Mortgages 101: Your Top Questions Answered

Mortgage Basics

Written By: Alex McFadyen

 

Introduction

Mortgage Basics Langley

As a potential home buyer, it is important to understand some basics about mortgages to help you understand what you are eligible for and how you can be debt free sooner. Below is a summary of some of the more the more important points, and helpful guidelines to follow in your search.

 

What is A Mortgage??

A mortgage, put quite simply is a loan provided by the mortgagee (the lender) in exchange for interest in your property. As the mortgagor (borrower) once your loan is paid in full the lender will be removed from the title.

 

Whats the Difference: Fixed or Variable?

Fixed

With a fixed mortgage your interest rate is locked in to a specified rate. This provides security in knowing what your payments are and how much will be applied to principal and interest, as well as how much you will be left owing at the end of term.

Variable

Variable mortgage rates also provide a consistent monthly payment, but where it differs from the fixed rate is in how much is applied to the principal and interest. If rates decrease, more of your payment will be applied towards the principal, in the case of a rate increase the amount applied towards interest is increased. 

 

Payments

When you sign the mortgage commitment papers you get to decide how often you would like to pay your mortgage. Your choices are weekly, bi-weekly, and monthly which is a personal decision although most people choose to align it with their specific pay days or other various reasons.  

Pay your Mortgage Faster

There are many ways to pay your mortgage down faster to shorten your amortization and reduce the amount of interest paid. By choosing to increase your payment frequency from monthly to bi-weekly you can decrease the amount of interest you pay on your loan. To make a much more significant dent in your mortgage you should consider an accelerated payment.

Accelerated Payments are half or 1/4 of your normal monthly payment paid weekly or bi-weekly. Choosing to make payments this way can significantly reduce the amount of interest paid over a loan by thousands of dollars.

Other options include topping up or adding an additional amount to your mortgage payment, you may also pre-pay in lump sums agains the principal. 

 

Term & Amortization

The mortgage term is the length of the agreement. The most popular of which is the 5 year term. Your mortgage may be amortized over a long period (usually 25 years or maximum of 30) or with a short term (from six months). After your term expires, the balance of the principal then owing on the mortgage can be repaid or a new mortgage agreement can be entered into at the then current interest rates.  

 

Pre Approval

A Pre-Approval is a detailed analysis of your current financial situation and credit profile. From this information your mortgage broker will help obtain a written pre-approval from your choice of lenders, which along with other advantages, provides you with up to a 120 day rate hold! 

Among many others, here are some great reasons to get pre approved; 

  • It saves you time from looking at homes outside your price range. 
  • It makes your offer more appealing to a seller, if they know you are a qualified buyer. This means they will look at your offer more seriously which can even result in a lower purchase price. 
  • We can get you an interest rate locked in for up to 120 days. This protects you from any rate increases that can happen after you have written and offer but before you close on the purchase. This could save you thousands of dollars in interest. 
  • It provides you with security in knowing you meet the initial requirement

 *A Pre-Approval is HIGHLY recommended before house hunting and is completely RISK FREE!

 

Required Documents

When you decide to apply for a mortgage, there are a list of required documents your mortgage broker will ask for to help complete the process as efficiently as possible.  Click the below link for an article outlining the most commonly requested documents.

> Mortgage Documents Checklist <

 

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