The Mortgage is the contract signed by you that gives your lender security in your home. This document must be notarized and will be executed by you at the lawyer's office.
Based on this security, which is registered at the Land Title Office by the lawyer, the lender advances the mortgage funds which are used to purchase your home to the trust account of the lawyer. The mortgage contains your obligations to your lender, such as making mortgage payments on time and describes what the lender can do to you and your property if you breach any of the terms of your mortgage. The mortgage may also contain prepayment options that allow you to increase your mortgage payments. The mortgage is prepared by the lawyer based on conditions contained in the Mortgage Approval or Commitment Document prepared by your lender which both you and the lender have agreed on.
Lenders may retain money from your mortgage funds to cover future taxes, accrued interest or repairs that may be necessary. If there will be holdbacks, then these will be specified in your mortgage commitment letter. Make sure that you know what deductions your mortgage company will make upon advancing mortgage funds to your lawyer.
The terms of the mortgage contract will govern. Remember that the terms of your mortgage are subject to the interpretation of the Courts.
To calculate the amount you can afford to borrow, your lender and/or your mortgage broker will calculate how much debt you can handle.
The amount of debt you can assume is normally based on two ratios. Your percentage of debt to income will normally be within the following limits.
Gross Debt Service Ratio: Principal + Interest + Taxes is less than 30 percent of gross household income
Total Debt Service Ratio: Principal, Interest, Taxes and all other installment debts is less than 40 percent of gross household income
These are simply guidelines as different situations require different considerations. Again your lender and/or your mortgage broker can assist you in this regard.
Mortgage - Contract* - 1
The Mortgage Contract may be one of the most important documents you will ever sign. All mortgages contain the same basic elements. In the Mortgage you are agreeing to the following:
that you are the registered owner of the land to be mortgaged
that you will pay to the lender the sum of money lent to you
that you will pay interest to the lender
that the sum of money lent to you will be paid by way of monthly installments.
* info is provided only for general education only.
Mortgage - Contract - 2
This document will be executed at the time you attend the office of the lawyer.
The Interest Adjustment Date of your mortgage is the commencement date of your mortgage. This date can change depending upon when your mortgage funds are advanced. If this date changes, your lender should be in contact with you advising of the revisions.
The First Mortgage Payment is usually due one month after the Interest Adjustment Date. Unlike rent payments where you pay in advance, under a mortgage, you must have the use of the mortgage funds prior to your first mortgage payment.
There is no automatic right of renewal under a mortgage. When your mortgage matures you must pay the balance owing unless the lender, at their option, grants you a renewal. Then you must decide if you wish to accept the terms of renewal or if you wish to transfer the mortgage to another lender who consents to accept you as a Mortgagor.
The payment of taxes is your responsibility and taxes must always be in a current position. If your mortgage payments include principal, interest and taxes, your lender will pay the current year’s taxes if there are sufficient funds in your mortgage tax account. If not, then your lender can pay the taxes in full from the money in your tax account and from their funds, leaving your tax account in a deficit position. Alternatively, if there is an insufficient sum in your tax account to pay the taxes, your lender can request the difference from you and you are obligated to pay this amount immediately. The lawyer will ensure that the taxes are in a current position.
Your lender, at their option, can grant you permission to pay your own taxes. Under this option you must pay the taxes before the due date and supply your lender with evidence of payment by way of receipted tax statement. At certain times of the year, this may also be done by way of the Statement of Adjustments at the office of the lawyer.
You are responsible for maintaining insurance coverage on your property with loss payable to your lender for the full term of the mortgage. If you miss a premium payment your lender, at their option, may place insurance coverage to satisfy their requirements but not yours. This extra cost may be added back to your mortgage debt resulting in your paying mortgage interest on this sum. The lawyer will require written confirmation of your insurance coverage prior to your closing.
Any improvements that you make to the mortgage security will be deemed to be subject to the mortgage debt. If you breach the terms of your mortgage contract and if your lender commences successful foreclosure action, you will forfeit the property being mortgaged and all your improvements.
Every mortgage contains a clause stating that improvements to your mortgaged premises must first be cleared with your lender. Your lender does not want you to alter the structure they have appraised unless, in their opinion, the alteration will maintain the value of the property and comply with zoning by-laws. What you believe is an improvement may, in fact, reduce the value of your property. If you are contemplating an alteration that requires you to obtain a building permit, then you should first obtain your lender’s consent. Minor improvements such as carpeting, painting and the like should not require prior lender permission.
All mortgages contain a clause that makes the advancement of mortgage funds at the discretion of your lender. If prior to the advancement of funds, your financial position changes and, in their opinion, your lender believes that you will be unable to make the mortgage payments, then your lender will not advance the funds. The lender does not have to be reasonable in deciding not to advance mortgage funds to you; however, if your financial position has not changed, there should be no problem.
Most mortgage contracts will contain a "Sales Clause" that makes the mortgage assumable only if the proposed buyer qualifies. The position of your lender is that they had to qualify you for the mortgage and likewise they must qualify anyone who wishes to assume your mortgage. Without this clause the lender would have no control over their mortgagors. People who cannot make the mortgage payments could assume the mortgage and would immediately fall into arrears, necessitating foreclosure action at an additional cost to the lender. Should a shortfall occur in the foreclosure, the lender may still look to you to cover this shortfall. The lawyer will discuss this further with you at your meeting.
Most mortgages contain prepayment options allowing the Mortgagor to increase their monthly mortgage payments and/or make payment directly on the principal amount owing without penalty. Some prepayments are subject to a penalty depending on the amount paid. As these options vary from one mortgage company to another, make sure you know what your options are and what prepayments you can make without penalty. These will again be reviewed with you at the lawyer's office.
Most mortgage companies will allow you to make mortgage payments more frequently than once a month. Contact your mortgage company to ascertain if you have this option and what is required from you to exercise this option. Additional payments will greatly reduce the amount of interest you will be required to pay your lender. Your mortgage may be registered with a monthly payment amount but you may have a side agreement with the lender setting out your agreed upon payment method.
Mortgage
