect the way each payment is applied. Since payments are madeup of both principal and interest, when rates go down, more of the payment will be appliedtowards the principal If interest rates rise, more of the payment goes towards interest Ifinterest rates rise dramatically, the borrower may be required to make a lump sum paymentagainst the mortgage, or increase the payments to ensure pay down as per the originalamortization Most variable rate mortgages offer conversion options to allow you to lock-into a xed rate mortgage term.

D6. PAYMENT OPTIONSPayments are usually made either monthly, bi-weekly, weekly, or semi-monthly Bi-weeklymeans every 2 weeks, weekly means every week, and semi-monthly means twice a monthBy paying bi-weekly or weekly you pay the equivalent of approximately 1 extra monthlypayment against the principal per year and this helps to pay your mortgage off sooner

D7. AMORTIZATION AND PAYMENT FREQUENCY COMPARISONS

Example:Mortgage Amount: $100,000 Interest Rate: 5% Amortization: 25 yearsInterest Paid*: $74,482.96

*Assumes a constant rate of interest

Amortization Payment Frequency Interest Paid Effective Am. Savings

15 years $197.03 Weekly $36,562.35 13 years $37,920.61

15 years $394.06 Bi-weekly $36,654.62 13 years $37,828.39

15 years $788.12 Monthly $41,862.68 15 years $32,620.28

20 years $164.28 Weekly $49,393.99 16.5 years $25,088.97

20 years $328.56 Bi-weekly $49,506.58 16.5 years $24,976.38

20 years $657.13 Monthly $57,709.10 20 years $16,773.86

25 years $145.40 Weekly $62,258.32 20 years $12,224.64

25 years $290.80 Bi-weekly $62,395.46 20 years $12,087.47

25 years $581.60 Monthly $74,482.96 25 years $0.00

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D8. PORTABLE & ASSUMABLE MORTGAGES

Portability and assumability features offer additional exibility. Portable means that the borrower cantake their current mortgage to a new home at the same rate, etc If the current mortgage is not enouto cover the purchase of the new home, the lender will often let you increase the mortgage and char

you current rates only on the portion being increased (called blending the rate)

Assumable means that, with the approval of the lender, the purchasers of a home may take-over thvendors mortgage Allowing a prospective buyer to assume your mortgage when the rate is lower ththe current market rates may increase the marketability of the property being sold

D. MORTGAGE OPTIONS

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LTV Ratio Purchase Premium Cash-Out Refnance

The Lesser o Premium as % o

Total Loan Amount Top Up Portion

Up to 65% 050% of the mortgage 050% 050%

6501 to 75% 065% of the mortgage 065% 225%




9001 to 95% 275% of the mortgage

9001 to 95%CMHC Flex Down

290% of the mortgage

E1. WHAT IS CMHCS ROLE?

Canada Mortgage and Housing Corporation is a crown corporation whose broad mandateincludes programs to assist Canadians with housing matters The most frequent contactmost people will have with CMHC will be as a provider of mortgage insurance on high

ratio mortgages

GENWORTH provides the same service and high ratio insurance as CMHC, however they areprivately owned and operated

By law, nancial institutions require that all mortgages with a loan to value ratio greater than80% be insured against default CMHC provides mortgage loan insurance to approvedlenders in the event that the home owner defaults on their mortgage Depending on thesituation, a lender may also request that a conventional mortgage be insured through CMHC

E2. CMHC/GENWORTH FEES & PREMIUMSThe following is a summary of the insurance premiums for different loan to value ratios:

*Please note that for extended amortizations, CMHC will add .20 for every 5 years beyond a25 year amortization. So, for a 35 year amortization, there is a .40 premium surcharge added.

This premium surcharge applies no matter which high ratio insurance program you are

applying under.

In a renance transaction, the premium payable is the lesser of a) the new loan amountmultiplied by the full premium rate below, or b) the increase in loan amount (top-up amount)multiplied by the top-up premium rate in the table above The insurance premium may bepaid in full on closing or added to the mortgage amount If added to the mortgage, interestis then paid on the insurance premium over the amortization of the mortgage Since mostbuyers do not have the extra cash on closing, it is most common to add the premium tothe mortgage

E. CMHC/GENWORTH POLICIES & PROCEDURES

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E2. CMHC/GENWORTH FEES & PREMIUMS CONTINUED

QUALIFYING INTEREST RATE DEFINED

EFFECTIVE APRIL 19TH, 2010, the qualifying interest rate used to assess borrower eligibility

will change for loans with a loan to value ratio greater than 80% as follows:

FIXED & VARIABLE RATE MORTGAGES:For loans with a xed rate term of LESS than 5

years, and for ALL variable rate mortgages, the qualifying interest rate is the greater of the

Benchmark Rate and the Contract Interest Rate.

For loans with a xed term of 5 years OR MORE, the qualifying interest rate is the Contract

Interest Rate.

The benchmark rate can be found at the Bank of Canada link: http://www.bankofcanada.ca/

en/rates/interest-look.html. This rate is set every Wednesday, and is item V121764.

E3. EXTENDED AMORTIZATION OPTIONS

A premium surcharge of 20 is added for every 5 years beyond 25 years, up to a maximum of35 years So, to amortize your mortgage up to 35 years you would add 40 to the insurancepremium

E4. CMHCS RENTAL PROGRAM

RENTAL PROGRAM

Up to 80% Financing for purchase or renancing.

Maximum amortization is 35 years.

Not allowed for Self-Employed program. Applicants must be fully qualifying.

Minimum beacon score requirement for a purchase of up to 80% nancing, and withdown payment from own resources is 580

Minimum beacon score requirement for a renance up to 80% is 580.

