Archived — A Roof Over Your Head (5)

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Type of interest rate

The interest rate may be fixed or variable. A fixed interest rate remains the same throughout the term of the mortgage. A variable interest rate floats (varies) during the term of the mortgage. If the interest rate increases, then more of your payment goes toward the interest. If the interest rate decreases, then more of your payment goes toward the principal.

Type of mortgage

You can get a conventional mortgage or a high-ratio mortgage. With a conventional mortgage, you usually can’t borrow more than 75 percent of the appraised value of the property. This means that you have to make a down payment of 25 percent or more of the property value. Some financial institutions require a down payment of more than 25 percent of the property value.

With a high-ratio mortgage, you borrow more than 75 percent of the value of the property and you will have to buy mortgage insurance to protect the lender. You can also get an open mortgage or a closed mortgage.

With an open mortgage, you can make additional payments on the principal or pay off the mortgage completely without notice or penalty. Different types of open mortgages are available, so check with your financial institution.

With a closed mortgage, you cannot make extra payments. Rates are usually lower for closed mortgages.

You can negotiate to make additional payments, such as weekly payments, before you sign your mortgage.

Pay down the mortgage

Because you pay so much interest at the beginning of the amortization period, you can see how important it is to pay down the mortgage (reduce the principal) as soon as possible. You can save a lot of money by choosing a mortgage that lets you make extra payments on the principal.

Mortgage life insurance

If you want to ensure that your mortgage will be paid in full if you die, you may want to buy mortgage life insurance. Check with your lender and insurance company for the rates and coverage.

Making an Offer to Purchase

Once you have found a house that you want to purchase, there are several things you should do. It is always a good idea to inspect the house thoroughly. Check the plumbing, the roof, the foundation, etc. You may wish to hire a professional inspector to ensure that you don’t run into costly surprises.

It is critical that you hire a real estate lawyer to help you interpret legal documents and avoid potential problems.

When you make an offer to purchase a home, be sure to include all pertinent details, such as the following:

  • the name of the buyer and the seller;
  • a legal description of the property;
  • the amount of the offer;
  • a list of any extras to be included in the purchase price, such as appliances or window dressing;
  • any conditions that must be met before the offer is finalized;
  • the date and time that the offer will expire;
  • the closing date, including the deadline for signing legal documents and transferring the title; and
  • the condition of the home upon transfer of ownership (cleanliness, filled oil or propane tanks, etc.).

You may want to discuss the offer to purchase with a realtor or lawyer before going ahead.

Additional Information

If you need more information, most financial institutions can provide you with comprehensive information in print and on-line.

The Canada Mortgage and Housing Corporation's Web site (www.cmhc-schl.gc.ca) has a section on buying a house.

For a listing of licensed real estate agents in your jurisdiction, consult your provincial or territorial office of consumer affairs.