A mortgage is likely to be the largest, longest-term loan you’ll ever take out to buy the biggest asset you’ll ever own — your home.
The more you understand how a mortgage works, the better equipped you should be to select the mortgage that’s right for you.
Home Mortgage
A mortgage is a loan you get from a lender to finance a home purchase. When you take out a mortgage, you promise to repay the money you’ve borrowed at an agreed-upon interest rate.
The home is used as collateral. That means if you break the promise to repay your mortgage, the bank has the right to foreclose on your property. Your loan doesn’t become a mortgage until it’s attached as a lien to your home, meaning your ownership of the home becomes subject to you paying your new loan on time at the terms you agreed to.
Mortgage Terms
Here are some common terms you’ll need to know if you’re getting a mortgage:
1- Pre-Qualification:
Prequalification means the creditor has done at least a basic review of your creditworthiness to determine if you’re likely to qualify for a mortgage. Buyers may initiate this process when they submit a prequalification application for a loan.
2- Pre-Approval:
Getting preapproved may be a better indication that you’ll get approved for a mortgage. Neither pre-qualification nor pre-approval are a guarantee that you’ll ultimately qualify for a loan.
3- The Mortgage Stress Test:
The mortgage stress test determines if you’ll still be able to pay your mortgage should interest rates rise.
4- Down Payment:
A down payment is a sum of money that a buyer pays in the early stages of purchasing a property.
5- Mortgage Rate:
This rate is part of what it costs to borrow money from a lender.
6- Closing Costs:
These are fees due at the closing of a real estate transaction in addition to the property’s purchase price. Both buyers and sellers may be subject to closing costs.
Types of Mortgages
There are 3 categories to mortgages when it comes to default insurance: Insured, Insurable, and Uninsurable.
Based on which category you as a borrower, and your property and required mortgage amount falls under, will help determine what rates may be available to you.
Closed and Open Mortgages
An open mortgage lets you repay the mortgage in full at any point during your mortgage term. A closed mortgage has limitations on how much extra money you can put towards your mortgage beyond your regular mortgage payments.
Open mortgage has a higher interest rate than a closed one.
Term and Amortization
Amortization is the length of time it takes a borrower to repay a mortgage. Term is the period of time in which it’s possible to repay the mortgage by making regular payments.
Fixed and Variable
A fixed-rate mortgage stays the same throughout the entire term of mortgage. Your term is the length of your mortgage contract. A variable-rate mortgage fluctuates depending on the prime rate of your financial institution. The prime rates vary mainly according to the key interest rate issued by the Bank of Canada.
What Do Ontario Lenders Look at When Approving You for a Mortgage?
1-Income: You’ll need to be able to prove that your income is sufficient to regularly make mortgage payments.
2-Down Payment: If the down payment funds are from a bank account, the lender will usually want to see a 90-day transaction history.
3-Assets: You’ll need to provide the lender with a summary of your assets, including chequing accounts, savings accounts, TFSAs, RRSPs, non-registered accounts, and vehicles.
4-Debts and Credit: Debts and credit are related to each other. A lender looks at your credit history when evaluating you as a borrower.
5-The Property: The last thing lenders consider is the property itself. This is done by way of an appraisal.
What to Consider When Shopping for a Mortgage in Ontario:
1- Mortgage Rate
2- Mortgage Penalty
3- Mortgage Porting
4- Prepayments Option
Protecting your North York rental property with adequate mortgage is important to ensure the ongoing success of your investment. If you have questions about this or any aspect of owning and managing rental property in Toronto GTA, feel free to call us anytime at 647-985-ZOOD (9663).