50% of the gross rental income is added to the income of the applicants for qualifyingpurposes

If the subject property generates rental income, then taxes and heat for the propertygenerating rental income can be excluded It is assumed that property taxes and heat arecovered by the remaining 50% of the gross rents

If there is income generated from other properties a client owns, the net rental income orloss is included in the borrowers income The principal, interest, taxes & heat for these otherproperties can be excluded from the debt service costs


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Insurance Premiums PurchaseRefnance/

Premium on Increase toLoan Amount

Up to and including 65% 125% 275%

6501% to 75% 175% 300%

7501% to 80% 250% 375%

*Please note that for extended amortizations, CMHC will add .20 for every 5 yearsbeyond a 25 year amortization. So, for a 35 year amortization, there is a .40 premium

surcharge added. This premium surcharge applies no matter which high ratio

insurance program you are applying under.

GENWORTH RENTAL PROGRAM

They will allow up to 80% nancing, and use an 80% rental offset for qualifying purposes.

Their minimum credit score guidelines are 660 for both purchase and renance, and self-employed applicants under the Alt-A program are not eligible

If the subject property generates rental income, then taxes and heat for the propertygenerating rental income can be excluded It is assumed that property taxes and heat arecovered by the remaining 50% of the gross rents

If there is income generated from other properties a client owns, the net rental income orloss is included in the borrowers income The principal, interest, taxes & heat for these otherproperties can be excluded from the debt service costs

E5. HIGH RATIO FINANCING FOR SELF EMPLOYED APPLICANTS

There are lending programs available to assist applicants that are self-employed CMHC andGENWORTH each have their own program Financing is available up to 90% Applicants must beup to date with tax lings, and showing no tax arrears. While there is some exibility with use ofstatedincome for qualifying purposes, there is now an element of reasonableness and a largediscrepancy between what is stated and what is reported will be reviewed carefully Genworth

Financial requires a 2 year minimum in the self employed capacity Applicants need good creditwith a minimum credit bureau beacon score of 650 for 90% financing. In a renance transaction,the premium payable is the lesser of a) the new loan amount multiplied by the full premium ratebelow, or b) the increase in loan amount (top-up amount) multiplied by the top-up premium rate inthe table belowThe premiums are higher, as follows:

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* Please note that for extended amortizations, CMHC will add .20 for every 5 years beyond a

25 year amortization. So, for a 35 year amortization, there is a .40 premium surcharge added.

This premium surcharge applies no matter which high ratio insurance program you are

applying under.

Through Genworth, a minimum of 5% down must come from the clients own resourcesAdditional down payment funds can be gifted from an immediate family member

CMHC Guidelines or Sel Employed

Maximum nancing is being reduced from 95% to 90%, and From 90% to 85% for renance transactions. Commissioned individuals are no longer eligible, and will now have to income qualify Self employed applicants that have been in business longer than 3 years will have

to income qualify A copy of the borrowers business or GST license or Articles ofIncorporation will have to be provided to conrm the length of time the business has been

operated The typical borrower who is eligible will have 2 years of self employment, but less than 3,

OR Will have less than 2 years of self employment, but will have been in the same eld

working as a non self-employed worker for a minimum of 2 years prior

E6. CMHC SECOND HOME LENDING PROGRAM

CMHC will allow home owners to have 2 CMHC insured mortgage loans with them, one fortheir principal residence, and one for a 2nd home, or home occupied by a family memberFinancing is available to 95% at the standard insurance premiums, as outlined on page 12

The property can be anywhere in Canada and must be suitable for and available for, yearround occupancy Properties located on an island must have year-round bridge or ferryaccess Time-share interests, life leases, and properties in rental pools are not eligibleApplicants must qualify without the use ofrental income Applicants under the Self-Employed program are also eligible to a maximumloan to value of 90%

PurchaseCash-Out Refnance

The Lesser o Premium as % o

LTV Ratio Bureau Scores Premium Total Loan Amount Top Up Portion

6501% - 75% 600 100% 100% 260%

7501% - 80% 620 164% 164% 385%

8001% - 85% 620 290% 290% 550%

8501% - 90% 650 475%

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F. OTHER GOVERNMENT INCENTIVES

F1. USING YOUR RRSP FOR DOWN PAYMENT

The guidelines are as follows:

You cannot have owned your principal residence in the last 5 years.

Commencing January 28, 2009, rst-time home buyers can withdraw $25,000 from a RegisteredRetirement Savings Plan (RRSP) to purchase or build a home, without incurring tax Previously, thelimit was $20,000

You must make repayments to your RRSP of equal amounts over the next 15 years.

If the amount is not repaid in a year, that years amount will be taken into income and taxed.

It is acceptable to repay more than 1/15th of the funds per year.

If less than 1/15th is repaid in one year, the difference is taken into income for that year and taxed.

The home must be intended to be your principal residence.

The funds must be in your RRSP for at least 90 days prior to withdrawal.

The government website for more information is:http://wwwcra-arcgcca/tax/individuals/topics/rrsp/hbp/menu-ehtml

F2. PROPERTY TRANSFER TAX INFORMATION

When buying a home in BC, there is usually a government charged property transfer tax. As a rst time hombuyer however, this can be waived if certain conditions are met Here are a few of the basic conditions:

Must be a Canadian citizen, or a permanent resident as determined by Immigration Canada.

Purchase price cannot exceed $425,000.

You must not have previously owned your principal residence, anywhere in the world.

