What is a mortgage?
It is a legal agreement between a lender and a debtor in which a financial institution such as a bank lends money with some interest in exchange for the debtor's property, and assets. Canadian Mortgages have some conditions that should be respected else the lender has the right to take the property on which you have got the money. Getting the lowest mortgage rates is not an easy task anywhere around the world. Proper analysis and research should be done.
What are the important things to consider before getting a mortgage?
Your lender or mortgage broker gives you options when you look for a mortgage. If you are First time home buyer, make sure you are familiar with the features and settings. This will enable you to pick the apt mortgage product that meets your requirements. Some of the important components of a mortgage one need to keep in mind are:
- Principal amount
The principal amount is the sum you borrow from a lender to pay for a home. There are several mortgage calculators available on the internet from which you can take help. Application has to be passed through the mortgage pre-approval process. Usually, mortgage amounts contain the following:
- The actual price of the home minus the down payment
- If your down payment is less than 20% or if your lender mandates it, mortgage loan insurance has to be taken.
- Interest Rate
Canadian mortgage rates are flexible depending on the type of mortgage you are taking from the mortgage brokers. For the current mortgage rate, you can take the help of trustworthy sources available on the internet.
2.1 Fixed Interest Rate
Throughout the loan, a constant interest is applicable. They typically exceed variable interest rates in price. Your payments will remain the same during the loan with a fixed mortgage interest rate.
2.2 Variable Interest Rate
Throughout the term, the variable interest rate may rise and fall. Usually, a variable interest rate has a lower rate than a fixed interest rate. Your mortgage payment may vary depending on the interest rates.
You can maintain the same payments for the life of the period if the interest rate is variable. The choice of an adjustable payment with a variable rate is also an option. If the rate changes, your payment will change in size.
2.3 Combination or Hybrid Interest Rate
Fixed and variable interest rates are both present in a hybrid or combination mortgage. Your mortgage is split into two parts: one with a fixed interest rate and the other with a variable interest rate. You are partially protected against rising interest rates by the fixed portion. If rates decline, the variable portion offers some benefits. Terms could vary depending on the components.
- Term and Amortization
The duration of your mortgage arrangement is defined as the mortgage term. Whereas Amortization is a pre-defined schedule created to pay off your debt in instalments. In the schedule, you can see how much money you are paying in principal and interest over a period of time. The term of a loan could be as short as a few months or as long as years. If the remaining debt cannot be paid in full after each term, your mortgage must be renewed.
What are the different types of Mortgages in Canada?
Depending on the flexibility, mortgages are divided into the following types
- Open Mortgages
With an open mortgage, you have the freedom to pay off your mortgage in full or in part at any point throughout the term without incurring prepayment penalties. An open mortgage typically has a higher interest rate than one that is closed.
- Closed Mortgage
A closed mortgage cannot be paid off early, renegotiated, or refinanced without incurring a prepayment penalty.
- Assumable Mortgage
You can take over or assume someone else's mortgage and their property if you have an assumable mortgage. Additionally, it enables someone else to take over your house and mortgage. The original mortgage's terms must be maintained.
How a Mortgage can impact your future?
Mortgage lenders impose penalties for contract violations. In other words, you can owe the lender hundreds of dollars in penalty costs if you sell your house untimely. Also, if you pay off your mortgage early, you would have to pay penalties. If you don't intend to keep your house until you've paid off the mortgage in full, you might require some mortgage flexibility.
So, keep in mind the above points while applying for any mortgage product in Canada or you can contact us for any mortgages services.
