When you buy a home, you may only be able to pay for part of the purchase price. The amount you pay is a down payment. What you have to know about mortgage. To cover the remaining costs of the home purchase, you may need help from a lender. The loan you get from a lender to help pay for your home is a mortgage. A mortgage is a legal contract between you and your lender. It specifies the details of your loan and it’s secured on a property, like a house or a condo.
With a secured loan, the lender has a legal right to take your property. They can do so if you don’t respect the conditions of your mortgage. This includes paying on time and maintaining your home.
Unlike most types of loans, with a mortgage:
- your loan is secured by a property
- you may have a balance owing at the end of your contract
- you normally need to renew your contract multiple times until you finish paying your balance in full
- you may have to meet qualification requirements including passing a stress test
- you need a down payment
- you may need to break your contract and pay a penalty
- your loan is typically for an amount in the hundreds of thousands of dollars
When you shop for a mortgage, your lender or mortgage broker provides you with options. Make sure you understand the options and features. This will help you choose a mortgage that best suits your needs.
This includes your:
- mortgage principal amount
- amortization
- payment frequency
Your Mortgage Term
The mortgage term is the length of time your mortgage contract is in effect. This consists of everything your mortgage contract outlines, including the interest rate. Terms can range from just a few months to 5 years or longer.
At the end of each term, you must renew your mortgage if you can’t pay the remaining balance in full. You’ll most likely require multiple terms to repay your mortgage.
The length of your mortgage term has an impact on:
- your interest rate and the type of interest you can get (fixed or variable)
- the penalties you have to pay if you break your mortgage contract before the end of your term
- how soon you have to renew your mortgage agreement
How Your Mortgage Amount is Calculated
The amount you borrow from a lender for the purchase of a home is the principal amount.
This amount usually includes the:
- purchase price of the home minus your down payment
- mortgage loan insurance if your down payment is less than 20% or if it’s required by your lender
Mortgage lenders use factors to determine your regular payment amount. When you make a mortgage payment, your money goes toward the interest and principal. The principal is the amount you borrowed from the lender to cover the cost of your home purchase. The interest is the fee you pay the lender for the loan. If you agree to optional mortgage insurance, the lender adds the insurance charges to your mortgage payment.
Buying or selling a home is the biggest transaction most of us will ever go through! For more tips, information and free evaluation to help you sell your current home or buy a new one contact:
CANADA GEM REALTY Inc., Brokerage Office: 416 888 9494
Website: www.CanadaGemRealty.ca