You must have resided in BC for the period 12 months before the date of purchase, or you have le2 income tax returns as a BC resident during the 6 years before the date of property registration

For complete details, please go to:wwwrevgovbcca/individuals/Property_Taxes/Property_Transfer_Tax/brochureshtm

F3. FIRST-TIME HOME BUYERS TAX CREDIT

First-time home buyers that acquire a qualifying home after January 27, 2009, can claim a 15%non-refundable tax credit on up to $5,000, for a maximum credit of $750 If a home is purchased jointhe total credit that may be claimed by all purchasers is $750 The unused portion of the credit can btransferred to a spouse or common-law partner

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F4. HST INFORMATION


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F4. HST INFORMATION CONTINUED

For more detailed information, please visit:wwwsbrgovbcca/documents_library/notices/HST_Notice_003pdf

The above information is a brief summary provided courtesy of Spagnuolo & Company RealEstate Lawyers

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G. CLOSING THE DEAL

G1. ESTIMATED COSTS

A few days before closing, your lawyer will have you come into his or her ofce to sign all themortgage documents. When they set up this appointment, they will give you the nal gureof how much you should write your cheque for and to whom it should be payable (usually thelawyer or legal rm in trust). You will receive a Statement of Adjustments which will showyou exactly how your funds are being disbursed

*Costs are estimated and will vary depending on each individual transaction and property.

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Mortgage Payment Calculation Chart Per $1,000 O Mortgage

Example: $100,000 mortgage @ 5% amortized over 25 years = $582 per $1,000, so,100 x 582 = $582 per month

Interest Rate Amortization Period(Compounded Semi-Annually) (In Years)

You can also visit our internet web site at:

garibaldimortgagecom

At this site you can calculate your mortgage amortization schedule and then print out thedetails of all your payments You can also view the latest best rates that we have access to

H. MORTGAGE PAYMENT CALCULATOR

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I. NON-RESIDENT

I1. NON-RESIDENT LENDING

We frequently receive requests from non-residents of Canada looking for nancing for thepurchase of revenue or vacation property While the general guidelines from most banksobserve a maximum 65% loan to value policy, we do have lenders that will make exceptions

to 75% depending on each application, and the type of real estate you are buying

Depending on your purchase price, the lender may reduce the loan to value ratio, as everybank has different formulas they follow on larger loan amounts For example, a high valuepurchase in excess of $2,000,000 may have a maximum loan availability of 55% As everyclient situation and property is different, we are able to obtain exceptions and providenancing over and above guidelines, on a case by case basis.

You may hear terms like payment hypothecation and assignment o rents

Payment Hypothecation refers to a deposit equal to 3 -6 months worth of payments held

for at least 1 year in a separate, interest-bearing vehicle It provides additional security for theloan, and is more common when nancing up to 75%. These funds are usually released afterone year at the lenders discretion, as long as the mortgage has been repaid as agreed

Assignment o Rents refers to a lender issued document registered on the title of yourpurchase at the time of mortgage registration It entitles the lender to use rental income tomake up any funds in arrears if the mortgage were ever to go into default As long as themortgage is in regular repayment, the lender has no cause to use the assignment of rents

I2. WHISTLER CONDO FINANCING

In the Whistler area, condominiums are generally divided into 2 types: Phase I and PhaseII Phase I properties allow full year round use at the owners discretion, and when not inuse, there is an expectation that the property be placed in a rental pool Participation is notmandatory Phase II properties allow the owners to use the condo 28 days in the summer and28 days in the winter, and when not in use it must be placed in the rental pool Rental poolparticipation is mandatory

Financing is generally available to 65% Rates and possible fees should be discussedwtih your mortgage broker, as the available nancing and terms for these properties varydepending on where you are ling tax returns, and your overall qualications as an applicant.

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I3. HOW CANADIAN MORTGAGES WORK

The way xed rate Canadian mortgages work is like this:

They are closed interest rate contracts closed for the term you select, ie one to 10 years

The maximum amortization available is 25 years The penalty to break the interest ratecontract prior to the maturity date is the GREATER of 3 months interest, or the IRD (interestrate differential) The IRD is the banks loss of interest for the time remaining in the term Soif you take a 5 year xed and pay it off after 3 years, either from your own resources, or bysale, the bank will calculate the IRD by comparing your rate, with the current rate for 2 years,and charge that on the balance to the end of the term The estimate for 3 months interest isapproximately 2 months worth of payments

Additionally worth noting is that in the Bank Act, the maximum penalty that can be chargedafter the 5th anniversary is 3 months interest so this is applicable for terms longer than 5years

All of our lenders allow a prepayment percentage from 10 to 20%, based on the originalamount borrowed Some allow it only on the anniversary date, and some allow itcumulatively throughout the year

When any mortgage is up for renewal, you may pay off as much as you wish without penaltyThe renewal process is very easy As long as you are just renewing the balance, and notchanging anything, you just choose a new term at whatever the prevailing interest rates areThere are no lawyers involved or re-qualifying procedures to go through Please note, atthe end of the term you are able to switch lenders if you are not getting a competitive offer- however by switching lenders, you will have to go through the re-qualifying process Many

of our clients contact us at renewal, and we assist you with either switching lenders, ornegotiating a better rate from your existing

There is also variable, prime based nancing available. The Canadian prime rate is reviewedevery 6 weeks Generally, with a closed variable rate mortgage, the penalty to pay off early is3 months interest With an open variable rate mortgage, there are no penalties for earlypay off

I. NON-RESIDENT

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J. CONSTRUCTION MORTGAGE GUIDE

Building your own home is an exciting and rewardingproject We are here to help you understand the processof nancing the construction of your new home so thatyou can get started with condence and proceed withpeace of mind

You may have some experience in obtaining mortgagenancing but as youll see, construction nancing isa more detailed process, with several important mile-stones that dont take place when you buy an existinghome

