The following is a guide to assist you in understanding the processes involved in your mortgage transaction. This guide outlines the procedures that we will be following. We will keep you up-to-date on our progress from time to time. We will do everything to efficiently complete this process while shielding you, to the best of our ability, from its stresses.
Mortgaging Real Estate
Mortgaging real estate is often a more complicated and confusing process than the purchase of the land itself. We would like to explain some of the basics of that process so that you will better understand what it is that we're doing, what you are signing, and where your money is going. You are giving the mortgage. You are the MORTGAGOR. The Bank, Trust Company Credit Union, etc. which is giving you the money and is taking the mortgage is the MORTGAGEE. Even though you are responsible for paying our fee, we work for the mortgagee and are responsible to it. We must certify to the lender that it has a good and valid 1st/second mortgage and we are liable if this should turn out not to be the case. We must ensure that your title is valid and that the mortgage itself is valid; that the property is not in violation of bylaws effecting placement of buildings upon the lot; that you hold an insurance policy naming the mortgagee as joint beneficiary with yourself; that property taxes are in good standing and all other requirements of the mortgagee are fulfilled. Until we do these things, we cannot release any moneys received from the lender.
You must instruct your Insurance Agent to place fire insurance on the property, effective on the date of the advance of mortgage funds, in an amount at least equal to the amount of your mortgage and showing the lender as Mortgagee. Replacement Cost insurance is always required by the lender. We will require a certified copy of the insurance policy, but, since these often take some time to deliver, a Binder (a letter setting out the particulars of the insurance) from your agent must be delivered in the meantime.
All 1st mortgagee lenders, and some second mortgage lenders, required a survey showing the boundaries of the land and the location of buildings upon that land. If you are purchasing and if the seller of the land cannot provide a survey you will be required to do so. The cost of such a survey is around $1,200.00 for the average residential lot in the Timmins area, depending upon numerous factors. If a survey is not available, we will advise you and then we will make arrangements to have the survey done and delivered. You are perfectly free to make your own arrangements provided that the survey is done by a registered Ontario land surveyor and delivered to my office at least ten days prior to closing.
An alternative to obtaining a survey is to acquire Title Insurance for the property. Usually this is done when a survey is not feasible or cannot be obtained in time. It is a separate expense and must be taken out for the lenders protection. If you require the title insurance for your own protection, additional coverage must be obtained. It is a Rule of the Law Society of Upper Canada that I explain this option to you and that will be done.
Post Dated Cheques or Automatic Deduction
Most mortgage lenders now require you to deliver either:
- One year's post-dated cheques for mortgage payments, or
- A signed authorization for Automatic deduction from your bank account (they will sometimes send the form to us ) accompanied by one voided sample cheque.
I will advise you of which has been requested at the time you make the appointment to sign your mortgage. If post-dated cheques are required, please have these made out when you come in to sign.
We will be preparing all of the documents connected with the mortgage and the mortgage document itself and we will have these prepared for your signature shortly before closing. we will register the mortgage upon the record of title to the land at the Registry or Land Titles Office.
Actual Amount Of Advance
The lender will almost never deliver to us the full amount shown on the mortgage as borrowed by yourself. Deductions may be made for inspection fees, brokerage, mortgage insurance, tax hold backs, interest hold back, and a host of other obligations. Your Application for Mortgage or Statement of Mortgage will advise you of most of these items though the list is often incomplete and the amounts are seldom exact. If you have dealt with an experienced and knowledgeable mortgage broker or loans officer, he or she will have taken these items into account in calculating the amount you require or in advising you of the closing costs.
The lender will usually charge a fee for having an employee visually inspect the property to ensure its value meets the amount you are borrowing. If you use a broker (who acts for many lenders) you may have to pay this amount to the broker for this inspection. These fees will be deducted from the mortgage monies advanced to us.
If you deal through a mortgage broker, you will often be required to pay some amount for his or her services. This amount is known as brokerage and may be deducted by the lender or we may be required to pay this amount to the broker after closing.
If you borrow 75 percent or more of the purchase price of the property, you are required to pay for mortgage insurance. Please remember that this insurance protects the lender should it, for some reason, not be able to collect the full amount outstanding on its mortgage. This insurance does not protect or ensure you in any way. Though the insurance is of no benefit to you, you will be required to pay a premium for it. This is a onetime premium payable when the mortgage funds are advanced. The lender will deduct this amount from the money it forwards to us. The amount of the premium will usually be noted on your copy of the Mortgage Statement or Application for Mortgage and will be labeled either C.M.H.C or M.I.C.C..
Tax Hold Back
Many mortgagees now require that you pay, in addition to the payments for principal and interest set out in the mortgage, an amount equal to one- twelfth of the estimated annual taxes with each monthly mortgage payment. This money will be held in a tax account by the lender (you do not always get interest on this account) and it will pay the property taxes as they fall due. In order to set up your tax account, and to provide a cushion against rising taxes, the lender will often hold back some amount as a credit on your tax account.
Interest Hold Back
Your mortgage will set up an interest adjustment date and this date will be the starting date for calculation of monthly payments. Usually this date will be the first day of the month following the closing, so as to establish the date for payments as being the first of every month. Mortgage payments, unlike rent, are payable at the end of the period so that if your interest adjustment date is June 1st, then your first payment will be July 1st, and will be for principal and interest between June 1st and July 1st.
If your purchase is completed on May 15th, your interest adjustment date may be June 1st and your first payment due July 1st, but the lender will hold back from the monies it delivers to me an amount sufficient to cover interest charges from May 15th to June 1st.
The mortgage is every bit as complicated as a purchase, though when done at the same time as a purchase, all of the title searching aspects will already have been done in the purchase process. We deduct our fee from the monies that we actually received from the lender and the result will be the net proceeds of your mortgage. The net proceeds will be applied to your purchase if you are purchasing and will be used according to your direction (subject to clearing title) in all other cases. .
Our quoted fee herein covers all the matters outlined above These are the complete standard matters to close a regular transaction and it is unlikely that there will be any problems or deviations. However, if a problem is encountered that is not covered by the usual services and if it will require a fee adjustment, you will be contacted and asked for instruction before we proceed. In every instance we will use our discretion to accomplish the job in the most efficient and cost-effective manner to keep the legal costs to an absolute minimum.
The disbursements on a mortgage are nowhere near as high as those encountered in completing a purchase (unless a survey is required). The most significant disbursements will be for the registration of the mortgage itself, Sheriff's Certificates for the lender and for Courier or wiring services.
Because of the procedures employed within the bureaucracy of most mortgage lenders, a great deal of the work is last-minute running. The lender will often require documents on short notice and with immediate delivery. The lender will not advance funds until the day of closing and it is up to us get the cheque from the lender's office to my trust account in time for the closing. If funds are available in town, we will arrange to have them picked up, but if funds must be transferred from out-of-town we will arrange to have the funds wired to my Bank, which cost approximately $30.00 and invariably means a closing very late in the day.
What We Need From You
We require from you:
- Fire insurance policy or Binder from your agent, showing coverage of at least the amount of the mortgage,(and in most instances full replacement cost) and showing the interest of the mortgage lender on the policy; the standard mortgage clause must be inserted in the policy;
- Post-dated cheques for the first year's payments if (and only if) you are notified that these are required;
- A voided cheque showing the magnetic No.: for your bank account if (and only if) you are notified that an automatic deduction plan is used;
- The complete address, including postal Code, of your new home (sometimes my documents only show a lot and plan No., as the municipal address is not often used in legal documents).
We hope that you will be somewhat less baffled by the mysterious deductions and closing costs now that we have explained some of the basics of the process.