If you’re buying a home for the first time, there will be a lot of new things to learn and understand, and a mortgage is probably the first that you’ll want to wrap your head around:
What is a mortgage:
In its simplest terms, a mortgage is the loan that you’ll use to purchase your first home. Similar in many ways to other loans, an amount is borrowed, and a rate of interest is paid to the lender Then, over a predetermined number of years, the loan must be repaid.
Lenders throughout Canada frequently offer two types of mortgage: open and closed. Open mortgages enable you to make extra payments on the principal and give you flexible options to pay it off in its entirety, but they are often only available on a short-term basis, such as for 6 months, up to a year. Closed mortgages don’t offer such flexibility, but usually have lower rates of interest than an open mortgage with similar terms.
How do you qualify for a mortgage:
Each type of mortgage will have its own minimum standards that you must be able to meet if you’re to qualify for it. There are many types available, with banks proving a popular lender for many; your mortgage broker is best qualified to advise you on which would best suit you and your financial circumstances.
What sort of down payment should you make:
When you’re buying your first home, you’ll need to put a payment down; this is best thought of as being part of the home purchase price that you’re not having to borrow from the bank, and is aptly called a ‘down payment’. The type of loan that you choose will determine your minimum down payment.
How high will the mortgage interest be:
Mortgage interest rates are separated into two parts, and the first part of your mortgage rate is linked to whichever loan program you have opted for. When your mortgage broker helps you choose a loan, they will talk you through the interest payments.
When do you have to pay the loan back by:
The term of a loan is the number of years until it must be paid back in full, and as the mortgage borrower, the term of your chosen loan is up to you. Most loan terms have a span of 30 years, but there are other options including a 10-year term, 15, 20 and 25-year terms. Again, you can discuss your options with your bank and/or mortgage broker.
Short-term loans are beneficial in that their rates are typically lower and of course, the loan gets paid off quicker.
What will your monthly mortgage payment be:
Monthly mortgage payments are based upon three things: the amount of money that you have borrowed from a lender, the interest rate of your mortgage, and the term of your mortgage.
If you have a fixed-rate mortgage, you can use the figures that you get from the above 3 factors to calculate your monthly payments using what is known as a ‘mortgage calculator’. This payment will then remain the same for the duration of your loan.
If you’re buying a home for the first time, it’s vital that you understand how your mortgage works in order to choose the best mortgage and rate, for you and your personal circumstances. Your broker will advise you how, and if you qualify for a mortgage, and run through all the options with you in detail.