Mortgages are available from institutional lenders such as banks, trust companies, credit unions, and life insurance companies. All institutional lenders tend to be competitive in the interest rates and types of mortgages they offer, but there are some differences. So be sure to shop around to compare what the different institutional lenders have to offer. Don't just go to your own bank branch.
Mortgages are also available from private lenders – individuals who have money they want to invest by lending it to homeowners looking for a mortgage. Borrowers usually go to private lenders when they have credit problems, or if they want to borrow more than 75 per cent of the purchase price.
Most people will get their mortgages from an institutional lender if they can. Private lenders, however, are the most common source of second mortgages.
Borrowing mortgage money from a private lender is exactly the same as getting a mortgage from an institutional lender, but you have to find a private lender first. Your real estate agent may be able to give you the name of a private lender, or you can go to a mortgage broker. A mortgage broker acts as a go-between who puts people who want to borrow mortgage money in touch with people or institutions who want to lend it. The broker may charge you a brokerage fee for this service.
Another possible source of mortgage money is your own RRSP – if you're lucky enough to have a registered retirement savings plan with as much money in it as you need to borrow for your mortgage, and if you can satisfy the conditions set by the federal government (more about that in next week's column).
Wherever you try to get your mortgage, there will be an application procedure for you to follow, designed to give the mortgagee enough information to decide whether or not to risk lending you the money. The mortgagee's concern is to make sure first, that you will make your mortgage payments every month, and second, that if you don't make your payments, there will be enough from the sale of your home to let the mortgagee recovery the money loaned.
The mortgagee will want to know your income and expenses, your assets and your debts and your credit rating (your history of repaying past loans). The mortgagee will also want to be sure of the value of the home you are buying, and will probably want to have it appraised. An appraisal involves an inspection by a real estate professional who decides what your house is worth by comparing it with similar houses - and it's usually done at your expense.