- If the payments are about the same, you will be further ahead financially by making payments on a mortgaged home rather than paying rent on a house or apartment.
- Paying down your mortgage is like earning the interest that you are paying on it, tax free.
- Making no attempt to repay a mortgage is the worst thing that a borrower can do.
- The size of mortgage that you qualify for will be greatly affected by the level of your debt at the time of your mortgage application.
- When renewing your loan or selling your house, look for options and features that afford you with the maximum amount of flexibility.
- The faster you pay down your mortgage, the sooner you will have extra capital for investments.
- Look for a mortgage that offers the best prepayment privileges.
Mortgage application steps
The loan and mortgage process is a stressful and sometimes frustrating process. The idea is to make the entire process go as smoothly as possible. What is most important? Be prepared before you sit down with your loan officer. Here are some things you can do to help ensure successful results, as well as give you some control over your own loan process.
Take time to Straighten out your finances. If you don’t have a grip on what’s coming in and what’s going out (and where, and why), you may be in for a rough time when you apply for a home loan.
Make sure to check your credit record.
There are two credit bureau in Canada. There are Equifax and Transunion. You can visit their website http://www.equifax.ca/ or http://www.transunion.ca to check your credit records. Everyone’s heard the horror stories: Your best friend, your sister, neighbor, goes to buy a home only to discover the worst… that the credit report contains negative or inaccurate credit information. Instead of having a clean record, he or she has an $80,000 outstanding bill, that is not their own. The loan officer looks at the outstanding bill and gives you a choice: Clean up the credit problem or no loan. Some choice. And you’ve probably heard how difficult it is going to be to get your credit history cleaned up. Maybe so, but it’s important to try nonetheless. Here’s what to do: First, order a credit report on yourself. You can contact Equifax By phone1 800 465-7166 or online at: http://www.equifax.ca/ and Transunion by phone 1-866-525-0262 or online at http://www.transunion.ca
Choosing a Mortgage Term
Before you look at the issue of term specifically, there are things you should consider:
When you’re looking at term and interest rates, look also at what you can live with in terms of payment amounts, because trying to predict where interest rates are going is a tough job. There are many forces that affect Canadian interest rates - economic, political, domestic, and international.
Even the best economists cannot pinpoint this, so how can we. You can twist yourself into knots worrying what will happen. When the rates dropped in 1992 to their lowest in 35 years, no one thought that they will get that low again. They dropped even further. Since then we have enjoyed low rates and we don’t think of rates going in the double digits again. That’s wrong to assume as well. Who would have thought in 1978 that rates only 3 years later would go as high as 21.5%? Please check the graph below for a historical account.
Types of Mortgages
While a mortgage is fundamentally a loan that is secured against your home, there are many variations to the type of mortgage that can be used for various needs. Based on your goals and risk characteristics there may be a number of different mortgage products that will meet your needs.
Below you will find a sampling of the many different types of mortgages that you may be exposed to. While there are hundreds of other combinations - these are the ones you will most commonly hear about or come across. Trying to figure out which is appropriate for your situation may seem daunting, but we take great care to not overwhelm you during the process. For this reason, one of the first steps in our mortgage process is to arrange a consultation where we can discuss and review your financial goals in detail - and then go over some options of the type of mortgage that may be right for you.
A Pre-Approved mortgage is a Free and No-Obligation deal that lets you know before you go looking for your home or signing an offer to purchase, how much you can afford to borrow based on your qualification and personal credit rating. We’ll arrange for you the most competitive rates with longest rate guarantee period that goes up to 120 days - if rates go higher, your rate will not be affected, and if rates go lower, you get the lower rate. This protection is solely responsible for savings thousands of dollars for many people who obtained a pre-approval and the rates increased afterwards.
Too often in the past, the mortgage was left to the very end, but with our Online Pre-Approval or by simply e-mailing us, we can take care of this important process within hours. Once you are Pre-Approved, you can confidently negotiate an offer on a home. A seller also prefers to negotiate an offer of a purchaser who has been pre-approved. With more lenders, lower rates, and no-cost, no-obligation, make us your choice for your pre-approval.
Additional interest: The amount sometimes charged by the bank when you prepay principal or renegotiate the terms of your mortgage. The amount compensates the bank for loss of revenue.
Amortization: With a mortgage, the borrower agrees to pay back the amount borrowed over a period of time. This breaking of the loan into smaller parts to be paid back over uniform blocks of time is amortization.
Amortization period: The actual number of years it will take to repay a mortgage in full. This period can be longer than the loan’s term. For example, a mortgage may have a five-year term and a 25-year amortization period.
Appraised value: An estimate of the market value of the home and property that the borrower pledges as security for the mortgage. This value may be more or less than the purchase price of the property.
Assets: The things of value that you own, such as your home, car or summer home.
Below prime: A in which the interest rate varies with money market conditions. At any given time, however, the rate will never exceed BMO Bank of Montreal’s , less 0.375%.
Blended rate mortgage: A mortgage that combines the amount the borrower owes under an existing mortgage with additional mortgage money required by the borrower. The interest rate for the new amount borrowed is a "blend" – or combination – of the interest rate of the old mortgage and the interest rate for the additional amount to be borrowed.
Blended mortgage payment: A regular instalment payment composed of both principal and interest in which part of the money received is applied toward the principal of the loan and part is put to pay the interest. This is the norm for mortgage payments.
What is a mortgage?
A mortgage is a loan that uses a property as security to ensure that the debt is repaid. The borrower is referred to as the mortgagor, the lender as the mortgagee. The actual loan amount is referred to as the principal, and the mortgagor is expected to repay that principal, along with interest, over the repayment period (amortization) of the mortgage.
A mortgage can be used for financing many different things, including:
- Purchasing or constructing a new home
- Purchasing an existing home
- Refinancing to consolidate debts
- Financing a renovation
- Financing the purchase of other investments
- Financing the purchase of investment property
Since a mortgage is a fully secured form of financing, the interest you pay is usually less than with most other types of financing. Many people use the equity in their homes to finance the purchase of investments. Using a Secured Line of Credit, or a fixed-rate mortgage, the interest costs are lower, and they can even write off those interest costs against their taxable incomes.