When purchasing a piece of real estate, the ultimate dream would be to pay cash for such a purchase, but in reality most do not have the funds available. To facilitate such a purchase, assistance is required in the form of a "mortgage.”
The needed funds may be acquired from a bank, trust company, credit union, insurance company, or from private funding. It is customary that in return for the funds, the "mortgagee" will place a lien as security against the real estate.

THERE ARE MANY TYPES OF "MORTGAGES”
1) Conventional Mortgage-Can have a fixed or variable interest rate. This type of mortgage requires a down payment of at least 25% of the appraised value of the property, or the purchase price, whichever is lower.

2) High Ratio Mortgage- The borrower(mortgagor) can qualify with a minimum of 5% of the purchase price as a down payment. Financial institutions require that the borrower arrange mortgage insurance against any default of the mortgage. This insurance is offered by the Canadian Mortgage Housing Corporation (CMHC) or GEMICO. This one time fee may be paid up front or added to the principal of the mortgage.
INSURANCE PREMIUM CHARGE
Down Payment Fees
5% 3.75% of principle amount
10% 2.5% of principle amount
15% 2.0% of principle amount
20% 1.25% of principle amount
* Note all fees are subject to G.S.T.

3) Vendor Take Back Mortgage- The vendor(seller) agrees to defer a portion of the purchase price. The vendor is then paid back by an agreed upon interest rate, over an agreed period of time. This may also come in the form of a second mortgage.

4) Second Mortgage- A situation in which a buyer does not qualify for the full loan, or mortgage, that is required. In this case, it may be possible to arrange a second mortgage which falls behind the first mortgage, which is given priority in case of any default.

OPEN OR CLOSED MORTGAGES
Rarely is a mortgage closed. Most financial institutions allow for a variety of prepayment options from doubling up monthly payments, every, or any month, making a lump sum payment once a year directly applied against the principal. These options should be discussed in advance before agreeing to any mortgage terms.

FIXED VS. VARIABLE INTEREST RATES
Depending on current climate of interest rates, a variable rate is adjusted monthly, in accordance with the bank rate. If a constant is something you are more comfortable with, knowing exactly what your interest and principal payments are, then a fixed rate may be more to your liking. This means peace of mind for some people.

PAYMENT OPTIONS
Payments can be made weekly, bi-weekly, monthly, or semi-monthly. With the increased number of payments per month, this may mean a big savings and a reduced repayment (amortization) periods. Most mortgages are based on a 25 year amortization. Amortization is the period of time over which the mortgage will be paid off.

COST OF BORROWING

MORTGAGE INSURANCE
This insurance is offered by most financial institutions and in the event of the death of the borrower(s), most plans will cover all discharge fees, as well as any remaining principal and/or interest. While this is optional and is not mandatory, many people opt for this additional peace of mind.