• What is a mortgage?
• What do mortgages and death have in common?
• When do you need a mortgage?
• Lending programs

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What is a mortgage?
Perhaps this is the best place to start. A mortgage is a fancy legal term for a loan secured by real estate. It’s as simple as that. Mortgages are typically greater than $20,000, hence the lender warrants the need to secure the loan with the best collateral available – your home. However, with the best collateral comes the best rates.

When do you need a mortgage?
This is a more relevant question. If you are a homeowner or planning to become one, then the need for a mortgage can come around many times, for starters, depending on how many properties you buy. But we can isolate three times when you should be shopping for a mortgage:

• Purchasing a home
• Refinancing your current mortgage and/or other debts
• Renewing your mortgage

Any one of these three situations comes up and you should be shopping around. That’s when you should be calling your favorite mortgage originator. He or she will be well versed in the plethora of mortgage programs and will guide you to making the best choice for your situation.

What do mortgages and death have in common? by Ralph Roberts, September 6, 2007
The origin of the word “mortgage” is intriguing. It is a French word generally believed to be derived from two Latin words-”mort” (meaning death) and “gage” (meaning pledge or something of value that’s forfeited if the debt is not repaid). Does this mean we can blame the current mortgage meltdown on the French? No, I didn’t think so. Although your clients might feel as though they are signing their life away when they take out a mortgage, that’s not really what the word means. The part of the word dealing with death applies to the passing away of the agreement. When the homeowner eventually pays off the loan, the lender’s claim to the property is “dead.” If the homeowner fails to make payments in accordance with the mortgage, the homeowner’s rights to the property cease to exist (or die). A mortgage is a contract that enables people to purchase property without paying the full value upfront. In essence, a mortgage pledges the property to the lender (the mortgagee) in the event that the borrower (the mortgagor) fails to repay the debt according to the conditions stipulated in the mortgage. To answer the question posed at the beginning of this article, mortgages actually have little to do with death, unless, of course, you take out a mortgage to buy a funeral parlor. Mortgages have more to do with life-being able to purchase a home you cannot afford to pay cash for, so you can enjoy your life sometime before you hit your golden years.
Ralph R. Roberts, official spokesperson for Guthy-Renker Home and author of “Flipping Houses For Dummies” (John Wiley & Sons), can be contacted at 586.751.0000, or by e-mail at RalphRoberts@RalphRoberts.com

Lending Programs
There are as many different programs as there are banks. That’s one reason why you need a full time, mortgage originator working for you. A distinction needs to be made between two groups of borrowers:

• Prime borrowers
• Subprime borrowers

With our lender glasses on, this is how we see the world – prime borrowers, and subprime borrowers. Prime being low risk, and subprime being higher risk. Lenders go on to define the two groups in greater detail and what you have at the end of the day is a matrix of different rates and terms and programs available to borrowers based on risk. For example, lenders will associate a refinance as higher risk and charge a higher rate accordingly. But less about risk as defined by the lending community, and lets look at the programs available to these two groups:

Below the table is more information about each program. You can use the quick links to jump to each program.

Program / Product	Prime	Sub	Program / Product	Prime	Sub
All-Inclusive Mortgage (AIM)	x	.	New Immigrant Mortgage	x	.
Bridge Financing	x	x	Open Mortgage	x	.
Cash Back Mortgage	x	x	Pre-Approved Mortgage	x	.
Closed Mortgage	x	x	Reverse Mortgage	x	x
Conventional Mortgage	x	x	Second Mortgage	x	x
Credit Problems	.	x	Secured Line of Credit	x	x
Fixed-Rate Mortgage	x	x	Stated Income	x	x
High-Ratio Mortgage	x	x	Switch Mortgage	x	.
Interest-Only Mortgage	x	x	Variable-Rate Mortgage (VRM)	x	x
Investment/Vacation Property	x	x	Zero Down Mortgage	x	x
Multiple Term Mortgage	x	.

