Looking for the perfect mortgage? What is a mortgage?

In common usage, we refer to a mortgage as a loan secured by real assets. In the case of residential mortgages, a mortgage is generally secured by your principal residence. A mortgage is a debt but from an investment perspective, mortgages are viewed as assets. A bank, trust, insurance company or private lender that holds a mortgage is in an enviable position since a mortgage generates a huge amount of interest income over its life or "amortization period".

The contract for a mortgage is spelled out in a Charge/Mortgage of Land document and is usually supplemented by a Schedule from the financial institution or individual that grants you a mortgage. Finally, the documents will include a Standard Charge Terms Form, which clearly states exactly what the responsibilities of the mortgagor and the mortgagee are.

The documents that are involved with a mortgage will require your signature and they deserve your attention. You owe it to yourself to make a point of understanding what they say. Fortunately, since changes to the Land Registration Act, the Standard Charge Terms document is required to be written in Plain English. This means that the document must be written and worded in such as way as to be understandable and easily comprehensible to everyone, instead of just lawyers. It is to your benefit to thoroughly read and review your documents when you apply for a mortgage or renewal.

Family Law and the matrimonial home

When a married couple purchases a home, it is important to remember that whether it is purchased in the name of only party singly or by both of them together, where it is occupied as "the Matrimonial Home", special rules apply. These rules may vary from province to province and you should be clear about what they are comprised of in your own jurisdiction.

Generally, these rules dictate that neither partner can mortgage or sell the property without the consent of the other. This means that even if the house is purchased in the name of only one partner, both will still be required to sign the mortgage documents. Usually, an institution will suggest that each party receive independent legal advice ("ILA") so that everyone is clear about what is being done and to allow each party the opportunity to independently examine whether they wish to enter into the contract.

It cannot be overemphasized that it is important for each person to understand clearly all aspects of any transaction having to do with the conveyance of land (including mortgaging) and that each person enter into any transaction freely and with full knowledge of the consequences. This becomes especially important when considered in the light of the following section.

Non-payment of mortgage debt

Because of the difference between mortgages and personal loans, the institution, which makes the mortgage loan, has certain recourse open to them in the event that a mortgagor falls behind in his payments.

First of all, every mortgage contains a "Power of Sale" clause which permits the mortgagee to sell the property that secures the mortgage loan in the event that payments are not made in a timely manner.

This realization clarifies that fact that the mortgagor has assigned most of his rights in the property to the mortgagee. The mortgagee is presumed to have the right to dispose of the property in the event of nonpayment however if this happens, he must do so at a "fair market" price. The mortgagee may also be subject to legal action if he disposes of the property without advertising it widely and listing it for sale on the local Multiple Listing Service (MLS) offered by all real estate boards.

Regardless of this however, the fact remains that the mortgagee is presumed to have this right and there is very little that a financially strapped mortgagor can do to prevent it. Under these circumstances, it is as well for the mortgagor to cooperate fully since the mortgagee can also request possession of the premises from the court if the mortgagor is preventing or attempting to hinder the sale process.

In this context, it can be seen that it is of great importance for each party to the transaction to have independent legal advice prior to entering into the mortgage agreement. If a spouse does not receive such advice, they can (and occasionally successfully do) claim that they were not fully informed of the legal implications of the mortgage agreement.

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