A substantial amount of your own funds are required upfront You are not reimbursed until the end, when thedwelling is 100% complete

Now is the time to planIt is never too early to plan Read through the examplesheets to ensure you have a clear understanding ofhow your advances work so that you request the rightmortgage amount

What to ExpectWhen you build your home, there are more steps andexpenses than if you buy an existing home In the sim-plest terms, a typical mortgage is advanced in one lumpsum. Construction nancing is different. At the bank, thetotal amount borrowed to complete a project is usually

advanced in three stages within one year

DETERMINING WHAT YOU NEED TO GET STARTED

During the application process, you will need tounderstand the initial costs that you will be responsiblefor

LandTo secure construction nancing you are required to ownthe land, as the bank will need to register a rst mort-gage on it

ServicingThe land you intend to build on needs to be fully ser-viced This includes site preparation and municipalservices such as septic service, water connection, sewer

connection, hydro and gas service

Soft costsThese are out-of-pocket expenses for services andcharges you are likely to incur at the outset of, andthroughout, the construction phases Depending onyour plans and the location of your home, these willlikely include:

Property taxes

Municipal permits

Fees for architects and engineers

Fees for realtors and solicitors

Fees for appraisals and inspections

Initial building costsYou are expected to nance the initial stage ofconstruction (approximately 15 to 20% of construction)with your own money As every construction project isdifferent, this percentage is an estimate only for examplepurposes

Cost overrunsWe recommend that you set aside an additional 15% ofthe estimated construction costs to cover unexpectedoverruns

Interest costsYou are required to make interest -only payments on allamounts advanced until your regular principal and inter-est payments beginIn addition to the costs already outlined, you will alsoneed to budget for lien holdbacks

J1. UNDERSTANDING THE CONSTRUCTION FINANCING PROCESS

Typical Mortgage

You receive all of the money you borrowed at

the time you obtain the property.

Construction Financing

At the Bank, you pay the up-front costs, then

generally receive up to three advances.

First advance at the Foundation stage.

Second advance at the Lock-up stage.Third advance at the Completion stage.

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1 For the purpose of the mortgage application, the value ofthe completed project is the lesser of a) the cost to constructincluding land value or b) the appraised value

Lien holdbacksDifferent banks observe lien holdbacks in different waysThey may also be subject to change It is best to clarifyyour lenders policy with your mortgage broker

Your solicitor may be required to hold back some of themoney advanced at each of the Foundation, Lock-upand Completion stages of your construction projectThis money is held in reserve in the event that acontractor or supplier claims a lien on your property Alien is a claim by a contractor against the property tosecure repayment of unpaid construction costs

The amount of your lien holdback and the number ofdays that your funds will be held in trust varies byprovince The bank will instruct your solicitor to holdback a percentage based on the chart below

Ask your solicitor for details

Province Percentage ofHoldback

Alberta 10

British Columbia 10

Manitoba 75

New Brunswick 20

Newfoundland 10

Nova Scotia 10

Ontario 10

Prince Edward Island 20

Quebec 15

Saskatchewan 10

THE APPLICATION

Heres what you should plan to bring to your rst meeting

with a mortgage representative

All information associated with the construction Construction contract, including costs

Construction plans or blueprints

Quotes for labour and material if you are acting as thegeneral contractor

Site preparations, including municipal services for thelot (eg excavation, septic service, water, sewer, hydro,gas, etc)

Evidence of ownership of the land and/or a copy of thepurchase agreement with evidence ofavailable funds

Other requirements to help fulll the application

or construction nancing

Conrmation of required funds to complete theFoundation Stage

Conrmation of income/employment

Name, address and telephone number of your solicitor

As we familiarize ourselves with the details of yourproject, we can tell you what, if any, other documentsspecic to your application may be required.

The appraisalDetermining the estimated value of your completed home

The Lender will obtain an appraisal to estimate the valueof your completed home, including the land1 To arrive atan estimate, your appraiser will review your constructionplans and blueprints to understand the type of home youare building

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YOUR 1ST ADVANCE - THE FOUNDATION STAGE

When you have completed the Foundation stage, wewill send an appraiser to your home to inspect theproperty and conrm that the Foundation stage iscomplete

Up to this point, you will have paid all expenses fromyour own resources

At each stage, when you are ready for an advance, thebank will send out their appraiser to conrm that thework is completed and what percentage of work is leftto complete

The lender will release your rst advance of funds toyour solicitor, who may keep a percentage of it as alien holdback The percentage varies by province

At this point monthly interest-only payments will

commence

The amount of your rst advance is determined bya formula based on the total requested mortgageamount and the remaining cost to constructyour home

Prior to releasing the rst advance, your solicitor

will need - Builders all-risk insurance assigned to the Lender

A survey showing the location of all buildings tobe constructed

Conrmation that all necessary building permitsare in place

YOUR 2ND ADVANCE - THE LOCK-UP STAGE

The Lender will release your second advance to yoursolicitor Once again, a lien holdback may be applied

The amount of your second advance is dependent on

the requested mortgage amount, the amount of the rstadvance and the remaining cost to constructyour home

YOUR 3RD ADVANCE - THE COMPLETED STAGE

When you have completed your home, we will send anappraiser to your home to inspect the property

When the appraiser has determined that your building iscomplete, the Lender will release the nal advance of ndsto your solicitor A lien holdback may be applied

Prior to releasing the nal advance, your solicitor mayrequest further documentation, which may include:

Well Water Potability Certicate (if applicable)

Flow Certicates and Septic Certicates (if applicable)

Occupancy Permit

New Home Warranty Certicates (if applicable)

Release of lien holdbacksAll lien holdback will be release to you approximately 30-60days (depending on your province) after your project hasbeen completed, assuming there have been no lien claimsmade against your property

Anticipating mortgage interest and principal paymentsBy the time your reach the Completed stage, most of yourmortgage amount will have been advanced to you throughyour solicitor You will be required to start making regularmortgage interest and principal payments shortly afterreceiving your third advanceIMPORTANT NOTE

It is important that you request the right mortgageamount Review the examples found in the guideon pages 25 - 28 prior to applying for a mortgageso that you understand how the advanceschedule works


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EXAMPLE 1The land is owned free and clear of any nancing, and the borrower is applying

only for the minimum budgeted amount.

