Mortgage FAQ

Thank you for visiting our website.  You will find many of the most common questions here.  Do you have a question?  Please don't hesitate to ask, we are never too busy to help!  We look forward to serving you.

What is a mortgage?

A mortgage is home loan you use to purchase a real estate or some other piece of property. The amount you borrow is called the principal and each mortgage payment is a combination of principal and interest. The property remains in the possession of the borrower, but it may be re-claimed by the lender if the loan and interest are not paid as agreed.

What are the terms for mortgages?

Mortgages are available with a fixed rate of interest for various terms, ranging from six months to 40 years, with payments amortized over periods of up to 40 years. We also offer variable rate mortgage options.

Why is mortgage pre-approval important?

Mortgage pre-approval is important for a number of reasons:

• It determines the maximum mortgage loan for which you qualify.
• It allows your realtor to show you a range of properties in your price range.
• It allows your realtor to make a realistic offer on your purchase, and saves time in the negotiation process.
• It holds the interest rate for a period of up to 360 days, guarding you against rate fluctuations in the market.
• It provides peace of mind during the home-buying process.
• It saves you time.
• Apply for your mortgage here!

What documents are required for pre-approval?

• Income confirmation. This will be used to determine how large a mortgage payment you can handle. Income confirmation documents can include a letter from your employer, T4 slips, financial statements, and Revenue Canada assessments.
• Down payment confirmation. This will be used to confirm the difference between your proposed purchase price and the amount of the mortgage loan. Your down payment can include saved funds on deposit with your financial institution, RRSPs, a gift from an immediate family member, and/or equity from the sale of another property.
• Credit application. The credit application will provide us with information we need assess your mortgage request and net worth. It will also let us request a credit bureau check.
• Credit confirmation. We'll do a credit investigation and confirm that your credit rating is acceptable for a mortgage.
• See our Loapplication Checklist here!

How can We save money on my mortgage?

The easiest way to reduce the interest costs on your mortgage is to pay it off sooner. Here's how:

• Pay weekly or biweekly. Making your mortgage payments earlier and more frequently through weekly or biweekly payments can save on interest compared with monthly payments.
• Choose a shorter amortization period.

Example
This comparison shows how you can reduce your amortization period and save on interest by choosing a more frequent payment schedule.

Mortgage amount of $100,000 at 7.0% interest, calculated on a declining balance:

	Monthly Payments	Weekly Payments
Payment per period	$700.42	$175.11
Total annual payments	$8,405.04	$9,105.72
Total interest	$110,126.00	$86,667.26
Amortization period	25 years	20.5 years

In this example, weekly payments can save you $23,458.74 and almost 5 years on your mortgage.

• Prepay. You can prepay up to 20% of the original principal amount of your mortgage anytime during each year of the term of your mortgage-without penalty or an administration fee.
• Increase your monthly payments. Once per year, during the term of your mortgage, you can increase your monthly mortgage payments up to 100% of the monthly payment originally established for the current term of the mortgage-without penalty or an administration fee.

Is any mortgage protection insurance available?

The following optional mortgage insurance is available to you to help you feel more comfortable with your home purchase:

• Mortgage life insurance
• Mortgage disability rider
• Mortgage Loss of employment rider
• Mortgage Critical illness insurance
• Click here to learn more!
• Click here if you need an insurance agent!

What are the other costs of a home purchase?

The other costs associated with the purchase of a home may include the following:

• Inspection fee-required if a professional is to inspect the house prior to the completion of the purchase 
• Appraisal fee-required to ensure the property is acceptable security for the mortgage 
• Legal fees-includes lawyer's or notary's fees plus any disbursements required to transfer the property and register the mortgage 
• Survey certificate fee-required to ensure the house is positioned on the lot within legal restrictions 
• Mortgage insurance-if the down payment is less than 20% of the purchase price, an insurance premium on the mortgage amount is required (it may be added to the mortgage amount) 
• Home insurance-arranged to cover the property in the event of fire or other damage.
• Mortgage protection insurance-optional, but is available to cover the mortgage amount in the event of death, disability, loss of employment, or critical illness 
• Moving costs-vary depending on how far you're going and who is helping you move

How do We know if it makes sense for me to refinance?
First determine your financial mortgage related goals: i.e. are you looking to improve your monthly cash flow, reduce your mortgage term, do you need to take out cash utilizing the equity from your home? Obtaining the right mortgage for your particular needs could make sense even when rates are not at their lowest levels. First identify your goal and contact a mortgage professional for suggestions on mortgage programs that would best help you meet your objectives. Then shop for rates after you have selected the appropriate mortgage program.

