The Basics About Mortgages for Home Buyers

What is a Mortgage - Karen Acton Royal LePage Lakes of MuskokaAre you planning to purchase a new Bracebridge home and will you need a mortgage? If so it is important that you understand what a mortgage is.  Very often your banker, lawyer and even your Realtor will assume you fully understand what a mortgage is by the time you come to signing the documents for the purchase of your new home. However, many buyers, when asked will admit to having only a limited understanding. They certainly know that a mortgage is a loan and that it is a necessary part of the home buying process but do not really understand its structure.

This is not surprising, after all, the home buying process only happens a few times in a life time for most of us, so it is understandable that very few of people invest a lot of time in understanding all the “jargon” that is part of a mortgage document.

So here are some helpful notes:

  • A mortgage loan is a loan secured by real estate. A document called a mortgage charge is signed by the lender and the borrower and is the proof that the loan was made.  This is then registered on the title of the property and becomes an encumbrance on the title. This means, the property cannot be sold without satisfying the amount still outstanding on the loan.
  • The word mortgage is a French law term which means “death pledge”, meaning that the pledge ends or dies when either the obligation is fulfilled or if the loan is in default the property is taken back by the lender through foreclosure or power of sale.
  • Most buyers will secure their mortgage through the bank where they do regular business. However, it is good practice to shop around for the best deal you can get when “buying” a mortgage.  You may think that to say “buying a mortgage” is wrong, but in actual fact, you will be buying it. There are fees that you must pay upfront or that will be built into the total amount you borrow to cover the cost of preparing the mortgage and registering it. In addition you will be paying back to the lender, interest on the amount borrowed. You can obtain a mortgage from a bank or go to a mortgage broker who will “shop around” on your behalf to find the best product for your needs, very similar to insurance brokerages.
  • There are many clauses or terms in a mortgage document that few people will read until they have an issue. Breaching one of these clauses or terms causes a default and puts the lender in a position of being able to take back the property to protect their investment.  Some of these clauses can include the requirement to pay annual property taxes and keeping the property insured against fire and damage. This means if you get into property tax arrears the lender may choose to start proceedings to either require you to catch up or to take back the property. When purchasing, your lawyer will not be able to complete the closing until you have provided proof that you have secured insurance on the property. The terms in your mortgage provide the “rules” you must abide by in order to be lent the money for 20+ years, so it is wise to read them.

 

It is not easy to say “I do not understand” especially when you are excited about the new home you are buying. But a mortgage is a big deal. The very best thing you can do for yourself is find a great mortgage specialist. It may be through your local bank and the people you have an established relationship with or it may be through a mortgage broker, but whoever you select make sure you trust and feel comfortable with them. This is important because you will be disclosing your personal financial information to them so they can get you the very best mortgage product. You also need to be able to ask them to explain the mortgage document to you before you sign it. So, I recommend that you shop for the very best person to handle this very important financial step in your life.

As a Realtor I encourage my clients to get pre-approved for a mortgage before we start to look for a home. This helps to prevent disappointment later in the process. It also begins the process of building a great relationship with a mortgage specialist, so when the mortgage document is prepared and ready to sign clients are comfortable asking any questions.