J2. CONSTRUCTION FINANCING EXAMPLE SHEETS

Land Value: $500,000Build Cost: 300,000Total Value: $800,000

Funds Needed

$300,000 Build Cost45,000 Overruns15,000 GST on Build Cost5,000 Estimated Legal Costs

20,000 Soft Cost $385,000 Financing Applied For

1 You spend approximately $50,000 to establish the Foundation

2 The bank sends out their appraiser

3 The appraiser determines there is $250,000 required to complete the construction

4. The rst draw is calculated as follows:

Approved Financing $385,000

less amount required to complete - $250,0001ST ADVANCE released through Lawyer to use through to

next stage - Lock-up= $135,000

5. $135,000 spent and the banks appraiser is called out. The appraiser conrms there is $115,000worth of work required to complete, calculated as follows:

Build Cost $300,000

less Foundation - $50,000

less 1st Advance - $135,000

Amount required to complete= $115,000

This example illustrates why it is so important to to apply for the maximum amount of nancing you can obtain,rather than just the minimum budgeted amount. The higher nancing allows for maximum exibility during youradvances which is important as unforeseen costs, due to materials, scheduling etc, can arise as construction

progressesKeep in mind that your fnal advance is not released until the project is completed.

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6. The 2nd Advance is calculated as follows:

Approved Financing $385,000less First Advance - $135,000

= $250,000

less Work required to complete - $115,000

2nd ADVANCE Available = $135,000

7. The $135,000 is used towards the completion of the structure

8. At this point, you will have spent $270,000 in advances, leaving approximately $30,000 needed inavailable credit to complete. This gure could be higher depending on how much in overruns you

have incurred, and GSTAt this stage, the unding to complete construction will have to come rom outside resourcesand credit, as the fnal advance rom the bank is not paid until completion. It is very importantto plan or this. Will you be able to get unding rom other resources at this stage?

9. The dwelling is 100% nished and the banks appraiser is sent out once again to conrm if there is

any work required to complete. If the appraiser conrms completion of the work, the bank releasesthe balance of the construction mortgage funds - $115,000 ($385,000 nancing - $270,000 advancespaid = $115,000) which at that point reimburses you to pay down any credit lines used

10. IMPORTANT POINT:This alternative scenario shows why it is important to try to obtain a higher than needed constructionmortgage loan at the very beginning to provide exibility in the mortgage draws.

If $485,000 had been approved at the beginning, then outside credit lines would not have beenneeded to complete the structure:

$50,000 Spent on Foundation$250,000 Required to Complete

First Advance$485,000 Approved250,000

$235,000 Available or Advance

$235,000 Spent and Appraiserconrms $15,000 required tocomplete

Second Advance

$485,000 Approved- 250,000 less First Advance- 15,000 less Amount to complete

$235,000 Available or Advance

$470,000 has been made available in advances to complete structure completely, coveroverruns, GST and legal costs In this scenario, there is no need to go to outside resourcesfor funding to reach the completion stage



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EXAMPLE 2 There is a lot loan registered against the land.


Lot Loan $250,000

Land Value 500,000Build Cost $300,00Total Value: $800,000

Funds Needed

$250,000 to Pay off Lot300,000 Build Cost45,000 Overruns Estimate15,000 GST5,000 Legals

20,000 Soft Costs $635,000 Financing Applied For

1. You spend approximately $50,000 to establish the Foundation

2. The bank sends out their appraiser

3. The appraiser determines there is $250,000 required to complete the construction

4. The 1st Advanceis calculated as follows:

Approved Financing $635,000

Required to Complete - $250,000

1st Advance released through Lawyer to use through to nextstage - Lock-up AND to pay off lot nancing

= $385,000

Lot Loan mus be paid off - 250,000

Amount remaining to spend on construction $135,000

5. $135,000 has been spent and the banks appraiser is called out. The appraiser conrms there is$115,000 worth of work required to complete, calculated as follows:

Build Cost $300,000

Foundation Cost - $50,000First Advance - $135,000

Work required to complete = $115,000


This example shows the construction mortgage process when there is also a lot loan involved

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6. The 2nd Advance is calculated as follows:

Approved $635,000

First Draw - $385,000

Work required to complete - $115,000

2nd Advance Available $135,000

7. The $135,000 is used towards the completion of the structure Once again, there will have been$270,000 used towards the build, with approximately $30,000 plus GST plus overruns to be coveredfrom an outside source at this point in time

8. IMPORTANT POINT:

In this example, the $635,000 applied for is 79.3% nancing based on the end value cost(ie $635,000/ $800,000 = 793% loan to value ratio)

In this case, to apply for higher nancing at the beginning would provide you with exibility during theadvances, BUTwould also incur CMHC mortgage insurance costs

Remember that any mortgage with a loan-to-value ratio of 80% or higher will incur CMHC mortgageinsurance costs. Your decision in this case as to how much nancing to apply for at the beginningwould be determined by th availability of outside lines of credit and/or family assistance and the costof the CMHC premium (See Section E for insurance premium tables)