We've always heard about the 2% rule when refinancing, is it important?
This rule is somewhat obsolete due to the variety of closing cost options that exist today. With the proliferation of no closing cost mortgages, a potential refinancier can recoup the costs of refinancing very rapidly if not immediately. The 2% rule may be a helpful tool when paying both points and closing costs in order to refinance. See "When to refinance".

What is the difference between a conforming and a non-conforming (a.k.a. jumbo or bad credit) mortgage? 
A Conforming loan is a mortgage that conforms to the guidelines of one of the two primary GSE's (Government Sponsored Enterprises), Fannie Mae and Freddie Mac.  Normaly, they require perfect credit, money down, stable job time, and assetts.    

What is a super jumbo mortgage and how much higher (than the average jumbo mortgage) is the interest rate typically?
A super jumbo mortgage is a mortgage request exceeding $650,000. A super jumbo mortgage typically has a rate 1/4% higher than your average jumbo mortgage.

What documentation will the lender typically require to process my mortgage?
The answer depends upon the quality of your credit and the amount of equity you have in your property. On a typical fully documented mortgage application (where an applicant is seeking to qualify based on an employee's salary), the lender will require: one month's current pay stubs, W-2's for the prior two years and bank and investment account statements for the prior 2-3 months. If an applicant is self-employed (has a 25% or greater ownership in a business) then additional documentation could be required (i.e. 1040's, 1165's, 1120's, P & L statement).   See our Loan Application information page.

Are there limited documentation (a.k.a. EZ doc, no income qualifier) mortgages available?
Yes there are many. They come in a variety of programs; some have self-employment, credit, equity or asset requirements so it may be advisable to have a mortgage consultant direct you to the appropriate product for your needs. There are also mortgages available to individuals who cannot verify either their income or assets (referred to as NINA mortgages). Keep in mind that these products can carry higher interest rates than that of a mortgage that is fully documented. A good rule to remember, the more documentation a borrower can provide for a lender, the lower the rate they will typically get.

How can We avoid having to get mortgage insurance on my mortgage?
Many borrowers who have less than 20% equity in their homes, choose a combination first and second mortgage (referred to as a piggyback mortgage) to avoid mortgage insurance (MWe). The most common method of financing without MWe is an 80-10-10 (an 80% 1st mortgage, 10% 2nd mortgage with 10% equity). Also available is an 80-15-5 (requiring an 80% 1st mortgage, 15% 2nd mortgage with 5% equity).   Or an 80/20 which is a 80% 1st mortgage with a second mortgage of 20%.

How much Homeowner's insurance coverage will We need to close the new mortgage?
A safe bet is to buy a guaranteed-replacement-cost policy that will generally pay out 20-50% more than the face value of the policy to rebuild your home (this is also the preferred policy of lenders). A replacement-cost policy typically adjusts the amount of insurance each year to keep pace with rising construction costs in your area. It is important to note that local building codes require structures to be built to specific standards which could vary over time, if your home is severely damaged, you may be required to rebuild it to current codes. Even guaranteed-replacement-cost polices do not always cover this expense. However, many insurers offer an endorsement that will pay for the upgrading cost, it is a good idea to consider adding such an endorsement to your replacement-cost policy.

Will We need to get earthquake insurance coverage to close the new mortgage?
The lender should not ask you to add quake coverage to your standard policy unless your property is located in an earthquake hazard zone.  We work with Indiana insurance agents everyday and can introduce you to a competant professinoal.

Will We need to get flood insurance coverage to close the new mortgage?
The lender should not ask you to obtain a flood policy unless your property is located in a flood hazard zone. We work with Indiana insurance agents everyday and can introduce you to a competant professinoal.

