ASK Suzanne M. O'Toole
How much can I afford to pay for a home?
What is a home inspection and
should I have one done?
What is the minimum down payment
needed for a home?
What is mortgage loan insurance?
What is a conventional mortgage?
How does bankruptcy affect
qualification for a mortgage?
How will child support affect
mortgage qualification?
Can I get a mortgage to purchase a
home?
Can I use gift funds as a down
payment?
What is a pre-approved mortgage?
Should I wait for my mortgage to
mature?
What is a down payment?
How can you acquire a home with as
little as 5% down?
How can you pay off your mortgage
sooner?
How can you use your RRSP to help
you buy your first home?
What are the costs associated with
buying a home?
What should the length of my
mortgage term be?
What are the monthly costs of
owning a home?
Should you go with a short or
long-term mortgage?
What is a fixed rate mortgage?
What is a variable rate mortgage?
How much of a mortgage can I
afford?
How much do I need for a down
payment?
What are closing costs?
Do You Sell Our Information to
Anyone Else?
What happens if I'm not satisfied
with a mortgage offer?
What is the difference between
Term and Amortization?
How can I save money on my
mortgage?
What's the difference between
Pre-qualification, Pre-approval and Full Loan approval?
What are the benefits of a
Mortgage Agent
What is a mortgage agent?
What is title insurance?
What is a home inspection?
Who is an appraiser?
How much the CMHC insurance cost?
What is a Variable Interest Rate
Mortgage (Open)
Can I use my RRSP for Down Payment?
How
much can I afford to pay for a home?
To determine 'affordability' you will first need to know your taxable
income along with the amount of any debt outstanding and the monthly
payments. Assuming it is your principal residence you are purchasing,
calculate 32% of your income for use toward a mortgage payment,
property taxes and heating costs. If applicable, half of the estimated
monthly condominium maintenance fees will also be included in this
calculation.
Second, calculate 40% of your taxable income and deduct all of your
monthly debt payments, including car loans, credit cards, lines of
credit payments. The lesser of the first or second calculation will be
used to help determine how much of your income may be used towards
housing related payments, including your mortgage payment. These
calculations are based on lenders' usual guidelines.
In addition to considering what the ratios say you can afford, make
sure you calculate how much you think you can afford. If the payment
amount you are comfortable with is less than 32% of your income you may
want to settle for the lower amount rather than stretch yourself
financially. Make sure you don't leave yourself house poor. Structure
your payments so that you can still afford simple luxuries.
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What
is a home inspection and should I have one done?
A home inspection is a visual examination of the property to determine
the overall condition of the home. In the process, the inspector should
be checking all major components (roofs, ceilings, walls, floors,
foundations, crawl spaces, attics, retaining walls, etc.) and systems
(electrical, heating, plumbing, drainage, exterior weather proofing,
etc.). The resultsof the inspection should be provided to the purchaser
in written form, in detail, generally within 24 hours of the
inspection.
A pre-purchase home inspection can add peace of mind and make a
difficult decision much easier. It may indicate that the home needs
major structural repairs which can be factored into your buying
decision. A home inspection helps remove a number of unknowns and
increases the likelihood of a successful purchase.
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What
is the minimum down payment needed for a home?
A minimum down payment of 5% is required to purchase a home, subject to
certain maximum price restrictions. For instance, in the Greater
Vancouver area the maximum purchase price with 5% down is $250,000. Any
purchase price in excess of $250,000 requires a minimum of 10% as a
down payment. In addition to the down payment, you must also be able to
show that you can cover the applicable closing costs (i.e. legal fees
and disbursements, appraisal fees and a survey certificate, where
applicable).
Regardless of the amount of your down payment, at least 5% of it must
be from your own cash resources or a gift from a family member. It
cannot be borrowed.
Lenders will generally accept a gift from a family member as an
acceptable down payment provided a letter stating it is a true gift,
not a loan, is signed by the donor. Where the mortgage loan insurance
is provided by Canada Mortgage and Housing Corporation (CMHC), the gift
money must be in the your possession before the application is sent in
to CMHC for approval.
Mortgages with less than 25% down must have mortgage loan insurance
provided by either CMHC or GE.
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What
is mortgage loan insurance?
Mortgage loan insurance is insurance provided by Canada Mortgage and
Housing Corporation (CMHC), a crown corporation, and GE Capital
Mortgage Insurance Company, an approved private corporation. This
insurance is required by law to insure lenders against default on
mortgages with a loan to value ratio greater than 75%. The insurance
premiums, ranging from .50% to 3.75%, are paid by the borrower and can
be added directly onto the mortgage amount. This is not the same as
mortgage life insurance.