All-Inclusive Mortgage (AIM)
The term AIM has been used loosely. Not to be confused with some lenders idea of picking up some of the closing costs associated with a mortgage. The real AIM mortgage started down under in Australia and is starting to gain some popularity in Canada with a few lenders. Also called an All-In-One, this is a management tool that links a line of credit to one or more other accounts. For example, you can have a first mortgage, a line of credit, a transaction account, a source of investment and a high-yield bank account all rolled into one.

Bridge Financing
When the house you sold closes after the closing date on the house you bought, and any amount of your down payment is coming from the house you sold, you need a bridge loan to cover your down payment shortfall. This is a must for anyone purchasing a “fixer-upper” who wants the house empty to do some work. How lenders cost out a bridge loan can vary significantly. Make sure you know in advance.

Cash Back Mortgage
This mortgage was first conceived as providing much needed help with closing costs for first-time-home buyers. Early versions of the loan gave the home buyer around 1 per cent of the mortgage amount to help pay for the closing costs like legal fees and land transfer tax. The cash back could not be used as part of the down payment and if you did not stay with the bank for the full term (a mandatory 5 year term) there would be a pro-rated claw back. Popularity with the program and market competition has taken this mortgage to new heights. For example, 5 per cent cash back is now available, and it can be used your down payment.

Closed Mortgage
A mortgage agreement that cannot be prepaid, renegotiated or refinanced before maturity, except according to its terms.

Conventional Mortgage
A mortgage that does not exceed 80% of the purchase price of the home. Mortgages that exceed this limit must be insured against default, and are referred to as high-ratio mortgages.

Credit Problems
In the world of mortgage underwriting, this single area (your credit history) can make or brake you. Lenders vary greatly on what they can do for you based on your credit. For example, if your credit is only bruised, you can still get up to 95% financing. On the other hand, if you have been bankrupt the opportunities are significantly reduced. And there is a whole bunch of in between scenarios. Your best bet is to have an earnest discussion with your mortgage originator.

Fixed-Rate Mortgage
A mortgage for which the rate of interest is fixed for a specific period of time (the term).

High-Ratio Mortgage
If you don’t have 20% of the lesser of the purchase price or appraised value of the property, your mortgage may need to be insured against payment default by a Mortgage Insurer, such as CMHC. In the subprime arena, most lenders self-insure their loans and therefore can offer you high ratio loans without involving third party insurance companies like CMHC.

Interest-Only Mortgage
A type of mortgage in which the borrower is only required to pay off the interest that arises from the principal that is borrowed. Because only the interest is being paid off, the interest payments remain fairly constant throughout the term of the mortgage. However, interest-only mortgages do not last indefinitely, meaning that the borrower will need to pay off the principal of the loan eventually. Interest-only mortgages can be useful for first-time home buyers because it allows young people to defer large payments until their incomes grow.

Investment/Vacation Property
Insurance companies like CMHC will now insure mortgage loans that are secured by a borrower’s second home. Second homes may be insured under any insured product (eg. 100% financing) with no additional underwriting requirements or mortgage loan insurance premiums. The property must be intended for occupancy at some point during the year by:

• The borrower OR
• A relative of the borrower on a rent free basis.

Contact your mortgage originator for other restrictions on this program.

Multiple Term Mortgage
If you wanted the lower rates of a short term mortgage but wanted the security of a long term, why not choose both. Yes, you can build your own mortgage product. You can split your mortgage in to as many as 5 parts, all having different terms, rates, and amortizations, but one total monthly payment. This way, you are spreading the risk. This mortgage is better suited to the borrower who likes to be hands on and in control of his/her mortgage.

New Immigrant Mortgage
To make it possible for individuals who have relocated to Canada to purchase a home with as little as 5 per cent down. Properties can be up to 2 units (one must be owner occupied). No minimum income requirement. Minimum Canadian employment history of 3 months. This program is only available to new Canadians for up to 24 months after their arrival. Contact your mortgage originator for more details.