Why do We need to pay for another policy of title insurance when we already own the property and purchased title insurance when we bought the house?
Before closing your new mortgage, your new lender must be certain that the title to the property will be free and clear, free of prior defects and indebtedness. A new policy is needed to protect the new lender and subsequent investor of your new mortgage. Both a homeowner and prospective lender need to be certain that what is available on the property is what is referred to as a "marketable title". A title company researches the legal history of the property that entails searching public records in the offices of the county recorder. Problems with the title could threaten the mortgage, limit ones use and enjoyment of the property and could result in financial loss. A policy of title insurance protects a homeowner's title and the insurer covers the cost of any legal challenges.

What is the best way to shop for insurance?
A reliable method of shopping for both homeowner's and earthquake insurance is to get estimates from at least three high-rated companies. Be prepared to discuss the type of policy you want as well as the coverage limits you require.  We work with Indiana insurance agents everyday and can introduce you to a competant professinoal.

We am refinancing a condo (or townhouse or PUD) and am aware that our HOA is currently in litigation with the developer. Will We be able to refinance my mortgage?
A Homeowner's Association could leave itself open for legal action if it doesn't act on legitimate building defects and disclose these defects to all unit owners. However the fact that an association is suing a developer can impact an owners ability to obtain financing. It is vital to let your lender know up front if the development or project you live in is in litigation. It is usually possible to obtain financing in such situations, but it will limit the number of lenders who might be able to finance your mortgage. In some cases the lender may require a higher percentage of equity in the property and the interest rate could exceed that of standard financing programs.

Will the lender require a fee to lock in my interest rate?
For a traditional 30-90 day rate lock, the lender will not require the borrower to pay a lock fee, but for the privilege of locking for a period beyond 90 days they may. Some lenders allow borrowers to lock and then float the rate down one time during the mortgage process, typically a borrower is required to bring in a fee of ½-1% of the mortgage amount which is then credited (or refunded) to them at closing. It is a lock fee the lender requires to insure the transaction will in fact close.

What type of closing costs can We expect to pay on my mortgage?
Please see closing costs on our website.

Which mortgage related closing fees will the lender typically collect from me up front?
Normaly only the appraisal fee and maybe a lock in fee if it applies.

Which closing costs associated with my refinance are tax-deductible?
Please see the these closing costs on our website where this information is outlined. Also consult with your tax advisor.

Is it best to pay points up front to reduce the interest rate?
When points are paid on a mortgage, the result is to buy down the interest rate, typically 1 point (or 1%) will buy the rate down .25%. The key to analyzing whether paying points makes financial sense is to determine: 1) How long do you anticipate remaining in the property? 2) When would the breakeven point occur? For example if you pay two points to buy your rate down from 8.00% to 7.50% on a $300,000 mortgage, the payment at 8.00% would be $2,201 and at 7.50%, the payment would be $2,098, with the difference in payment amounting to $103/month. With two points costing $6000, divided by the savings of $103/month equaling 58.25 months or 4.85 years to break even. You would want to hold the mortgage and remain in the property approximately 5 years for this to make sense. Other factors to consider are the tax implications of paying points as well as the time value of money (could you put these funds to better use).

Is it possible to obtain a no cost mortgage when refinancing your mortgage?
Yes. In fact no closing costs mortgages are extremely popular among refinanciers. Because a borrower pays no non-recurring closing costs, it is easy to analyze how soon money is saved on a monthly mortgage payment by refinancing. Many homeowners will consider refinancing for as little as .25% improvement to their mortgage rate with no-cost mortgage financing.

What is APR and how is it calculated?
APR stands for Annual Percentage Rate and its purpose is to give borrowers a truer representation of the effective interest rate on their mortgage. APR factors in certain closing costs and fees and spreads these costs over the life of the mortgage, along with the note rate, to arrive at a more accurate annualized percentage rate than the note rate alone represents.

Will the lender require an appraisal of the property? If so, will We receive a copy of it?
Yes. The property is the collateral for the mortgage, therefore an appraisal is almost always required and if a borrower pays for the appraisal he or she is definitely entitled to receive a copy of it.