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What
is a conventional mortgage?
A conventional mortgage is usually one where the down payment is equal
to 25% or more of the purchase price, a loan to value of or less than
75%, and does not normally require mortgage loan insurance.
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How
does bankruptcy affect qualification for a mortgage?
Depending on the circumstances surrounding your bankruptcy, generally
some lenders would consider providing mortgage financing.
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How
will child support affect mortgage qualification?
Where child support and alimony are paid by you to another person,
generally the amount paid out is deducted from your total income before
determining the size of mortgage you will qualify for.
Where child support and alimony are received by you from another
person, generally the amount paid may be added to your total income
before determining the size of mortgage you will qualify for, provided
proof of regular receipt is available for a period of time determined
by the lender.
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Can
I get a mortgage to purchase a home?
Subject to qualification, yes. In fact, even purchasers with 5% down
may qualify to buy a home and make improvements to it. For high-ratio
financing, both Canada Mortgage and Housing Corporation and GE Capital,
insured mortgages are available to cover the purchase price of a home
as well as an amount to pay for immediate major renovations or
improvements that the purchaser may wish to make to the property. This
option eliminates the need to finance the renovations or improvements
separately. Some conditions apply.
Where the improvements are cosmetic, the mortgage loan insurance
premium is unchanged from the standard schedule. Where the improvements
are deemed to be structural, the mortgage loan insurance premium is
increased by .50% over the standard schedule. For information on
mortgage loan insurance premiums see high-ratio home mortgage financing.
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Can
I use gift funds as a down payment?
Most lenders will accept down payment funds that are a gift from family
as an acceptable down payment. A gift letter signed by the donor is
usually required to confirm that the funds are a true gift and not a
loan. where the mortgage requires mortgage loan insurance, Canada
mortgage and housing corporation requires the gift money to be in the
purchaser's possession before the application is sent in to them for
approval. where mortgage loan insurance is provided by GE Capital this
is not a requirement. See 'what is mortgage loan insurance?' for
further information.
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What
is a pre-approved mortgage?
A pre-approved mortgage provides an interest rate guarantee from a
lender for a specified period of time (usually 60 to 90 days) and for a
set amount of money. The pre-approval is calculated based on
information provided by you and is generally subject to certain
conditions being met before the mortgage is finalized. Conditions would
usually be things like 'written employment and income confirmation' and
'down payment from your ownresources', for example.
Most successful real estate professionals will want to ensure you have
a pre-approved mortgage in place before they take you out looking for a
home. This is to ensure that they are showing you property within your
affordable price range.
In summary, a pre-approved mortgage is one of the first steps a home
buyer should take before beginning the buying process.
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Should
I wait for my mortgage to mature?
Lenders will often guarantee an interest rate to you as much as 90 days
before your mortgage matures. And, as long as you are not increasing
your mortgage, they will cover the costs of transferring your mortgage
too. This means a rate promised well in advance of your maturity date,
thus eliminating any worries of higher rates. And if rates drop before
the actual maturity rate, the new lender will usually adjust your
interest rate lower as well.
Most lenders send out their mortgage renewal notices offering existing
clients their posted interest rates. The rate you are being offered is
usually not the best one. Always investigate the possibility of a lower
interest rate with the lender or another lender. If you don't you may
end up paying a much higher interest rate on your renewing mortgage
than you need to.
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What
is a down payment?
Very few home buyers have the cash available to buy a home outright.
Most of us will turn to a financial institution for a mortgage the
first step in a potentially long-standing relationship. But even with a
mortgage, you will need to raise the money for a down payment.
The down payment is that portion of the purchase price you furnish
yourself. The amount of the down payment (which represents your
financial stake, or the equity in your new home) should be determined
well before you start house hunting.
The larger the down payment, the less your home costs in the long run.
With a smaller mortgage, interest costs will be lower and over time
this will add up to significant savings.
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How
can you acquire a home with as little as 5% down?
Most lenders now offer insured mortgages for both new and resale homes
with lower down payment requirements than conventional mortgages - as
low as 5%. Low down payment mortgages must be insured to cover
potential default of payment, and their carrying costs are therefore
higher than a conventional mortgage because they include the insurance
premium.
