Understanding a mortgage agreement is crucial because not having all the information can lead to financial issues like paying extra fees for early repayment and even a power of sale. Homeowners need to review the document and be familiar with clauses on interest rate adjustments, late fees and other things like prepayment penalties.
It’s important to understand your mortgage agreement. This document outlines your obligations as a borrower and the lender’s rights. Although there can be a slight variance between companies, a mortgage agreement in Ontario usually includes the following:
Some of the other important features include payment schedules that highlight the frequency of the expected payments, prepayment options, and penalties. There are also sections on insurance requirements and fees and interest charges for late payments.
Understanding mortgage terms also helps you navigate through the document.
Understanding the terms of a mortgage agreement can help you avoid unnecessary prepayment penalties, late payments and adjustable interest rate fees. Those are only a few reasons you need to understand specific terms.
Understanding a default can help you avoid a foreclosure or power of sale. This process can begin after a borrower breaks the terms of a mortgage agreement. Usually, that’s about missing one or several mortgage payments. However, a breach of a covenant is another way that you can default on a mortgage.
Those breaches include using the property for illegal activities, purposely damaging it, not paying taxes, and failing to insure it.
Understanding the terms can help you find a solution if you face a power of sale. For example, a borrower has a chance to redeem the mortgage during what is called The Redemption Period. A borrower must understand that this period lasts 35 or 40 days if married people occupy the property. That’s the time they have to straighten out their finances regarding the mortgage.
Some other words and phrases in a mortgage agreement should raise red flags with a borrower.
Understanding the terminology in a mortgage agreement is essential. Here are some common clauses and terms to look for.
Of course, one of the significant terms homeowners need to notice when going through a power of sale is the Eviction Notice. This is one of the final steps in a power of sale. At this point, the sheriff arrives on a specific date for the eviction.
Your options are limited here. You can only get a new mortgage and sell the property once you’ve received the notice but are still living on it.
This notice is closer to the beginning of the power of sale. The lender needs to wait 15 days after default to deliver this. They also need to wait 35 days or 40 days if the property is lived in by a married couple before proceeding further.
Some clauses you should note include an insurance requirement clause that mandates borrowers have the proper insurance to protect the investment. Without the proper insurance, the borrower can be guilty of breaching a covenant and defaulting on the mortgage.
There’s also usually a maintenance of property clause in a mortgage agreement. Failure to comply with this part of the document can result in a breach of a covenant and default.
Not understanding all of the information in an agreement can lead to the risk of a default and a power of sale. Borrowers need to understand their payment obligations and what constitutes a breach of a covenant. A power of sale process can be started when you miss payments or fail to pay the property taxes, damage the property on purpose, or use it for illegal activities. Not ensuring the property is another way to default on a mortgage.
Defaulting on a mortgage can damage your credit profile. One of the biggest consequences can occur after a power of sale process. If the mortgage lender can’t fully recover all the money they’ve invested, they can file a Writ of Execution to get the remaining money owed.
Being informed is your best defence against a power of sale.
The biggest tip is at the front of the list. All borrowers need to thoroughly review the agreement and examine all the conditions and terms carefully before they sign anything.
Look at the different clauses about the lender’s rights, penalties and defaults.
Finally, if you receive any legal notices from your lender, responding quickly will improve their reaction and give you more options.
A mortgage broker is an expert who can negotiate interest rates and conditions like repayment terms on your behalf. If you find yourself in a power of sale situation, look for an alternative lender that works with one of these brokers or is one themselves.
These experts can provide you with the money through a second mortgage or other type of loan to halt a power of sale process. These alternative lenders will look at the equity you’ve built rather than more stringent requirements like a credit score.
Of course, any mortgage agreement should be reviewed by the right legal team to identify items like unfavourable clauses, and potential risks.
Real estate professionals Jonathan and Ron Alphonso offer private loan solutions. You can reach either of them at 416-499-2122 or by email at ron@powerofsalesontario.ca. Find out more from mortgagebrokerstore.com and powerofsalesontario.ca.
jonathan November 26th, 2024
