Module 9: Structure Your Mortgage for Tax Efficiency

is a type of mortgage where the interest rate fluctuates periodically based on bank prime rates. It is also known as the variable rate mortgage.

is the duration of the loan re-payment that is calculated by equal continual payments to pay off the outstanding debt at the end of a fixed period, including accrued interest and principal on the unpaid balance.

is an estimate of the value of a property that is assessed by a qualified professional called an “appraiser.” The value is determined by either a direct comparison, cost or income approach.

is the legal agreement that involves the purchaser and the vendor where the purchaser assumes the payments on an existing mortgage from the vendor. Assuming a loan can normally save the purchaser money since there are no closing costs involved.

is an individual who is involved in arranging financing for a client who does not personally loan the funds himself. Brokers are normally compensated for their work by charging a setup fee or receive direct commission from the financial institution they are setting their client up with.

is the final step in the mortgage process, which involves a meeting between the purchaser, vendor and lender. It is where the property, title ownership and money legally change hands.

are costs involved in obtaining financing. The major costs involved in obtaining financing include; appraisal fees, legal fee’s and transfer taxes. The closing costs are normally around 1.5% of the purchase price.

is the Canadian Mortgage Housing Corporation. They provide High Ratio Mortgage Insurance by protecting the lenders and guaranteeing them payments on the funds they are lending out. Allows people to obtain homes with less than 20% down.

is an agreement in writing between a lender and a borrower to loan funds on a specific date. In a commitment there is a set list of conditions that need to be met prior to funding by the borrower in order for the transaction to be properly executed.

is a type of loan where borrower obtains financing to cover the cost of construction. The lender advances funds to the borrower in intervals known as draws. As the portions of the construction project are completed, more funds are then released in order to complete the next step in the construction process.

a mortgage that is not insured by a mortgage Insurer (CMHC ,Genworth Financial, and AIG. (Under 80% Loan To Value)

a report that provides information to the brokers and financial institutions about the applicants current and past credit history.

is when the borrower fails to meet legal obligations in the mortgage contract. It is specifically when they fail to make their monthly payments on a mortgage.

is when the borrower fails to make their mortgage payments on time. This normally leads to a forced sale on the borrowers home.

funds that are provided by the borrower to make up the difference between the mortgage amount and the purchase price. Down payment’s normally range between 20%-25% of the purchase price.

is the difference between the property value and the financing secured against the home. Whatever portion is not secured by the lending institution constitutes itself as the “owner’s equity”

a mortgage which is in first lien position. It takes priority over all other liens that are registered against the property. The only way a first mortgage can be pushed into second position is when the government is involved and registers tax liens against the home.

is a type of mortgage where the interest rate is set for a specific period of time. The rate cannot fluctuate and a fixed payment is set during the term negotiated between the lender and the borrower.

the total income that an individual earns per month prior to any expenses or deductions are taken into consideration.

is a legal entitlement that is secured against a property for an outstanding payment of a debt or obligation.

is the difference between the amount of the registered lien(s) and the property value expressed as a percentage. For example, if there is a mortgage registered for $100,000 on a $200,000 property, the loan to value ratio is 50%.

is the lowest price that a seller would agree to have someone purchase his property for. At the same time the highest price a buyer is willing to pay for that same home. Most of the time a home is purchased within 3-4% of the asking price of the seller under normal circumstances.

the lender.

the borrower or homeowner.

the borrower’s gross income less all deductions and taxes.

is a fee that is charged by the lending institution and or broker in order to prepare and organize the loan for the client. Normally a certain percentage of the loan amount is calculated and deducted from the gross proceeds.

is an abbreviation for principal, interest, taxes and heat. P.I.T.H. is also known and referred to as a monthly housing expense. This information is taken into consideration when calculating how much an individual can qualify for.

is a legal document authorizing one person to act on behalf or represent another in a legal transaction.

is when a lender allows the borrower in a mortgage to make additional payments that are not set within the regular payment schedule.

is a penalty charged to the client due to paying out a mortgage prior to it’s natural expiration.

is the financial obligation still left on a mortgage. This does not include interest accrued or paid on the mortgage.

is when a decision is made whether pursue or provide a loan to a potential individual seeking financing. Standard underwriting considerations used to assess a file are credit, employment, and net worth. Based on the information provided an appropriate rate, term and loan amount are provided as offers to the client.