With all low down payment insured mortgages, you are responsible for:
- appraisal and legal fees
- an application fee for the insurance
- the payment of the mortgage default insurance
premium (although the amount of the premium may be added to the
mortgage amount).
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How
can you pay off your mortgage sooner?
There are ways to reduce the number of years to pay down your mortgage.
You'll enjoy significant savings by:
Selecting a non-monthly or accelerated payment schedule
Increasing your payment frequency schedule
Making principal prepayments
Making Double-Up Payments
Selecting a shorter amortization at renewal
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How
can you use your RRSP to help you buy your first home?
Today, about 50% of first-time home buyers use their RRSP savings to
help finance a down payment. With the federal government's Home Buyers'
Plan, you can use up to $20,000 in RRSP savings ($40,000 for a couple)
to help pay for your down payment on your first home. You then have 15
years to repay your RRSP.
To qualify, the RRSP funds you're using must be on deposit for at least
90 days. You'll also need a signed agreement to buy a qualifying
home.
Even if you have already saved for your down payment, it may make good
financial sense to access your savings through the Home Buyers' Plan.
For example, if you had already saved $20,000 for a down payment - and
assuming you still had enough "contribution room" in your RRSP for a
contribution of that amount you could move your savings into a
registered investment at least 90 days before your closing date. Then,
simply withdraw the money through the Home Buyers' Plan.
The advantage? Your $20,000 RRSP contribution will count as a tax
deduction this year. Use any tax refund you receive to repay the RRSP
or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home
sooner, it can also mean missing out on some tax-sheltered growth. So
be sure to ask your financial planner whether this strategy makes sense
for you, given your personal financial situation.
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What
are the costs associated with buying a home?
First and foremost, you have to make sure you have enough money for a
down payment - the portion of the purchase price that you furnish
yourself.
To qualify for a conventional mortgage you will need a down payment of
25% or more. However, you can qualify for a low down payment insured
mortgage with a down payment as low as 5%.
Secondly, you will require money for closing costs (up to 2.5% of the
basic purchase price).
If you want to have the home inspected by a professional building
inspector - which we highly recommend - you will need to pay an
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. Usually the inspector will provide you with a
written report. If they don't, then ask for one.
You will be responsible for paying the fees and disbursements for the
lawyer or notary acting for you in the purchase of your home. We
suggest you shop around before making your decision on who you are
going to use, because fees for these services may vary
significantly.
There are closing and adjustment costs, interest adjustment costs
between buyer and seller and (depending on where you live) land
transfer tax - a one-time tax based on a percentage of the purchase
price of the property and/or mortgage amount.
Finally, you will be required to have property insurance in place by
the closing date. And you will be responsible for the cost of
moving.
Remember, there will be all kinds of things you'll have to purchase
early on - appliances, garden tools, cleaning materials etc. So factor
these expenses into your initial costs.
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What should the length of my
mortgage term be?
The length of mortgage terms varies widely - from six months right up
to 25 years. As a rule of thumb, the shorter the term, the lower the
interest rate the longer the term, the higher the rate.
While four or five year mortgages are what most home buyers typically
choose, you may consider a short-term mortgage if you have a higher
tolerance for risk, if you have time to watch rates or are not prepared
to make a long-term commitment right now.
Before selecting your mortgage term, we suggest you answer the
following questions:
- Do you plan to sell your house in the
short-term without buying another? If so, a short mortgage term may be
the best option.
- Do you believe that interest rates have
bottomed out and are not likely to drop more? If that's the case, a
long mortgage term may be the right choice for you. Similarly, if you
think rates are currently high, you may want to opt for a short to
medium length mortgage term hoping that rates drop by the time your
term expires.
- Are you looking for security as a first-time
home buyer? Then you may prefer a longer mortgage term, so that you can
budget for and manage your monthly expenses.
- Are you willing to follow interest rates
closely and risk their being increased mortgage payments following a
renewal? If that's the case, a short mortgage term may best suit your
needs.
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What
are the monthly costs of owning a home?
Needless to say, you'll have financial responsibilities as a home
owner.
Some of them, like taxes, may not be billed monthly, so do the
calculations to break them down into monthly costs. Below you will find
a list of these expenses.
The Mortgage Payment
For most home buyers, this is the largest monthly expense. The actual
amount of the mortgage payment can vary widely since it is based on a
number of variables, such as mortgage term or amortization.
Property Taxes
Property tax can be paid in two ways - remitted directly to the
municipality by you, in which case you may be required to periodically
show proof of payment to your financial institution; or paid as part of
your monthly mortgage payment.
