Home buying can be both daunting and a thrilling venture, especially when you’re a first-timer. The mortgage process can be complex, time-consuming and costly if you decide to dive in carelessly. Finding a home and securing a mortgage can be both challenging and rewarding. Each situation is unique and the process will vary by individual. 

If you have mortgage questions in your mind right or having qualms whether to dive in or not, we’ve provided you this guide so you would have the basic knowledge to navigate the path through your first ever home purchase.

First, what is a mortgage? 

A mortgage is a loan you’ll use to purchase a home or property that’s given by a lender. The mortgage loan is usually repaid in regular payments that generally include both the principal and interest.

Factors essential for mortgage loan approval

For you to give mortgage lenders the assurance that you are capable to pay punctually, these factors are needed for approval:

  • Your monthly income: This plays a big role in the approval of your mortgage. Lenders are very concerned with your ability to repay your mortgage loan. Documents such as payslips and federal tax returns for two years need also to be provided. These will serve as your proof of employment. The bigger the monthly income is, the higher the possibility that you’ll be able to repay, and that’s a good indicator for lenders. 
  • Your credit score: Your financial activity is represented by your credit report. It will show lenders how you are currently handling your accounts and debts. This will declare if you have been paying your bills consistently or if you have hit rough financial blotch. Getting a pretty good interest rate is your aim and an excellent credit score is a must-have.
  • Your GDS (gross debt service ratio): The percentage of a person or household’s gross monthly income that goes to pay the mortgage principal and interest, property taxes and heating costs, plus 50% of any condominium maintenance fees.
  • Your TDS (total debt service ratio): The percentage of a person or household’s gross monthly income that goes into paying the mortgage principal and interest, property taxes and heating costs, plus all other debt, such as car payments, personal loans or credit cards.

How much does a mortgage cost?

To answer it quickly, it varies. The interest rate alone is not enough to measure the total cost of a mortgage. Consider these other expenditures that your home purchase payment affects:

  • Downpayment: The portion of the home’s purchase price that is not financed by a mortgage loan. In order to qualify for a home loan, most lenders need a minimum of a 20% downpayment. By investing upfront with a downpayment, you are giving the lender the assurance that you’re financially plowed into the property. In short, with a downpayment, you have the ability to start your mortgage.
  • Interest: Is the cost of borrowing money. Interest is usually paid to the lender in regular installments along with repayment of the principal amount
  • Principal: The amount of money a person borrows for a loan (not including any interest).
  • Property tax: Tax that’s charged by the municipality based on the value of the home. Sometimes, the lender will collect property taxes as part of the borrower’s mortgage payments and pay the taxes on behalf of the borrower to the municipality.
  • Property (or fire) insurance: Insurance that protects the owners in case their home or building is damaged or destroyed by fire or other hazards listed their policy.

What are the mortgage types?

Many mortgage options are available in the marketplace but knowing which one of them would suit your needs can be the cherry on top. Here are some types of mortgage to help you make a better choice:

Open Mortgages – A flexible mortgage loan that lets a borrower pay off or renegotiate their loan at any time, without having to pay penalties. Usually, open mortgages usually will have a higher interest rate than closed mortgages.

Closed Mortgages – Usually, a closed mortgage can’t be renegotiated or paid off before the end of the term without the lender’s permission and a financial penalty. Some closed mortgages allow for extra or accelerated payments, but only if specified in the mortgage agreement.

Fixed Mortgages – A mortgage with a locked-in interest rate, meaning it won’t change during the term of the mortgage.

Reverse Mortgages – A reverse mortgage is a loan that allows you to get money from your home equity without having to sell. You may be able to borrow up to a certain percentage of the current value of your home. The maximum about you will be able to borrow will depend on your home’s appraised value, your age and your lender.

No payment is required until the loan is due. This is usually when you sell your home or the last borrower dies. As a result, you will have less equity in your home and the longer you go without making any payments, the more interest you will owe.

How Daisy Can Help?

Daisy Raouph understands that her clients’ needs are unique and home buying is a dream for everyone. That’s why her goal is to provide stellar service and to make their homeownership experience less chaotic and complicated. As a licensed professional, she serves them to all extent, may it be financial advice or hand in hand guidance through the mortgage process. Daisy ensures that each gets the assistance they need to avoid the pitfalls of the home buying process.

Beginner's Guide to Mortgages, Mortgage Broker in Greater Toronto Area, Canada

Daisy Raouph, CLU, CHS, specializes in mortgage financing solutions and financial services. A Mortgage Broker and Financial Security Advisor with over 30 years of experience in financial services. Contact us today to review your mortgage financing options. We can help!