Open Mortgage
A mortgage which can be prepaid at any time, without penalty.

Pre-Approved Mortgage (PAM)
In the past, home buyers would typically leave arranging their financing last, after they purchased a property. Today this can cost you dearly. It may cause you to loose the house you find to someone who did get a PAM. It also protects you from an increase in interest rates during the term of your PAM (up to 120 days). The only cost to getting a PAM is your time. If you are looking buy, refinance, or renew your mortgage, contact your mortgage originator early (up to 120 days early) about getting a PAM.

Reverse Mortgage
A Canadian Reverse Mortgage is like any other mortgage except for two main exceptions:

1. It is only available to seniors aged 60 years or older.
2. There are no monthly repayments required to pay back the mortgage.

This program is very unique and designed for a limited number of seniors. We strongly recommend you contact a qualified mortgage originator with experience in this area.

Second Mortgage
Having a second mortgage put against your property means you have pledged your property as collateral a second time for another loan. You now have two loans, each secured against the same asset – your property. One is called a first mortgage, the other, a second mortgage. And yes, if you pledged your property a third time, for another loan, it would be called a third mortgage. No rocket science here!

Secured or Home Equity Line of Credit (HELOC)
You can use the equity in your home that you have built up to purchase investments (writing off the interest), consolidate debts, finance home renovations, buy a car, or any other reasonable needs, with rates as low as prime. A HELOC can be arranged up to 80% of the purchase price or value of your home. If you need more than 80%, for a higher interest rate (dependent on your credit), a HELOC can be arranged up to 85%. Accessing the available credit is as simple as writing a cheque, or using the lender-issued credit and/or debit card. You only pay interest on what you draw down, and you can pay off your balance at any time without penalty. Alternatively, you can carry a balance and pay interest-only monthly payments. This being a mortgage, there are the normal legal and appraisal fees required to set it up.

Stated Income
If you have trouble with any of the following:

• Self-employed and cannot show enough income on paper.
• On commissioned sales and cannot show enough income on paper.
• Less than perfect credit

Your credit rating will ultimately determine how much money you can get from the lender. For self-employed and commissioned sales borrowers, you can get up to 90% financing. Some conditions apply. Contact your mortgage originator for details.

Switch Mortgage
When your mortgage comes up for renewal, you may want to take advantage of other lender’s “switch programs”. Too often your current lender is no longer interested in being competitive and will offer you a posted rate at renewal time. If a discount is offered off the posted rate, it likely will not match what you can get with another lender who is anxious to get your mortgage. Under the new lender’s switch program, they will pay the costs to bring your mortgage over. What’s more, to the new lender, you are new business so they will approve your mortgage up to 120 days prior to your renewal date. Your current lender will not likely lock a new rate in for you until 30 days prior to your renewal date. Take advantage of your popularity at this time and be willing to move to greener pastures if your bank will not compete.

Variable-Rate Mortgage (VRM)
A mortgage for which the rate of interest may change if other market conditions change. This is sometimes referred to as a floating rate mortgage. This type of mortgage is more flexible than a fixed-rate mortgage. With some lenders the penalty to get out is zero. Lots of variation between lenders on this type of mortgage. Be sure and contact your favorite mortgage originator to discuss.

• Zero Down Mortgage CMHC Flex Down provides borrowers with the opportunity to purchase their own home sooner by using a wider range of sources for a down payment. The CMHC Flex Down product is intended to appeal to home buyers who may lack, or have made the financial decision not to provide, a traditional 5% down payment from their existing resources but who have a good credit history and sufficient income to support the financial obligations of home ownership.

As a subprime borrower, you maximum financing is at the 95% level. However, without meeting the insurance company guidelines (e.g. CMHC), the lender would have to self-insure the loan. With the added risk, comes higher rates and fees.