School Taxes
In some municipalities, these taxes are integrated into the property
taxes. In others, they are collected separately and are payable in a
single lump sum, usually due at the end of the current school
year.
Utilities
As a home owner, you'll be responsible for all utility bills including
heating, gas, electricity, water, telephone and cable.
Maintenance and Upkeep
You will also have to cover the cost of painting, roof repairs,
electrical and plumbing, walks and driveway, lawn care and snow
removal. A well-maintained property helps to preserve your home's
market value, enhances the neighbourhood and, depending on the kind of
renovations you make could add to the worth of your property.
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Should
you go with a short or long-term mortgage?
A longer-term mortgage is worth considering if you have a busy life and
don't have time to watch mortgage rates. Our 4, 5 and 7-year mortgages
let you take advantage of today's rates, while enjoying long-term
security knowing the rate you sign up for is a sure thing.
If you want to keep your mortgage flexible right now, you can explore a
shorter-term mortgage that usually allows you to take advantage of
lower rates and save.
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What
is a fixed rate mortgage?
The interest rate on a fixed-rate mortgage is set for a pre-determined
term - usually between 6 months to 25 years. This offers the security
of knowing what you will be paying for the term selected.
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What
is a variable rate mortgage?
A mortgage in which payments are fixed for a period of one to two years
although interest rates may fluctuate from month to month depending on
market conditions. If interest rates go down, more of the payment goes
towards reducing the principal; if rates go up, a larger portion of the
monthly payment goes towards covering the interest. RBC open variable
rate mortgages allow prepayment of any amount (with certain minimums)
on any payment date.
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How
much of a mortgage can I afford?
The amount of a mortgage for which one can qualify is generally founded
in what are known as qualification ratios: Gross Debt Service ratio and
Total Debt Service ratio, or "GDS" and "TDS". Lenders evaluate one's
monthly income, as well as their monthly debt obligations, to determine
a fair and feasible amount of mortgage available to the prospective
borrower. This figure is calculated via their GDS and TDS guidelines.
Generally, lenders will have an acceptable Gross Debt Service ratio
ranging from 28-32%. In other words, 28-32% of one's monthly household
income can be reasonably set aside for one's mortgage payment, in the
eyes of the lender. Furthermore, most lenders will have an acceptable
Total Debt Service ratio of 36-40%. In other words, 36-40% of one's
monthly household income can be reasonably set aside for one's total
debt obligations, including their impending mortgage payment. To
calculate exactly how much you may borrow, please refer to our
CALCULATOR available by clicking on the HOME tab above. Make sure that
you incorporate the proper interest rate, as this can have a profound
effect over the life of a mortgage. NOTE: As part of this calculation,
you also need to estimate and include the property taxes, homeowner's
insurance, and CMHC fees (if applicable) you might need to pay, which
are considered part of your monthly expense.
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How
much do I need for a down payment?
According to the guidelines of the Canadian Mortgage and Housing
Corporation (CMHC), one must have a minimum down payment of at least 5%
of the total cost of the prospective property. With a down payment
between 5 - 24.99%, one's mortgage is deemed "high-ratio". A high ratio
mortgage is subject to a CMHC premium in accordance with the following
schedule:
With a down payment of 25% or greater, the mortgage is deemed
"conventional". A conventional mortgage is not subject to any CMHC
fees. Thus, a larger down payment represents a two-fold advantage to
the prospective homebuyer. First, the prospective homebuyer will avoid
CMHC premiums with 25% down payment. Secondly, a larger down payment
will relate into smaller monthly payments, or a shorter amortization;
both of which lead to interest savings over the life of the mortgage.
Yes, you can buy a home with a down payment of less than 10%:
Single-family dwelling: 5%
Two-unit dwelling: 7.5%
Minimum equity of 5% from your own resources is required. Gift down
payments from an immediate relative are acceptable.
Maximum house price ceilings apply for 5% down payment. Limits of
$125,000, $175,000 or $300,000 apply to locations throughout Canada.
Please contact us for the maximum price
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What
are closing costs?
On the day one actually purchases their new home they are required to
pay certain costs associated with this endeavor. In addition to one's
down payment, the prepaid property tax and homeowner's insurance
premiums there will be other fees to consider:
Survey charges.
Land transfer taxes.
Attorney fees and Disbursements.
Garbage disposal fees.
Title insurance.
Fire insurance.
Your real estate transaction may be subject to GST ! check with your
real estate agent for this.
