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Once you have made the decision to buy a home, you have to decide how you will finance it. Most people require a mortgage from a lending institution. There are 2 main types of mortgages, open and closed. An open mortgage is one that gives the buyer an opportunity to finance the property with a 6 month or 1 year term and a floating interest rate, assuming the rates will drop. At any time during the term, you can lock it in at the new rate for a longer period of time. You can also pay this type out during the term without a penalty. The down side of this type is that the rates could go up and you are faced with a higher payment. If the rates go up to high, you may have a problem qualifying for the new mortgage.

The majority of buyers opt to take a closed mortgage which is amortized over 10 to 25 years, has a fixed rate and normally a 3 to 5 year term. Many buyers require a high ratio mortgage whereby they can finance the deal with as little as 5% down payment. This has been the norm for many years. In the past few years, lending institutions have created more flexibility in the financing package and you should shop around to find out what is being offered. Historically, there are 2 main categories that you can decide on.

If you are able to put 25% or more of the selling price in as a down payment, you will not be subject to the additional high ratio fees that would be added to your mortgage. The more you put in, the lower the payment. You can also choose to make your payments monthly or bi-weekly. Bi-weekly payments can reduce a 20 year mortgage to approximately 17 years, saving thousands of dollars in the process.

Lending Institutions along with a high ratio insurer like Canada Mortgage and Housing Corporation (CMHC) can now finance a home up to 100% of the appraised value leaving you with only closing costs to contend with. This sounds great but fees are added on to your mortgage creating higher monthly payments. Most buyers will go with the standard 5% down and take a 95% mortgage. Below is an idea of how the fee structure is for high ratio loans:

Premiums range from 1.25% to 4.25%, depending upon the size of the down payment.

A mortgage of 75% to 80% of the purchase price: 1.25% is added to the mortgage value. A mortgage of 80% to 85% of the purchase price: 2.00% is added to the mortgage value. A mortgage of 85% to 90% of the purchase price: 2.50% is added to the mortgage value. A mortgage of 90% to 95% of the purchase price: 3.75% is added to the mortgage value. A mortgage of 100% of the purchase price: 4.25% is added to the mortgage value:

This additional fee can be paid up front and not be included in the mortgage.

Most lenders offer incentives such as cash backs on closing, pre-payment options, portability if you sell and buy another home using them to finance the purchase, automatic renewals, assumable options and others. find out the various options that are offered from one lender to another before you sign.

To ensure you will be able to finance the purchase, get a pre-approval letter from your mortgage company. This enables you to go searching for your new home knowing what price range you can afford. Once you find the home it will have to be appraised and be equal to or lower than the amount you have been approved for. You can contact me through this site and I will help you to get started.

Closing Costs

What it takes

You should be aware of closing costs involved when buying or selling real estate. Nova Scotia laws differ from the rest of Canada as well, so if you are coming here from another Province, call me to gain important information regarding deed transfer tax. Things like legal costs, surveys, appraisals, inspections, fuel and tax adjustments, as well as deed transfer tax I mentioned, are all important to you on closing day. HST also plays a part in buying and selling. Are you aware of what is and is not taxable? Got questions ? Contact Steve Ingram for all the answers. Don’t let closing day surprise and dissappoint you.