A mortgage is a loan from an official lender (usually a bank), for the purchase of a property. In Quebec, a “mortgage” is called a “hypothèque”.
What exactly is a mortgage?
A mortgage is a loan that helps you cover the cost of a home, and which is paid back with interest over the course of years or decades.
How do you apply for a mortgage?
Shopping for a mortgage pre-approval should begin even before you start shopping for a home! A mortgage pre-approval is a written statement from a lending institution indicating how much a borrower would qualify for a loan. The determination of the loan amount is based on income, debt, and credit history.
Where to shop for a mortgage
Here are some of the places where a borrower can obtain a mortgage loan:
- Banks - it's always recommended to get a quote from your own bank first, which you can then compare to other lending institutions.
- Mortgage brokers - mortgage brokers will shop around at different banks and lenders to find you the lowest rate and best terms.
- Private lenders - Non-bank lenders will offer mortgages to high risk borrowers- usually ones with poor credit history, at a higher interest rate.
How are mortgage payments calculated?
Mortgage payments are usually paid on a biweekly or monthly basis. Mortgages are split into the following categories:
- Down payment: The downpayment is paid at the act of sale, as a percentage of the purchase price. The higher the downpayment, the lower the monthly carrying costs of the mortgage will be.
- Principal: This is the amount of money borrowed from the lender, which must be paid back.
- Interest: Lenders take a percentage of the loan amount as a lender's fee. This is called the mortgage interest.
What are the types of mortgages?
There are two main types of loans:
- Fixed-rate mortgage: A fixed rate mortgage is a loan in which the total mortgage amount and charges paid each month by the borrower remains the same for the entire term of the loan, or for an agreed-upon part of the term.
- Adjustable-rate mortgages: With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions
A loan term is the amount of time the borrower will take to repay the loan, as agreed upon in the mortgage contract.