Key Components

Components of a mortgage payment include the principal (dollar amount of loan) and the interest cost, taxes and heat. These figures combined equal your mortgage payment.

Insurance

Sometimes other costs, such as insurance payments and Homeowner’s Association (HOA) fees can be included as part of the mortgage payment. Borrowers must obtain fire insurance prior to closing on a home, but the payments may be made in a lump sum or can be paid for separately. If you borrow more than 80% of the home value, you will also be required to pay for Private Mortgage Insurance.

Taxes

In many cases, mortgage companies escrow monies to use for paying property taxes and homeowner’s insurance. These payments are often included as part of the mortgage loan payment, but sometimes a borrower can opt out and pay the fees to the parties directly.  Whether you pay them as a part of your mortgage payment or pay them independently, be sure to include the expenses when determining your total monthly expenses.

Mortgage Calculators

To determine the maximum amount a borrower is eligible for, a mortgage broker will use one of several calculators or formulas to help you decide the mortgage payment you are comfortable paying and if your income is sufficient to satisfy a lender. To see the Averbach Mortgages calculators, click here.

Other Debt and Expenses

Other costs that should be considered to determine how much you can afford to borrow include property taxes and payments for other debts such as credit cards. When determining your total monthly payment, you would be wise to include your monthly expenses for telephone, electricity, water and cable as well as any other regular payments you make.

The more accurate and complete information you provide your mortgage broker, the better he or she will be able to match you with the lender that will best be able to meet your needs.

Real estate closing costs include the legal and administrative fees and disbursements associated with buying a home. It is important home buyers understand each cost so they can appropriately budget for these expenses which are payable at closing.

Mortgage Default Insurance

You are required to make at least a 5% down payment when you purchase a home as of October 15, 2008. Home purchasers who borrow more than 80% of the money needed for a mortgage will be required to purchase mortgage insurance through either the Canada Mortgage and Housing Corporation or a private company such as Genworth Financial Canada or AIG.  The insurance premium is wrapped into the principle amount of the mortgage. For example, if you mortgage is 300K and your insurance premium is assessed at 2%, then your total principle amount is 306K.

Fire Insurance

Be sure to contact your insurance agent early, as your mortgage lender requires you have fire insurance effective the date of legal possession of your home. Different companies have different criteria for insuring your home and you need to be sure the company insures the type of dwelling you will live in. Some companies will insist on proof of a home inspection prior to issuing a policy.

Legal and/or Notary Fees

It’s a good idea to have your real estate closing handled by an attorney or a notary. The fees for this service vary widely, but plan on $650 as an average cost, though you may pay as much as $800.

Land Transfer Taxes

All property purchased in British Columbia is subject to a provincial transfer tax. The tax amount equals 1% of the first $200,000 plus 2% on the remaining balance. Some exemptions may apply if you are a first-time homebuyer, and we can answer any questions you have regarding whether or not you qualify for any exemptions.

Sometimes part of a borrower’s regular mortgage payment includes mortgage insurance costs. There are several types of insurance, some of which are required and others which are optional.

Mortgage Default Insurance

Borrowers who make a down payment of 20% or less must be insured by Canada Mortgage and Housing Corporation (CMHC) or a private insurer. This type of insurance is a credit risk management tool for lenders. The three largest private mortgage Insurers in Canada are CMHC, Genworth and AIG.

Unlike other types of mortgage insurance, mortgage default insurance insures the mortgage loan itself. If the person(s) who owe the mortgage defaults on their loan, this insurance ensures the mortgage lender will recover all outstanding principal of the mortgage.

Mortgage Payment Insurance

This type of insurance is offered by some financial institution and guarantees that if you lose your job or your income is reduced for some other reason, your regular mortgage payments will continue to be made. This may be a good type of insurance to purchase for a borrower who works seasonally or on a commission basis.

Mortgage Life Insurance

This is an optional insurance coverage you can obtain when you take out your mortgage. In the event the borrower(s) dies before the mortgage has been paid off, mortgage life insurance will cover the balance of the mortgage loan, usually up to a predetermined maximum amount.

Mortgage Disability Insurance

Some financial institutions also offer mortgage disability insurance that protects the borrower(s) is you are injured or become ill and cannot make your mortgage payment.

In some cases, purchasing one of these policies from an insurance company may be a better value than through a mortgage lender. Whether or not you decide to acquire the mortgage payment, life or disability insurance is a personal decision you should discuss with your lender, your attorney and any co-borrowers.

Before you purchase Mortgage Insurance, be sure to read the article Choosing the RIGHT Mortgage Insurance by Adam Stephanson. This article will help you better understand much of the fine print. It will help you make sure you are REALLY covered, rather than “just thinking” you are covered!

The obvious things homebuyers think about include home price, mortgage amount, floor plan, and room sizes.  These are certainly important factors. There are many other considerations that may not cross the mind of home buyers—especially first-time home buyers.

Covenants, Restrictions, Conditions or Easements

One important consideration is whether or not the home is in a community with covenants, restrictions, conditions or easements. Some developers set limits on homeowners within the community. For instance, paint color, type and height of fence and other decisions may require approval by an association board or other controlling organization.

You may be limited in the number of vehicles you can park on a street, how many and what type of outbuildings or garages they may have and even the type and size of porch or deck that can be built by homeowners. Also, easements for utilities could run across your property.

Zoning Changes or Future Development Plans

Another factor to investigate is whether or not the area is subject to a zoning change or future development and how your property value or neighborhood ambiance may be impacted.

Area Amenities

What amenities are convenient to your home? Will you be near shopping and community activities?

Neighborhood Demographics

Neighborhood demographics are another not-so-obvious consideration. What is the percentage of homes that are owner-occupied? Are there families that are like yours, e.g., families with young children or predominantly retired couples, etc?

Comparable Home Prices
Finally, how does the price of your future home compare to those of other homes in the neighborhood?

Taking the extra step of asking questions and researching these and other “what if” scenarios can prevent disappointment after the fact.

Mortgage insurance is charged to borrowers to provide assurance to the lender that the loan will be paid in case of default.

What Are The Requirements For Eligibility?

The home you plan to purchase must be located in Canada and the minimum mortgage term is six months with maximum amortization period (term of the loan) of 35 years.

Borrowers must make a down payment equal to at least 5% of the purchase price and your income must be adequate to afford the mortgage payments as well as other debt payments.

Mortgage insurance premiums may be paid in a lump sum at closing or may be included in the monthly mortgage loan payment.

How Much Will I Pay?

The fees for mortgage insurance premiums range between 1% to 7+% of the principal value of the home. The rates are established based on the borrower’s credit rating, the loan to value ratio (loan amount divided by the purchase price) and the term of the loan amortization (process of paying off a mortgage in regular payments).

These fees are usually added to the mortgage amount and are not paid in advance. One of the advantages of paying for mortgage default insurance is that you can make a smaller down payment on your mortgage.

Where Can I Buy Mortgage Default Insurance?

In Canada mortgage default insurance is required by a majority of lenders when a homeowner puts down less than 20%.  The biggest mortgage insurers in Canada are CMHC, Genworth, and AIG–in that order.

In ADDITION to mortgage defaut insurance, you may also want to consider Mortgage Life Insurance or Term Life Insurance available from some of the private insurance companies.

Read the article Chooing the RIGHT Mortage Insurance to find out more.