Canadian Mortgages 101 – Basic Mortgage Information
First-time Home Buyer Knowledge Base
Whether you are a first-time borrower or not, we have built this Home Buyer Knowledge Base to provide information that will help simplify the mortgage process for you. We cover everything from the importance of interest rates to how the mortgage process works; the terms you need to be familiar with to the types of mortgages you will be choosing from, mortgage insurance to fire insurance, and more.
The Mortgage Process
How the Mortgage Process Works
Few purchases cost more than buying a new home. While there are advantages to owning your own home versus renting, it’s important to understand how the mortgage qualifying process works before entering into this large investment. You want purchasing a home to be a better deal than renting. <<read more>>
Information the Lender Wants From You
Before you can expect the lender to provide financing, you need to supply the lender with information that allows the lender to evaluate your ability to pay. <<read more>>
Reasons to Use a Mortgage Broker
When you understand what a mortgage broker is and what a mortgage broker does for you, you’ll begin to understand the reasons for why you should use a mortgage broker. <<read more>>
Understanding the Costs of Buying a Home
When you buy a home, you enter a new world. Some of the costs associated with home ownership are onetime expenses. Others are ongoing. <<read more>>
The TIPPs Program
Most lenders require borrowers enroll in a TIPPs Program or pay money each month into an escrow account to ensure property taxes remain current. <<read more>>
Important Mortgage Terms to Know
Prepayment Penalties
Some mortgages penalize you if you make extra payments against the principal or pay the loan off before the maturity date for your mortgage. This penalty is called a prepayment penalty. <<read more>>
Prepayment Privileges
Are you determined to get out of debt as fast as possible? Then inclusion of a pre-payment privilege clause will be very important to you. <<read more>>
Portability – Portable Loans
Portability allows you to transfer the terms and conditions of an existing mortgage to a new home. This means you can sell one home and keep the same low rate when you buy the next one. <<read more>>
Assumability – Assumable Loans
Assumability can be beneficial if you want to take over (assume) an existing mortgage that has a lower interest rate than current market rates. Being able to offer an assumable mortgage can make it easier for you to sell your home when you put it on the market. <<read more>>
Rate of Interest
The interest you pay the lender is the cost of borrowing. How much interest you pay is usually controlled by prevailing market interest rates. <<read more>>
How Important Are Low Interest Rates
Mortgage payments aren’t that different from credit card payments. Part of the money you pay goes toward the balance you owe, called principal, and part goes to the interest. <<read more>>
Term
Canadian mortgages are issued for terms of anywhere from six months to 10 years. A borrower may have many terms or only a few during the time the mortgage is amortized. <<read more>>
Schedule of Payments
Your mortgage will require you to repay your loan on a regular schedule. This may be monthly, bi-weekly or even weekly. <<read more>>
Types of Mortgages to Know
Conventional Mortgage
In a conventional mortgage, the amount that you borrow cannot exceed 80% of the lowest value of either the appraised value of the property or the purchase price. A conventional mortgage requires you to put 20% down against the purchase price. <<read more>>
High Ratio Mortgage
As long as you purchase mortgage loan insurance, you may be able to contribute less than 20% of the purchase price of the home. Loans for as little as 5% down and 95% borrowed are available. <<read more>>
Second Mortgage
A second mortgage can be useful when the penalties for breaking any existing first mortgage are high. A second mortgage can also help you free up some cash if a home equity line of credit isn’t available. <<read more>>
Mortgage Options You Need To Understand
Assuming an Existing Mortgage
When you’re able to assume an existing mortgage, it speeds up the home buying process and often saves you money because you can avoid appraisal costs and legal fees. <<read more>>
Vendor Take Back (VTB) Mortgage
You may not have enough money to pay the difference between the asking price of the home and the mortgage you want to assume. When the person selling you the home finances the equivalent of a second mortgage to help you make the purchase, it’s called a Vendor Take Back Mortgage. <<read more>>
Open Mortgage
If you secure an open mortgage, you can make larger extra payments on the loan without having to pay the lender pre-payment penalties. While the interest rate on this type of loan is higher than comparable closed mortgages, there are times when this is the better choice. <<read more>>
Closed Mortgage
This is the least flexible of mortgage types. While the interest is usually lower, fixed, and locked in for the duration of the term, there are usually prepayment penalties attached to the package. <<read more>>
Split or Multiple-rate Mortgage
This type of mortgage divides the principle into different categories. Each category can have a different term and interest rate assigned to it. <<read more>>