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Do
You Sell Our Information to Anyone Else?
At LendingTree we will not sell one's information under any
circumstances. Furthermore, due to the personal nature of the
information that we receive, it will be seen only by one of our lending
experts, his/her supervisor, and the prospective lending institutions.
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What
happens if I'm not satisfied with a mortgage offer?
Don't accept it. You have no obligation to accept any of the offers
that are made to you by LendingTree or any of our affiliated lenders.
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What
is the difference between Term and Amortization?
The "term" of the mortgage should not be confused with the
"amortization". The amortization of the mortgage refers to the entire
length of time that it will take for the mortgage to be paid and the
house to be thusly, "free and clear". The term is the period for which
your current payment obligations are valid. In other words, you may
choose a five-year term and a 25-year amortization. This would mean
that your interest rate, your payments, and your pre-payment options
would be the same for the next five years. At the end of these five
years you would re-negotiate the term, and the amortization would now
be 20 years. Fixed rate Mortgages can be "closed" or "open".
Open Mortgages
Allow one to pre-pay some, or all of, their outstanding mortgage
obligation at any time, without penalty. - Generally, open mortgages
have a six-month, and a one-year term option with higher interest rates
than closed mortgages of the same term length.
Closed Mortgages
Generally, closed mortgages are offered in terms ranging from six
months to ten years. - Generally, closed mortgages offer more stringent
pre-payment options subject to various pre-set regulations. For most
people, such pre-payment options can be vital to reducing the
amortization of one's mortgage and should be properly discussed with
one's lender/agent.
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How
can I save money on my mortgage?
The simplest way to accomplish this is to decrease your principal;
thus, decreasing your interest obligation. There are a number of very
feasible approaches to performing this task:
Increase Payment Frequency - Instead of paying monthly, consider paying
bi-weekly. This simple step is very feasible for most working Canadians
who are paid bi-weekly. It can cut your mortgage amortization by up to
five years, and can save you tens of thousands of dollars.
Prepay - Use every advantage that the term of your mortgage offers you
to prepay your mortgage. One way to do this would be to use your RRSP
tax refund to make a yearly pre-payment.
Increase Payments - Round up your bi-weekly payment. For example, if
you have a bi-weekly payment of $531.59, round your payment to an even
$550.00. This will have a profound effect on the interest paid, and the
amortization of the mortgage.
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What's
the difference between Pre-qualification, Pre-approval and Full Loan
approval?
Pre-qualification:
Pre-qualification is the first step in obtaining the mortgage that you
need to purchase the home of your dreams. It's a simple step where an
institution examines your financial situation in terms of income and
liabilities in order to establish your lending potential in terms of
GDS and TDS.
This is accomplished through the review of a simple application process
that includes the pertinent information. It is important to note that
this is not the same as a pre-approval, as credit has not been reviewed
and income has not been verified and funds for closing are not
verified.
Pre-approval:
Refers to the verification of the applicant's ability to borrow. A
pre-approval gives a potential home-buyer the advantage of knowing how
big a mortgage they will qualify for and the ability to use this
information in negotiating the final selling price of a home.
Parts of the pre-approval process include an analysis of borrowers
credit history, a review of the client's employment history, and a
verification of down payment funds.
Pre-approval:
Full loan approval occurs when the lender has underwritten the
application, and is satisfied that all conditions have been met.
Furthermore, full loan approval refers to the approval of a mortgage
for a specific property. Once full approval has been received,
arrangements will be made by the lender to have the funds appropriately
forwarded.
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What
are the benefits of a Mortgage Agent?
If you plan to sell your home without the aid of a real estate agent,
then you must seriously consider working with a mortgage agent. Even
though you are not buying a home or getting a loan, it is the mortgage
agent that actually puts the entire transaction together for a smooth
closing after you and the buyer decide on the terms of the contract.
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What
is a mortgage agent?
A mortgage agent is an independent real estate financing professional
who specializes in the origination of residential and/or commercial
mortgages. Typically they do not fund or service the loan itself, but
instead, they act as an agent or manager for capital sources who act as
loan wholesalers.
A mortgage agent is also an independent contractor working, on average,
with 40 wholesale lenders at any one time. By combining professional
expertise with direct access to hundreds of loan products, a agent
provides consumers the most efficient and cost-effective method of
offering suitable financing options tailored to the consumer's specific
financial goals.
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What
is title insurance?
