Arranging for a Mortgage

Buying a new home can be stressful especially when it comes to arranging for a mortgage. The purchaser is liable to arrange for the source of financing and closing costs as well as any documents required by the lender. This helps avoid last minute issues. There are certain things to be kept in mind in this regard:

  • Conditional Agreement – In case of financing, the Agreement of Purchase and Sale is often conditional on financing, which means the Agreement is subject to a written confirmation of the financing details as specified by the lending institution.
  • Written Pre-Approval – If the buyer wishes to have a pre-approval of mortgage financing, such a request should be made in writing and include all the details of the mortgage and the pre-approval.
  • Communication with the Lender – The buyer should be in constant touch with the lender to ensure all requirements are met and that mortgage papers are dispatched to the lawyer.
  • Power of Attorney – If you wish to use a ‘Power of Attorney’ you must inform the bank and submit a copy of it along with your mortgage papers or as directed by the bank. Many banks seek a pre-approved ‘Power of Attorney’. For this the buyer is usually a current bank customer, or he or she must sign the document in Ontario in the presence of two witnesses and notarized by a lawyer.
  • Open/Closed Mortgages – Open mortgages allow borrowers to pay off the entire mortgage during the term of the mortgage without any penalty. With a closed mortgage the borrower must strictly follow the terms and conditions of repayment set out in the agreement. If you pay prior to the maturity date there is usually a penalty of three months interest.
  • Accelerated Payments – Lenders these days usually provide the option of paying the mortgage through accelerated weekly or bi-weekly payments. This lowers the total interest paid.
  • Canada Mortgage and Housing Corporation (CMHC) Mortgages – CMHC insured mortgages are required by lenders where the purchaser makes a down payment of less than 20% of the purchase price. This enables such a purchaser to purchase a house while protecting the lender against any mortgage default. The additional cost of CHMC mortgage insurance is charged to the buyer.
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