By Mark Weisleder

A mortgage is usually the largest financial commitment a person will make. The interest is far more than any other debt, yet it is troubling that many of the details involved in mortgage applications are poorly explained — if at all — to those applying for the loan.

Many people buying their first home do not have 20 per cent of the purchase price to use as the down payment and must take out an insured mortgage in order to get the loan. You can obtain this insurance through CMHC or Genworth Financial.

This will typically add 2 to 3 per cent to the loan. For example, if you qualify for a $300,000 loan, with a 10 per cent down payment and are not self-employed, the premium is 2 per cent or $6,000. So your mortgage will be increased to $306,000. However, you will not see this amount when you close the deal. The lender takes the $6,000 off the top, to pay for this insurance premium, while the borrower still has to pay the entire $306,000 back.

You must also pay PST on the insurance premium, which is usually not explained. In the above example, it is $780. This amount will be deducted on your closing, so instead of receiving $300,000, you receive $299,220.

There are more deductions that will come off your mortgage loan on closing that are typically not disclosed when you apply.

Mortgage processing fees

This is a subject that bothers many buyers. It is typically on closing that they learn the lender is deducting an additional amount, typically between $200 to $300, in order to pay for the “processing fee.” This is because the lender has outsourced this function to another company, including the preparation of the mortgage instructions that go to the buyer’s lawyer. This is not paid when the lender does the work themselves.

Interest adjustment date

If your loan is advanced in the middle of the month, the lender will deduct the amount of interest owing to the first day of your next month. This could amount to hundreds of dollars being held back on closing.

Who pays the taxes?

In most insured mortgages, the lender will insist that the borrower include an amount for property taxes in every mortgage payment, so the lender can pay this bill on your behalf. However, lenders will often deduct about half the year’s tax bill in advance, so they have enough of a reserve to always pay the taxes. Again, this amount will come off what you can expect to receive on closing.

Finally, more and more lenders are waiting until three to four days before closing to have buyers come in to sign the papers. This often results in mortgage instructions not getting to the buyer lawyer’s office until the day before closing. If there are errors, which often occur, it becomes stressful for buyers to arrange their actual down payment needed, get to their lawyer’s offices to sign the paperwork and complete their purchase on time. Buyers should insist their lenders schedule any appointment to sign loan papers at least two weeks before closing, so that everything can be completed on time, without stress.

Ask your lender or mortgage broker in advance to detail everything that will be deducted from your loan on closing. Being prepared for the mortgage lending process means you are not surprised with the total loan amount you will receive from your lender on closing, but also that your closing will be completed in a stress-free manner.