9. The dwelling is 100% nished and the banks appraiser is sent out once again to conrm if there is

any work required to complete. If the appraiser conrms completion of the work, the bank releasesthe balance of the construction mortgage funds, which at that point reimburses you to pay down anycredit lines used



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K. GLOSSARY OF MORTGAGE & REAL ESTATE TERMS

ACCRUED INTERESTInterest which has accumulated unpaid sincelast payment date

AMORTIZATIONThe gradual retirement of a debt by means of partialpayments of the principal at regular intervals

AMORTIZATION PERIODA time of arrangement for paying off a mortgageby equal installments or periodic constantpayments Repayments of principal and interestin blended amounts Fully amortized meanscomplete repayment without a balloonpayment at the end of the term Can be as shortas 5 years or as long as 40 years

AMORTIZATION SCHEDULEThe amortization schedule shows monthlyinstallments of principal and interest and howmuch of the payment is allocated to each It alsoshows the unpaid principal balance

APPRAISED VALUEA dollar amount assigned to taxable property, bythe assessor, for the purpose of equalizing theburden of taxation

ASSETSWhat the borrower owns Liquid assets arethose that can be quickly converted to cash

ASSIGNMENT OF MORTGAGEThe assigning of a mortgagees interest in themortgage to a new mortgagee The legal saleof the mortgage with or without an agreementto repurchase

ASSIGNMENT OF RENTSRefers to a lender issued document registeredon the title of your purchase at the time ofmortgage registration It entitles the lender touse rental income to make up any funds inarrears if the mortgage were ever to go intodefault As long as the mortgage is in regularrepayment, the lender has no cause to use theassignment of rents

ASSUMPTION OF MORTGAGEThe purchaser of property assumes the liabilityfor an existing mortgage against a propertyand becomes liable for timely payment of themortgage This action might occur with or withapproval of the existing mortgagee depending the terms of the existing mortgage

BLANKET MORTGAGEA single document which is registered coverinmore than one title to property

BLENDED MORTGAGECombining the amount owing on an existingmortgage with additional mortgage money forthe purpose of buying another property The

interest rate changes to one that combines thrate on the old loan with the rate in effect at thtime you add additional nancing.

BLENDED PAYMENTSThe method of repayment where periodicpayments of principal and interest are made isuch a way that the payments remain constanin amount, although the portions attributed toprincipal and interest vary with each payment

BRIDGE FINANCINGA special short-term loan needed to cover(bridge) the gap in time between completingthe purchase of one property and nalizingarrangements to pay for it This is often theresult of mismatched closing dates

CARRYING COSTSThe actual cost of living in and maintainingproperty, including mortgage payments,property tax, heating and repairs

CLOSED MORTGAGEThe restriction or denial of repayment rights uthe maturity of the mortgage

CLOSING DATEThe date on which the sale of a propertybecomes nal and the new owner takespossession

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CMHCCanada Mortgage and Housing Corporation,a Crown Corporation which administers theNational Housing Act

CO-OPERATIVEThe ownership of a separate amount of space ina multiple dwelling or other multiple-occupancybuilding with proportioned tenancy in commonownership of common elements Used jointlywith other owners however, the owner does notown his/her specic unit but he/she becomesa shareholder of the corporation which ownsall the real property and occupies by way of atenancy agreement subject to a shareholders

agreement administered by an elected board ofdirectors

CO-OWNERSHIPCo-ownership occurs when the ownership ofthe whole property is divided (not necessarilyon a pro-rated basis) between two or morepersons Usually there is a written agreementbetween the co-owners in which the rights ofeach co-owner is described Each co-ownermay sell his/her right of ownership or dispose of

it as he/she wishes

COLLATERAL MORTGAGEA loan backed by a promissory note and thesecurity of a mortgage on a property The moneyborrowed may be used for another purpose,such as home renovations or a vacation

COMMITMENTA notice from a mortgage lender to aprospective borrower that the lender will

advance mortgage funds in a specied amountunder certain conditions

COMMITMENT FEEThis fee is charged by a lender for keepingan agreed amount of funds available to theborrower for a specied period of time.

COMPOUND INTERESTInterest charged not only to the principal sumbut also on interest amounts charged in apreceding period

CONDOMINIUMThe ownership of a separate amount of spacea multiple dwelling or other multiple-occupanbuilding with proportioned tenancy in commoownership of common elements used jointlywith other owners

CONTRACTAn agreement between two or more partiesgiven receipt of lawful consideration to do or

refrain from doing some act

CONVENTIONAL MORTGAGEA rst mortgage, outside the conditions ofNHA (the National Housing Act), granted by ainstitutional lender such as a bank, mortgage,loan or trust company wherein the amount ofthe loan does not exceed 80% of the appraisvalue of the property

CONVERTIBLE MORTGAGE

A short term mortgage, usually 6 or 12 monthallowing the borrower to switch into a longerterm at anytime without penalty There areseveral different variations to the convertiblemortgage

DEBT SERVICEThe amount of principal and interest repaymemade under a mortgage on a periodic basisIf payments are equal they are constantpayments, if amounts vary they are known as

variable payments

DEEDAn instrument in writing, duly executed anddelivered, that conveys title or an interest in reproperty

DEFAULTFailure to full an obligation.

