Flashcards in Purchasing and Financing a Home Deck (22)
Provides you with a guideline on how large a mortgage you can afford based on your financial situation.
gross debt service (GDS) ratio
Your monthly mortgage-related debt payments—including mortgage loan repayments, heating costs, property taxes, and half of any condominium fees—divided by your total monthly gross household income.
-most banks will not give you a long if you are more than 32%
total debt service (TDS) ratio
Your mortgage-related debt payments plus all other consumer debt payments divided by your total monthly gross household income.
- most financial institutions require that this is lower than 40%
Affordable month mortgage payment
-refer to cash flowstatement
-remember that owning a home comes with expenses (property tax, homeowners isurance, home maintanence reparis
-dont have a mortgage that uses all your money
-also need money for the unexpected (liquidity)
Criteria used to select a home
insurance -not too pricey
taxes-- vary among locations
relying on realtor
-you will have to pay realtor a commission (sellers have to pay it)
Multiple Listing Service (MLS) (online realtor services) n
An information database of homes available for sale through realtors who are members of the service.
When you purchase a home, you use your money to make a down payment and pay the remaining amount with financing. Your down payment represents your equity investment in the home.
A mortgage where the down payment is at least 20 percent of the home’s appraised value.
high ratio mortgage
A mortgage where the down payment is less than 20 percent of the home’s appraised value.
- lender will require you to get CMHC insurances
Canada Mortgage and Housing Corporation (CMHC
With insured mortgages, a traditional lender extends the loan, but the mortgage insurer insures it in the event of default, thereby protecting the lender’s investment. The mortgage insurer will charge the lender a mortgage loan insurance premium. The borrower will have the option of paying the mortgage loan insurance immediately or having the lender add this premium 193 to the cost of the mortgage
vendor take-back mortgage
is a mortgage where the lender is the seller of the property. In this case, the buyer will take out a second mortgage equal to the difference between the value of the home and the existing mortgage that the seller has on the property, less any down payment.
- seller will earn more on interest of second mortgage
-home inspection fee
-appraisal fee- calculate the mortgage size based on value of home
-real property report-property boundries
-land transfer tax
-legal fees and disbursements
-interest adjustment- difference between the date you take possession of your home and the date from which you lender calculates your first mortgage payment
-prepaid property tax and utility adjustments (paid by selling-->must be reimbursed)
- loan protection life and disability insurance - protects lender if you get hurt or injured or die
The expected number of years it will take a borrower to pay off the entire mortgage loan balance.
The period of time over which the mortgage interest rate and other terms of the mortgage contract will not change.
The frequency with which you make a mortgage payment.
Restricts your ability to pay off the mortgage balance during the mortgage term unless you are willing to pay a financial penalty.
Allows you to pay off the mortgage balance at any time during the mortgage term.
A mortgage in which a fixed interest rate is specified for the term of the mortgage.
variable-rate mortgage (VRM)
A mortgage where the interest charged on the loan changes in response to movements in a specific market-determined interest rate. The rate used is usually referred to as prime. Lenders will add a percentage to prime for the total mortgage rate.
To provide additional flexibility to individuals who are concerned about increasing mortgage interest rates, many banks offer convertible mortgages. A convertible mortgage allows you to renew your mortgage before the end of the current mortgage term without paying a penalty.