Mortgages 101

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A mortgage is a type of loan, typically taken out to permit the borrower to buy a property without having to pay the entire amount at the time of the transaction.

A mortgage is secured against the property. This means that if the borrower fails to make the required payments the lender has the right to seize the property and sell it in order to repay the outstanding balance of the loan.

That depends on your situation. If your mortgage is coming up for renewal soon, it can’t hurt to explore your options with a mortgage broker. They can even help you negotiate a better interest rate with your existing lender since renewals are often offered at less than competitive rates.

If you just want to refinance because you saw lower rates advertised online, you will have to crunch the numbers to see if it makes sense to break your existing mortgage in favour of refinancing. An experienced mortgage broker will be able to help you do just that.

Most mortgages are closed, this means you will be making set payments each period with pretty much no flexibility to change anything until the term matures. But some mortgages come with a prepayment privilege built in. This means you have the option to either increase your monthly payments by a set percentage, usually 10% to 20%, or you can make a lump sum deposit once a year, or both.

A prepayment privilege can help you pay down your mortgage faster and pay less interest overall, by paying more towards the principle. But not all mortgages are equal, check with your mortgage broker to see if a prepayment feature is available with your mortgage.

A portable mortgage is a mortgage that permits the mortgage borrower to transfer their balance to a new property with the same lender without penalties. The borrower will transfer the mortgage to the new property with the exact terms that remained at the time of the transfer.

If you plan on moving in the next two to three years but are looking at a five year fixed, closed term for your mortgage, it will probably make sense to seek out a lender that offers a portable mortgage.

When a mortgage is assumable, that means that someone can take over your mortgage if they buy your home, as long as the lender approves. Typically the terms and interest rate stay the same. The buyer agrees to make all future payments on the loan as if they were the one to take it out in the first place.

There are a couple rules when it comes to your down payment. For homes with a purchase price less than or equal to $500,000 the minimum down payment is 5% For homes with a purchase price greater than $500,000 and less than $1 million, the minimum down payment is 5% of the first $500,000 plus 10% of the remaining balance.

So the minimum is 5%, but there is no upper limit to how much of a down payment you can put towards your house. As long as you’re putting 20% or less as a down payment, you will also have to get Mortgage Loan Insurance.

Your employment is a major factor in your ability to get a mortgage. To secure a mortgage, you need to be able to debt service the payments and this means you need to have the income to support everything. In addition to being able to make consistent payments, consistency in your work history and full time employment is seen positively by lenders in general.

In a normal mortgage or home loan, the borrower pays for the house over the years to the bank. Reverse Mortgage is the opposite of a regular mortgage. It is a product primarily designed for retired people who are not able to support themselves but have assets in the form of house properties.
In a Reverse Mortgage, a senior citizen mortgages his property to a lender (bank), which then makes periodic payments to the borrower so that borrower can meet his monthly expenses. Unlike a home loan, the borrower is not required to make regular monthly payments towards principal and interest to the Bank.

In Canada, mortgage insurance is required by federal regulation on high-ratio mortgages – that is, mortgages with a down payment of 20% or less. This insurance is not to be confused with mortgage life insurance which protects homeowners and their families in the event of death or illness.

The average homeowner opts for a mortgage term of 5 years. If your mortgage is an adjustable rate mortgage and your monthly payments are close to the edge of your comfort zone and ability to pay, you may want to opt for a longer term so you can still make the payments in the case where rates go up.

Figuring out the correct term length for your mortgage is a tricky proposition. You have to take into account a lot of variables and that’s why working with a mortgage broker is usually your best option.

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