Who owns your house? You or the bank? The 14th Century origin of the word mortgage is Mort from the Latin word for death and gage means “a pledge to forfeit something of value if a debt is not repaid.” There are only two ways a mortgage comes to termination: one is by full repayment; the second is if the borrower fails to repay, then the lender has the power to force the mortgagee to forfeit the property.
Who owns your house? You or the bank?
Summary: Is your mortgage an asset or a liability? Is the home you live in an asset or liability?
It may seem like mortgages are difficult to obtain with the recent changes in the world financial markets, and the rules for qualification may seem unfair. The fact is, sometimes lenders are too lenient and many people find themselves unable to survive the financial pressure that a mortgage brings. It can result in stress, marital friction and serious financial problems.
Mort is from the Latin word for death and gage means “a pledge to forfeit something of value if a debt is not repaid.” The 14th Century origin of the word mortgage brings a sense of sobriety to a financial agreement that can cast a death-grip on your finances if you over extend yourself. There are only two ways a mortgage comes to termination: one is by full repayment; the second is if the borrower fails to repay, then the lender has the power to force the mortgagee to forfeit the property.
We have often heard the acronym for JOB – just over broke. Traditionally employed person who has been steadily employed is favoured by banks for mortgages while commissioned salespeople and business owners with equal or higher incomes have had great difficulty getting a mortgage. Recent years have seen some more willingness to give mortgages to self-employed people. However, now with recent changes to the global economy, the ability to get a mortgage has become more difficult for all. Some of those inequalities have changed considerably with new options available from lenders.
Ask yourself if the mortgage you choose will impact your financial portfolio over the next five, ten, and twenty-five years. Often it is easy to become short-sighted when choosing a mortgage. You have just found the house of your dreams and you want that house, now! The monetary factors of choosing the right mortgage can become secondary, and getting the lowest payment, or just getting the mortgage at all, takes the forefront in your decision-making process. For most people, buying a house is one of the biggest financial decisions they will ever make. Choosing the wrong mortgage can cost more than purchasing the wrong house, in real dollars. However it often isn’t as obvious unless you sit down and do the math.
Understanding mortgage options and doing your homework before you sign the mortgage can save you a lot of grief later and can help you make a good investment that will save money as you grow equity in your property. The information provided here is only a snapshot. Do your own research and choose a well-qualified Mortgage Broker.
CMHC Says: Borrowing your Down Payment OKAY. Home ownership is now within reach to many people as a result of changes to CMHC (Central Mortgage & Housing) regulations. Recent changes in CMHC’s guidelines now make it possible to borrow your down payment, as long as you are still able to service the debt.
Closed Fixed Rate:
This type of mortgage has been available for decades, and is a perennial favourite. As the name implies, the interest rate remains the same until the mortgage comes up for renewal. It is then renewed at the current rate. Mortgage payments can be amortized over any chosen time frame up to 25 years. The fewer the number of years you finance the mortgage over, the less it will cost in interest. Increasing your payment by as little as $75 a month, can enable you to pay your mortgage off five years early. Another effective method of shortening your mortgage is by paying every two weeks instead of monthly. While paying lump sums on the anniversary date of the mortgage is also an option, most people find increasing the payment a little or paying on a bi-weekly basis is more painless.
Closed Fixed Rate Mortgages usually can be taken with a 6-month, one, two, three, five, or even ten-year renewal term. There are penalties for getting out of this type of mortgage, if you sell or wish to refinance part way through the renewal term. Usually the penalty is three months’ interest. Depending on the motivation for terminating the mortgage before the renewal date, the penalty might be easily absorbed.
Variable Rate:
Variable Rate Mortgages can enable you to take advantage of extremely low interest rates. The monthly payments fluctuate based on the ups and downs of the Prime Rate and Bankers Acceptance rates. The disadvantage is that the payments ebb and flow, making it harder for people with tight budgets or fixed incomes to manage the uncertainty of what the mortgage payment will be any given month. This type of mortgage is often best suited to people with more equity in their home or a strong investment portfolio and growing net worth.
Options for non-Conventional Borrowers
Historically it has been very difficult for people who do not fit the stringent profile of the ideal mortgage client to get a mortgage. New options help people in different situations. Mortgages are available for:
- Bankruptcy – you can purchase your property today, even if you are one day out of discharge, with 25% down
- Previous Bankruptcies – 2 years after discharge with re-established credit
- No Income Qualifications – for people who cannot verify their income, but have at least 25% down for purchases, or at least 75% equity in their existing residence for a refinance
- Slow / Bruised Credit – some slow or late payments showing on your credit history over the last few years, preventing conventional banks from extending credit
- No Down Payment – People with stable incomes and good credit, but have not managed to save for a down payment
Non-Conventional Options
There are some lenders that offer the possibility of purchasing your home with zero down.
- 107% Financing – 107% financing enables purchasers to finance the purchase price, and the closing costs as well, PLUS 3% cash back