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DEFAULT NOTEPayment is made on demand, usually within afew days notice to the borrower

DEPOSITA sum of money (in the form of cash) requiredto be paid with an offer to purchase as a symbolof the purchasers commitment If the offer isaccepted, the deposit is applied to the downpayment If the offer is later turned down by thebuyer, the deposit may or may not be returned

DISCHARGE OF MORTGAGEA document executed by the mortgagee, andgiven to the mortgagor when a mortgage loan

has been repaid in full before, at, or after thematurity date

DOWN PAYMENTThe amount of money (in the form of cash) putforward by the buyer toward the purchase priceof a home

EFFECTIVE INTEREST RATEThe actual interest rate on investment wherea debt or loan was bought at a discount or at

a premium

EQUITYThe remaining interest an owner of real propertyhas in its total value allowing for encumbrancesand creditors claims

FIRST MORTGAGEA mortgage on property creating a prior claimover any subsequent mortgages or chargesand usually conveying the legal estate to the

mortgagee Upon foreclosure of the mortgage,the rst mortgagee must be fully satised out ofthe proceeds before any subsequent claims

FIXED-RATE MORTGAGEThis is the usual form of mortgage whereinterest rate remains the same during the entirelife of the loan

FLOATING RATE OF INTERESTRate of interest which uctuates a certainnumber of percentage points above or belowprime lending rates

FORECLOSURERemedial court action taken by a mortgagee whdefault occurs on a mortgage, to cause forfeiturof the equity of redemption of the mortgagor

FREEHOLDThe ownership of a tract of land on which thebuilding(s) are located The most common typof ownership of real estate

GROSS DEBT SERVICE RATIO (GDS)The annual charges for principal, interestand taxes as a function of gross income ofthe mortgagor

GROSS INCOMEThe scheduled income from the operationof the business of the management of theproperty, customarily stated on an annualbasis Also refers to the total personal incom(from all sources) of an individual, before tax

and other deductions

GUARANTORA third party person without interest in theproperty who agrees to assume responsibility a debt in the event of default by the mortgago

HIGH RATIO MORTGAGEA mortgage loan that exceeds the normal limitof a conventional rst mortgage, in regard to thratio of the loan amount to the propertys lendi

value; the higher loan amount is made possibleby a mortgage insurance plan eg CMHC

HOLDBACKAn amount of money retained by a constructiolender or owner until satisfactory completion the work performed by a contractor

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INCOME/EXPENSE RATIORatio of operation expenses to gross incomeand expressed as a percentage (also known asoperating ratio)

INTERESTAnnual prot on a loan of money. The price paidto rent money A function of the rate of interestover a period of time on a specic sum of money.

INTEREST ADJUSTMENT DATE (IAD)The date on which the mortgage really begins,usually the rst of the month. The borrower isrequired to pay interest on the loan between thedate of receiving the funds and the IAD before

regular mortgage payments start

INTEREST ONLY LOANBorrower pays back interest only on the loanand there is no amortization until later or untilthe end of the term This may occur when apurchaser wishes to resell property after ashort period or if he wishes to build up enoughincome from the property before amortization

JOINT TENANCY

Ownership of land by two or more personswhereby, on the death of one, the survivor orsurvivors take the whole estate

LEASEHOLDA person has use of the property for a limitedtime This person can rent the building or ownthe building and rent the land on which thebuilding sits

LEASEHOLD MORTGAGE

A mortgage for the purchase of a home orimprovements to a home where the building ison land that is leased or rented

LENDING VALUEAn independent appraisers value interpreted bythe lender as to the worth of a property in thecurrent market given a reasonable time period tosell the property

LETTER OF INTENTSimilar to a commitment letter where a lenderissues a letter to a borrower outlining their inteto lend them money for a specic purpose andunder what conditions that money will be loane

LIABILITIESWhat the borrower owes

LIENThe lenders legal claim to the borrowers prope

LINE OF CREDITA maximum credit limit allowed by a lender toborrower, as long as the borrower maintains a

acceptable balance on account or has a goodcredit rating The credit line will vary from timetime according to the changing circumstanceof the borrower or the lender

LOAN COVERAGEThe ratio of net operating income to mortgagedebt service; in general, loan coverage of 12 considered adequate

LOAN FEE

A charge for making a loan in addition to theinterest charged to the borrower

LOAN TO VALUE RATIOThe advance ratio of the principal amount of tmortgage as a function of the lending value othe property

MATURITY DATEThe last day of the term of the mortgageagreement The mortgage must be paid in full

the agreement renewed by the maturity date

MORTGAGEA conveyance of property to a creditor, assecurity for payment of a debt Such securityis redeemable or recoverable on the paymentor discharge of the debt at a specied date.More recently referred to as a Charge in the nePolaris registry system Anencumbrance registered onthe title of the lands

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MORTGAGE INSURANCE PREMIUMA premium which is charged as a percentageof the mortgage The mortgage insuranceinsures the lender against loss in case ofdefault by the borrower

MORTGAGE LIFE INSURANCEA form of reducing term insurancerecommended for the borrower In the eventof the death of the borrower or one of the co-borrowers, the insurance pays the balanceowing on the mortgage The intent is to protectsurvivors from losing their home

MORTGAGEE

The one to whom property is conveyed (Thelender) The holder of the mortgage

MORTGAGORThe one who makes the payments The ownerof the property (The borrower)

NATIONAL HOUSING ACT (NHA) LOANA mortgage backed (insured) to a certainmaximum by CMHC or an approved privateinsurer

NET RATE OF INTERESTThe interest rate received by a mortgage lendernet of the servicing fee deducted by a loancorrespondent, etc

NOMINAL RATEThe quoted interest rate for a mortgage

OFFER TO PURCHASEA formal, legal agreement that offers a certain

price for a specied property. The offer may bea rm (no conditions attached) or conditional(certain conditions must be fullled).