Protecting purchasers against loss is accomplished by the issuance of a
title insurance policy, which states that if the status of the title to
a parcel of real property is other than as represented, and if the
insured suffers a loss as a result of title defect, the insurer will
reimburse the insured for that loss and any related legal expenses, up
to the face amount of the policy.
Title insurance differs significantly from other forms of insurance.
While the functions of most other forms of insurance is to guard
against future events (such as death or accidents or in the case of
property, fire or flood), the primary purpose of title insurance is to
eliminate risks and prevent losses caused by events that have happened
in the past. To achieve this goal, title insurers perform an extensive
search of the public records to determine whether there are any adverse
claims to the subject of real estate. Those claims are either
eliminated prior to the issuance of a title policy or their existence
is excepted from coverage.
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What
is a home inspection?
A home inspection is an examination of the structure and systems:
heating and air conditioning, plumbing and electrical, roof, attic,
insulation, walls, floors, ceilings, windows, doors, foundation, and
basement. If the inspector finds problems, it doesn't mean you can't
sell your house, but you can be certain a buyer inspection will find
them too. Finding problems before you list your property can avoid
accusations of misrepresentation, low offers, and even lawsuits. A home
inspection can also help sellers comply with new, tougher disclosure
laws enforced in many states.
You may or may not want to make the repairs and you can always adjust
the selling price or contract terms if the problems are major. This
information will also help you determine what type of financing will or
will not be available for your home.You can find home inspectors in the
Yellow Pages under "Home Inspection Service," or any real estate agent
or mortgage agent can recommend several in your area.
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Who
is an appraiser?
A real estate appraiser is an impartial, independent third party who
provides an appraisal -- an objective report on the estimate of value
of real estate. The appraisal is supported by the collection and
analysis of data. Most licensed appraisers will provide an advance
estimate of the cost to perform the appraisal, and many will commit to
a fixed fee for the appraisal. It is always wise to obtain a written
contract for services that includes a description.
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How
much does the CMHC insurance cost?
Table of Insurance Premiums
Loan amount..........................CMHC Fee
(Relative to Home Equity)
----------------------------------------------------
Up to and including 65%........ 0.50%
Up to and including 75%........ 0.65%
Up to and including 80%........ 1.00%
Up to and including 85%........ 1.75%
Up to and including 90%........ 2.00%
Up to and including 95%........ 3.25%
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What
is a Variable Interest Rate Mortgage (Open)?
Selecting a 2, 3 or 5 year, open Variable Interest Rate Mortgage may
provide you with access to interest rates as low or lower than a banks
Prime Rate - plus gain the flexibility to be able to increase your
payments to any amount. You can also pay off all or part of your
mortgage without penalty (an administration fee applies in year one and
two only). That means lump sum payments of any amount can be made at
any time. You can transfer your mortgage to any bank at any time with
no penalty ($200-$300.00 discharge penalty applies). Your monthly
payments will remain the same, but the portion of the payment that's
applied to reducing the principal can vary. When interest rates are on
their way down, a variable-rate mortgage could end up saving you
thousands of dollars. But if rates go up, more of each monthly payment
will go toward paying the interest. When interest rates fall, more of
your set monthly payment goes toward paying off your mortgage principal
and less towards interest. That means your mortgage gets paid off
faster. Should interest rates rise, more is applied toward interest.
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Can
I use my RRSP for Down Payment?
Today, about 50% of first-time home buyers use their RRSP savings to
help finance a down payment. With the federal government's Home Buyers'
Plan, you can use up to $20,000 in RSP savings ($40,000 for a couple)
to help finance a down payment on a first home. You then have 15 years
to repay your RRSP.
To qualify, the RRSP funds you're using must be on deposit for at least
90 days. You'll also need a signed agreement to buy or build a
qualifying home - new or resale.
Even if you have already saved for your down payment, it may make good
financial sense to access your savings through the Home Buyers' Plan.
For example, if you had already saved $20,000 for a down payment - and
assuming you still had enough "contribution room" in your RRSP for a
contribution of that amount you could move your savings into a
registered investment at least 90 days before your closing date. Then,
simply withdraw the money through the Home Buyers' Plan.
The advantage? Your $20,000 RRSP contribution will count as a tax
deduction this year. Use any tax refund you receive to repay the RRSP
or other expenses related to buying your home.
While using your RRSP for a down payment may help you buy a home
sooner, it can also mean missing out on some tax-sheltered growth. So
be sure to ask your financial planner whether this strategy makes sense
for you, given your personal financial situation
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