Toronto Mortgage Blog

What Is Private Mortgage Insurance

2008-08-15T00:15:00.000-04:00

Most people know that when they become homeowners, they’ll need to have homeowner’s insurance. What they don’t realize is that they may also be required to pay private mortgage insurance (PMI) too. The difference between the two: who gets protected.

Homeowner’s insurance protects you if something happens to your home. Private mortgage insurance protects the lender if you are unable to make mortgage loan payments; It’s an extra expense that can drive up monthly mortgage payments but the good news is that not all mortgage loans require private mortgage insurance. Most often, lenders will only require private mortgage insurance when a down payment of less than 20% of the purchase price is made. Certain lenders may also require PMI for buyers with less than desirable credit.

Very few people today have tens of thousands of dollars in the bank to dole out for a home loan down payment so mandatory PMI is common. If you’re told that you’ll need to pay PMI, be sure to get a mortgage payment quote from your lender that includes the PMI…as well as property taxes…so that can confirm that the home and the loan fits your budget.

Though having to pay private mortgage insurance may be an unpleasant surprise, there is good news: You won’t have to pay PMI for the life of the mortgage loan! Under current regulations, PMI is no longer required once you’ve paid 22% of the home loan off. You can also request that the private mortgage insurance requirement be rescinded once the property has appreciated by 20% or more.

Mortgage Loans: What’s Negotiable?

2008-08-11T08:32:00.003-04:00

You have options. Remember that. Realizing that you do not have to take the first, second, or even third mortgage loan you’re offered is the most important step in finding the best mortgage loan. Why? Because having options also means that you have room to negotiate.

When looking for the best deal on mortgage loans, it’s crucial that you make as many factors as possible work in your favor. The main factors to negotiate on are: Points, interest rates, lender fees, and inclusion of fees within the overall loan amount. Negotiating in any or all of these areas will decrease your overall monthly loan payment and / or the costs you’ll pay at closing.

After you’ve negotiated with a lender and have the ideal mortgage loan offer, do not just leave the deal as a verbal agreement. Get the details of the mortgage loan offer in writing. It will provide you with a document to refer back to in case the mortgage loan officer develops a sudden and convenient case of “amnesia.” You could also use the document as leverage to negotiate with another mortgage loan lender.

Keep in mind though that getting terms in writing is not a guarantee that you’ll receive the terms you’ve negotiated. The only way to guarantee terms is to request a lock-in, which essentially a contract that insures the terms negotiated for a specific timeframe. This is an option to take only if you’re 100% certain that you’re going to work with a particular lender because you’ll typically incur a fee to lock in mortgage loan terms. Do not do the lock-in f you’re the least bit uncertain about the loan offer or the lender because if interests rates drop, your rate will be frozen at the locked in rate.

Mortgage Fees Can Add Up!

2008-08-09T10:22:00.001-04:00

What to expect when closing on a mortgage loan
Purchasing a home can be a pricey endeavor. Then when you add on all of the extra fees beyond the price of the home…well that can make buying a home downright overwhelming. The solution: Go into the home buying process with your eyes wide open about the not-so-little “extras” that come with being a homeowner.

In addition to having a nice lump sum available for a mortgage loan down payment, you’ll also need to have extra cash available for the following:

Lender Fees – This set of extra costs may include, but is not limited to broker fees, underwriting costs, points, and loan origination costs. You may also be responsible for pre-loan qualification costs such as credit reports and appraisals.
Insurance – While some forms of home-related insurance premiums can be paid in monthly increments, others require payment in full or a lump sum initial payment at closing. Types of insurance that you may need to budget for include title insurance, private mortgage insurance, standard homeowner’s insurance, and special homeowner’s insurance such as flood or earthquake insurance.
Taxes! – Being a homeowner come with its perks…and its penalties. The home, of course, is the perk and the property tax associated with owning it is the penalty. It’s common for borrowers to elect to pay taxes in a lump sum annually but some real estate transactions will require that taxes be paid during closing.

