Mortgage Basics
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• Down Payment
Every financial institution requires you to make a down payment on a new home purchase. Even “no down payment” mortgages require a down payment, it just means that the financial institution lends you money or gives it to you in some form of “cash back”. These types of mortgages typically involve large fees, higher rates and not everyone can qualify for them. The smallest down payment a purchaser can make is 5% of the purchase price. The money for the down payment can be cash you have saved, RRSPs or a gift.
If you can make a down payment of 20% or more, your mortgage will be considered a Conventional Mortgage, therefore no additional outside premiums are required. You will, however, be responsible for the cost of the appraisal (if required) and legal fees.
Parama also offers High Ratio Mortgages, which require a minimum of 5% down and are insured by CMHC. The costs associated with this type of mortgage are typically higher than a conventional mortgage as the borrower is responsible for covering the insurance premium and HST, which is payable to the mortgage insurer, not to Parama. The insurance premium can be added onto your mortgage amount and calculated into your regular payments. Please note that Parama does not charge a higher rate for high ratio mortgages.
• Pre-Approval
With the real estate market in Toronto being highly competitive it’s becoming almost impossible to purchase a home without a pre-approval or qualification letter from your financial institution. This letter details the amount you qualify for and puts you in a stronger position to purchase and shows the seller that Parama has approved you for a mortgage of a specific limit, as long as certain conditions are fulfilled prior to final funding.
It’s also useful if you are shopping around for a home and would like to know the mortgage amount you’re eligible for. We will require a confirmation of your income, how much of a down payment you intend to make and based on that we can help determine a purchase price that works for you. Once you have purchased your new property and have signed a Purchase Agreement, your information will be re-evaluated and the regular mortgage approval process will commence.
• Appraisal
Every mortgage lender will require a current appraisal of the property you are looking to purchase or refinance. However, at Parama if the loan to value (LTV) is less than 50% this requirement can be waived – a cost savings to you. With conventional mortgages, Parama orders the appraisal however you are responsible for the cost. With high ratio mortgages, the mortgage insurer, CMHC, performs their own valuation/appraisal and the fee in included in your insurance premium fee.
• Registration
When first purchasing a property, the Credit Union requires you to choose a lawyer in order to perform title searches to protect our interest in your mortgage loan and to make all necessary registrations on the property. We do not require you to choose a particular lawyer, however if you do not have one we know of a few near our branches and would be happy to direct you to their offices. Lawyers charge their own fees for services rendered in ensuring that your title is property registered. Contact your lawyer of choice to find out how much they charge for their services.
• Credit Application
As with any mortgage or loan, Parama requires you to fill-out an online application including any supplemental documentation, such as confirmation of income and a copy of your Purchase Agreement (“Agreement of Purchase and Sale”).
• Finance Terms
Once your mortgage has been approved, you need to decide what terms you would like. Parama offers four (4) types of mortgage terms:
- Open Variable: flexible repayment with a rate that fluctuates based on the Prime Rate.
- Closed Variable: only available for a 5 year term with a rate that fluctuates based on the Prime Rate. The benefit of this term is that the rate is lower than the open variable term.
- Open Fixed: “locked in” fixed rate that is only available for a 1 year term but features flexible repayment.
- Closed Fixed: “locked in” fixed rate for a specific period of time (1 to 5 years), and repayment is restricted to a fixed amount. You are allowed to increase that amount 15% each calendar year and/or make an annual lump-sum principal payment of 15% of your original mortgage amount.
