The Mortgage Application Process

For many, the purchase of your home is one of your biggest investments you’ll make in your lifetime. Before you purchase your dream home, examine where and what you currently spend your money on. That’s why it is important to review your finances and to understand the process of buying a home. Remember that one of the main benefits of using a Mortgage Broker is their knowledge and access to the entire mortgage market and their ability to negotiate the best mortgage that is personalized to fit your current situation.

Here are the following mortgage decisions that will acquire your attention:

1. Down Payment

A minimum cash down payment will be required when purchasing a home. Using a conventional mortgage, a lender will normally provide up to 80% of the appraised value or purchase price of a property, whichever is less. In some cases, a purchase can be financed up to 95% under a high-ratio mortgage. However, this mortgage type is required by law to be insured against non-payment by the Canada Mortgage and Housing Corporation, Genworth Canada or Canada Guaranty.

At least 20% down payment of the total purchase price (or appraised value) would be ideal to qualify for a conventional mortgage and to be exempted from paying the mortgage insurance premium. With a larger down payment, it will be easier for you to manage a mortgage. You’ll get a lower interest rate and accumulate more equity in your home.

2. Amortization Period

The amortization period is the amount of time it will take for a mortgage to be paid completely.

Having a longer amortization period means your payments will be lower, but the total amount of interest you will pay will be higher. If you can manage a shorter amortization period, it will mean huge savings from paying less interest as well as being mortgage free sooner.

3. Mortgage Term

The term of the mortgage refers to the amount of time you are committed to complete paying a particular type of mortgage. Most mortgage terms run from 6 months to 5 years. The term of a mortgage also dictates the length of time the interest rate will be guaranteed. That means the longer the term, the higher the interest rate is as you will be getting a fixed rate for a longer time period.

Type of Mortgage

Open Mortgage

Allows you to pay off your mortgage either in part or in full, at any time without penalties. This mortgage type is better suited for shorter terms, usually ranging from 6 months to a year and is typically associated with higher interest rates due to its flexibility.

Closed mortgage

Requires you to adhere with the payment schedule specified on the duration of the term, which the option of making a payment towards the principal is at a specified time. If the additional payment exceeds a certain limit or if the loan is repaid in full before the end of the term, a penalty will usually be applied.

Fixed rate mortgage

Has the same interest rate for the entire term of the mortgage and are usually closed. The mortgage payment is also fixed, but the amounts that are put towards interest and principal will vary from each payment. You may consider a fixed rate mortgage if you think interest rates are going to rise and if you prefer having the same payments, rather than differing payments each month.

Variable rate mortgage

fluctuate depending on market conditions. Some variable rate mortgages have a fixed payment for the term, meaning that the amount of the payment applied to the principal will fluctuate with changes in interest rates. Other variable rate mortgages have payment options that will vary depending on the current interest rate. You may consider a variable rate mortgage if you think interest rates will go down and if you’re comfortable with fluctuations in your payments and interest rates. You may also require greater flexibility because of a potential need to break your mortgage term before it reaches full maturity.

Payment Term

Select a payment option that is best for you. Most mortgages allow you to choose monthly, semi-monthly, accelerated bi-weekly or accelerated weekly payments. Accelerated payments will save you interest over the length of your mortgage, so you’ll be mortgage-free sooner.

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