Select borrowers may be able to negotiate to have some of these fees rolled into the cost of the loan. However, most of you will end up paying a majority of the fees as part of your mortgage loan closing costs. Also, it’s important to realize that every real estate transaction is unique and the fees listed above can vary greatly. So, be prepared! It’s always a good idea to have a mortgage lender provide sound quote of what your mortgage loan payment will be—with all extra fees / costs included—and an itemized list of the fees to be paid at closing.

What Is A Reverse Mortgage?

2008-08-09T10:19:00.000-04:00

Today, there’s lots of talk to those in their twenties and thirties about putting money aside for retirement. It’s good advice but the men and women retiring today weren’t given that same advice 35 years ago. So, in order to supplement their retirement, many retirees are looking to their most valuable asset to help them get by: their home.

In order to access the equity in their homes, some retirees opt to tap into the equity in their home through a traditional refinance loan. However, others are finding that reverse mortgages are a more appealing option. The primary reason: Homeowners who choose to go with a reverse mortgage do not make loan payments. Instead, the lender pays a lump sum or makes monthly payments to the retiree! It may sound fantastical but that’s the reality of a reverse mortgage.

Despite the fact that reverse mortgage loans do not feel like traditional loans initially, rest assured that, in the end, reverse mortgages are still loans. Reverse mortgages must be repaid and interest does accrue on the loan payments made to retirees. For instance, if a lender ends up paying the retiree $1000 per month for 10 years at 6% interest rate, the retiree will owe the lender the principal and the interest on all loan payments during those 10 years. Typically, the lender is “repaid” when one of two things occurs: (1) the homeowner sells the property or (2) the homeowner dies.

In the United States, reverse mortgages can only be made on a home that is a principal residence. Additionally, reverse mortgage loans are only available for those 62 years or older. Reverse mortgages can be a great option but, as with any mortgage loan, speak with a mortgage professional to determine whether a reverse mortgage loan is the best option for you.

Can You Afford To Buy A Home?

2008-08-08T15:41:00.000-04:00

Buying a home is an adventure that some people wait their entire life to experience so it’s no surprise that some people get carried away when they begin house hunting. They go out and find a mortgage lender to pre-approve them for a certain loan amount and then hit the road looking for the perfect new place to live. The trouble with that is that homebuyers often get approved for a mortgage loan without considering whether they can actually afford to buy a home.

In order to keep from purchasing a home that you cannot afford, you need to know three things:

Initial Costs: How much money do you have saved up to cover a down payment? Five percent is a common minimum down payment for a lender to provide a mortgage loan. That’s $5,000 for every $100,000 worth of home.
Income: Most mortgage lenders say that individuals can afford a home that is up to 2.5 times their annual income IF they do not have excessive debt.
Monthly Bill / Debt Total: How much money do you owe others? As long as you debt is less that 30% of your monthly income, you can likely afford to purchase a home. If your debt is higher than that, your ability to purchase a home you can afford diminishes significantly.

Grab a pencil and tally things up! If the numbers don’t come out just right, don’t be discouraged. Take a couple months to save up more money, cuts expenses, and pay off debts. After that, reassess your situation.

Home Loans: ARM or Fixed?

2008-08-08T15:32:00.000-04:00

Lenders use a number of criteria to determine which loan that you qualify for: credit, income, debt-to-income ratio, etc. The thing is, once the lender tells you what types of loans you’re eligible to receive, you still need to know which type is best for you! It would take a near eternity to discuss all of the possible loan type combinations so here’s what you need to know to cut your loan options in half without having to toil over a single offer…

There are two main categories of loans—fixed rate and adjustable rate.

Adjustable rate mortgages, often referred to as “ARMs,” are very appealing to most buyers at first glance. That’s because ARMS offer extremely low interest rates. But, as the name suggests, the interest rate is adjustable. That means interest rates can dip or spike from month to month. Fixed rate mortgage loans, on the other hand, typically carry higher interest rates than ARMs but mortgage payments will be steady each month.

So now comes the question…

Which type of mortgage loan—fixed rate or ARM—is better? Well, that depends on your budget and your tolerance for risk. If you’re a risk taker who has a substantial savings to tap into if interest rates spike, then opting for an ARM might work for you. However, if you’re working with a tight budget and average savings, a fixed rate mortgage will likely be ideal.