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Mortgages
A mortgage is essentially a loan between you; as the mortgagor, and a financial institution; the mortgagee, whereby you agree to pay back this loan at a certain interest rate over a specific period of time. The mortgagee registers this loan against your property in the Land Titles Office to ensure that this loan is repaid in the event you sell your property. The mortgage itself also outlines what takes place should you go in default on this loan and the remedies for both parties.
For the most part there are essentially two types of mortgages that you should be familiar. To demonstrate the differences we will use an example purchase price of $100,000.
Types:
| 1. | Conventional |
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This mortgage is a maximum of 75% or the purchase price and uninsured. The financial institutions feel that if you are putting 25% of your own money down, you are less likely to walk away if you encounter financial difficulties. They also feel that the likelihood of the market falling more that 25% is remote.
e.g. Purchase Price: $100,000
1st Mortgage (75%) $ 75,000
Downpayment (25%) $ 25,000
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| 2. | Unconventional - High Ratio |
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This Mortgage is a minimum of 5% or 10% down depending on certain criteria. Here the banks feel that due to the amount of downpayment there is a possibility that you may walk away or that the market may fall 5 or 10%. So they have this mortgage insured, usually through CMHC. This then involves fees ranging from 1.5% to 3.75% of the mortgage amount.
e.g. Purchase Price $100,000
1st Mortgage (90%) $90,000
CMHC Fee (2.5%) $2,250
Total 1st Mortgage $92,250
Downpayment (10%) $10,000
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