OPEN MORTGAGEA way of registering a mortgage which allowsthe mortgagor to make extra payments, makeprincipal repayments, or pay the loan off in fullat anytime without penalty

PAYMENT HYPOTHECATIONRefers to a deposit equal to 3 -6 monthsworth of payments held for at least 1 year in a

separate, interest-bearing vehicle They providadditional security for the loan, and are morecommon when nancing up to 75%. Thesefunds are usually released after one year at thlenders discretion, as long as the mortgage hbeen repaid as agreed

P.I.Principal and interest due on a mortgage

P.I.T.Principal, interest and property taxes due on amortgage

P.I.T.H.Principal, interest, taxes, and heating costs duon a mortgage These payments are used tocalculate the GDS and TDS of a borrower

PENALTYA sum of money paid to a lender for the privileof prepaying a mortgage in part or in full,outside the privileges set out in the terms of t

mortgage

PORTABLE MORTGAGEUpon the consent of the lender, the mortgagomay transfer the balance of their existingmortgage to a new property being mortgaged

POWER OF SALEThe right of a mortgagee to force sale of theproperty without judicial proceedings shoulddefault occur

PRE-APPROVED MORTGAGEPreliminary approval by the lender of theborrowers application for a mortgage to certamaximum amount and rate Usually conditionupon the property being purchased meeting tlenders criteria

PRE-AUTHORIZED CHEQUE (PAC)see Pre-Authorized Payment

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PRE-AUTHORIZED PAYMENT (PAP)This method of making mortgage paymentsallows the lender to deduct the agreed upon

mortgage (tax & insurance, if applicable)payment directly from the borrowers chequingaccount

PREPAYMENT CHARGEA fee charged by the lender when the borrowerprepays all or part of a mortgage more quicklythan stated in the mortgage agreement The feeis charged to compensate the lender for loss ofrevenue

PREPAYMENT OPTIONSThe clause in the mortgage agreementthat species when, how much and howprepayments of the mortgage principal (aboveand beyond the regular mortgage payments)can be made by the borrower

PRIME RATEThe rate charged by banks to their most credit-worthy borrowers

PRINCIPAL

The amount of money borrowed Could be partof the repayment plan that lowers this originalamount

PRIORITY OF MORTGAGES (I.E. FIRST,SECOND, THIRD)Dates of registration by number and date in thelocal Registry Ofce and/or Land Titles, thengiven to the mortgagee First mortgages havepriority over second mortgages; and so onPriority refers to the mortgagees claim to the

property should payments go into default

PROMISSORY NOTEAn unconditioned note or written promise bythe promisor to pay a sum of money to thepayee on demand or at a xed or determinablefuture date

RATE (INTEREST)The return the lender receives for loaning theborrower the money for the mortgage

REDEMPTIONThe buying back of a mortgage estate bypayment of the sum due on the mortgage

REFINANCETo pay in full and discharge a mortgage and another registered encumbrances and arrange fonew mortgage with the same or a different lend

RENEGOTIATETo change the terms and conditions of a mortga

agreement prior to maturity Renegotiation occuwith the lender who currently holds the mortgag

RENEWAL AGREEMENTAn agreement whereby the lender may agreeto extend the term of the loan, but possibly onrevised terms as to principal repayments andinterest rate

RESERVE FUNDA fund set up by a condominium corporation

major repairs and replacement of such items the roof, elevators, plumbing, heating systemsetc All condo corporations, by law, require areserve fund

ROLL-OVER MORTGAGEA mortgage loan where the interest rate isestablished for a specic term. At the end of thiterm the mortgage is said to roll over and theborrower and lender may agree to extend the loIf satisfactory terms cannot be agreed upon, the

lender is entitled to be repaid in full In this casethe borrower may seek alternative nancing.

SECOND MORTGAGEA mortgage placed on real property whichis already encumbered with one mortgageDetermination of rst, second, third, etc. mortgais by priority of registration (time and date)

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SECURITYProperty offered as backing for a loan Inthe case of mortgages, the property being

purchased with the loan usually forms thesecurity for the loan

SHELTER PAYMENT RATIOGross debt service plus annual heat costs as afunction of the gross income of the mortgagor

SURVEYThe accurate mathematical measurements ofland and buildings thereon made with the aid ofinstruments

TENANCY IN COMMONOwnership of land by two or more persons:unlike joint tenancy in that the interest of thedeceased does not pass to the survivor, but istreated as an asset of the deceaseds estate

TERM OF LOANThe actual length of time for which the moneyis borrowed Anywhere from one month to 25years The period for which the mortgage isregistered, in months

TOTAL DEBT SERVICE RATIO (TDS)Gross debt service plus payments on otherdebts such as bank loans, nance companyloans, credit card payments, alimony, etc as afunction of the gross income of the borrower

TRANSFERTo convey from one person or institution toanother

TRANSFER OF CHARGEAssignment of a mortgage under the Land TitlesSystem

UNDERWRITER (MORTGAGE)A person employed by a mortgage lenderor mortgage broker who assesses loan

applications based upon the following: qualityof the real property, credit worthiness and abito pay of the applicant and guidelines of thelender with regard to ratio of mortgage loan tvalue of property

VARIABLE INTEREST MORTGAGEA loan where the interest rate may vary duringthe term of the mortgage The variance isusually tied to some specic factor such asprime bank rate or the guaranteed investment

certicate rate for a designated lender.

VENDOR TAKE BACK MORTGAGEA mortgage which a vendor of real propertytakes from the purchaser usually as partpayment of the purchase price for that properA private rst or second mortgage that thevendor lends to the purchaser/borrower

ZONINGThe public regulation of the character and intenof the use of real estate This is accomplished bthe establishment of districts in each of whichuniform holding restrictions related to use, heigharea, bulk and density of population are imposeupon the private property

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The Complete Mortgage Home Buyers Guide

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Transcript of The Complete Mortgage Home Buyers Guide