This Vs That Volume 2

Michael Hallett • Sep 23, 2015
This is a sequel to This Vs That, which I published last month on my blog.

A good idea always has an encore presentation. Heck, Rambo was so good they made another four movies. Here are a handful of more terms used in the real estate and mortgage industry and hopefully the explanation will provide some clarity.

Mortgagor vs Mortgagee

The mortgagor is the borrower and the mortgagee is the lender.

Portable vs Assumable Mortgage

The act of porting mortgage allows the borrower to transfer the terms, conditions and interest rate of the current mortgage to the home the borrower would like to purchase. There is sometimes a blend and extend that usually occurs as well. An assumable mortgage allows the purchaser to assume or take over the responsibilities and liabilities under the mortgage from the vendor.

Deposit vs Down Payment

The deposit is a sum of money negotiated in a real estate purchase/sale transaction by the seller and buyer upon removing subjects. It's a sign of following through with the transaction in good faith. The deposit is then held "in-trust" with the Realtor and then transferred to the lawyer for completion. The down Payment is a sum of money required by the lender to seek financing to purchase the subject property. The percentage of down payment may vary from scenario to scenario as lender policies can shift with the economy. The deposit is a portion of the down payment. For example, if the purchase price of the home is $450,000 and the buyer is putting $45,000 (10%) down to secure 90% financing, the deposit is $15,000 (held in "in-trust") upon removing subjects then only $30,000 is required to be paid to the lawyer at completion.

Closed vs Open Term

A closed mortgage that is terminated prior to the maturity date will be levied a penalty, either 3 months interest or an Interest Rate Differential calculation. An open mortgage, if terminated prior to maturity will not be charge a penalty at all. One could have a Fixed Closed or Fixed Open mortgage and the same applies to variable, one could have either an open or closed term.

Term vs Amortization (Life of the Mortgage)

The term of the mortgage represents the duration of the contractual obligation to the lender. Terms range from 6 months, 1, 2, 3, 4, and 5 year terms with some lenders offering 7 and 10 year terms. Amortization or the life of the mortgage is the process of repaying a loan by way of periodic payments. These payment amounts are a combination of principal and interest. The most common amortization schedule that borrowers follow is 25 years. The latin word admortire means "to kill." Most borrowers want to kill their mortgage as fast as possible.

Chattel vs Fixture vs Real Property

Chattels are articles of personal property like TVs, car, computer, bikes etc. A fixture is a chattel that has become attached to real property over time. There is a 2 part test to consider the intended and purpose of affixation. Real property generally consists of land and whatever is erected, growing upon or affixed to the land.

Freehold vs Leasehold Property

The owner of the freehold interest has full use and control of the land and the buildings on it, subject to any rights of the Crown, local land-use bylaws, and any other restrictions in place at the time of purchase. In some cases, you might purchase the right to use a residential property for a long, but limited, period of time, this is called a leasehold interest. Leasehold interests are frequently set for periods of 99 years.

Will there be a This Vs That Volume 3 - stay tuned to find out!

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The Property Matters in Mortgage Financing

By Michael Hallett • 08 May, 2024
When looking to qualify for a mortgage, typically, a lender will want to review four areas of your mortgage application: income, credit, downpayment/equity and the property itself. Assuming you have a great job, excellent credit, and sufficient money in the bank to qualify for a mortgage, if the property you’re looking to purchase isn’t in good condition, if you don't have a plan, you might get some pushback from the lender. The property matters to the lender because they hold it as collateral if you default on your mortgage. As such, you can expect that a lender will make every effort to ensure that any property they finance is in good repair. Because in the rare case that you happen to default on your mortgage, they want to know that if they have to repossess, they can sell the property quickly and recoup their money. So when assessing the property as part of any mortgage transaction, an appraisal is always required to establish value. If your mortgage requires default mortgage insurance through CMHC, Sagen (formerly Genworth), or Canada Guaranty, they’ll likely use an automated system to appraise the property where the assessment happens online. A physical appraisal is required for conventional mortgage applications, which means an appraiser will assess the property on-site. So why is this important to know? Well, because even if you have a great job, excellent credit, and money in the bank, you shouldn’t assume that you’ll be guaranteed mortgage financing. A preapproval can only take you so far. Once the mortgage process has started, the lender will always assess the property you’re looking to purchase. Understanding this ahead of time prevents misunderstandings and will bring clarity to the mortgage process. Practically applied, if you’re attempting to buy a property in a hot housing market and you go in with an offer without a condition of financing, once the appraisal is complete, if the lender isn’t satisfied with the state or value of the property, you could lose your deposit. Now, what happens if you’d like to purchase a property that isn’t in the best condition? Being proactive includes knowing that there is a purchase plus improvements program that can allow you to buy a property and include some of the cost of the renovations in the mortgage. It’s not as simple as just increasing the mortgage amount and then getting the work done, there’s a process to follow, but it’s very doable. So if you have any questions about financing your next property or potentially using a purchase plus improvements to buy a property that needs a little work, please connect anytime. It would be a pleasure to walk you through the process.

Getting a Mortgage While on Parental Leave

By Michael Hallett • 01 May, 2024
Chances are if the title of this article piqued your interest enough to get you here, your family is probably growing. Congratulations! If you’ve thought now is the time to find a new property to accommodate your growing family, but you’re unsure how your parental leave will impact your ability to get a mortgage, you’ve come to the right place! Here’s how it works. When you work with an independent mortgage professional, it won’t be a problem to qualify your income on a mortgage application while on parental leave, as long as you have documentation proving that you have guaranteed employment when you return to work. A word of caution, if you walk into your local bank to look for a mortgage and you disclose that you’re currently collecting parental leave, there’s a chance they’ll only allow you to use that income to qualify. This reduction in income isn’t ideal because at 55% of your previous income up to $595/week, you won’t be eligible to borrow as much, limiting your options. The advantage of working with an independent mortgage professional is choice. You have a choice between lenders and mortgage products, including lenders who use 100% of your return-to-work income. To qualify, you’ll need an employment letter from your current employer that states the following: Your employer’s name preferably on the company letterhead Your position Your initial start date to ensure you’ve passed any probationary period Your scheduled return to work date Your guaranteed salary For a lender to feel confident about your ability to cover your mortgage payments, they want to see that you have a position waiting for you once your parental leave is over. You might also be required to provide a history of your income for the past couple of years, but that is typical of mortgage financing. Whether you intend to return to work after your parental leave is over or not, once the mortgage is in place, what you decide to do is entirely up to you. Mortgage qualification requires only that you have a position waiting for you. If you have any questions about this or anything else mortgage-related, please connect anytime. It would be a pleasure to work with you.
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