What is a mortgage?

A mortgage is a loan of money that is borrowed by a home buyer from a lender (financial institution) to purchase a home. The borrower will be charged interest as a fee from the lender to pay for the loan.

Why do you need a mortgage?

Homes are expensive and most people cannot buy one outright by themselves. A mortgage enables a buyer(s) to purchase a home, while only putting down a percentage of the total price, called a “down payment”.

What is a down payment?

A down payment is the amount of money that a home buyer pays towards the purchase price of a home. For example, if you are buying a home for $800,000 and you have $160,000 to put towards the purchase price, this means that your down payment is $160,000.

How much can you afford?

You need a down payment of at least 5%, however, this does not mean that you can afford any property if you have the 5% down payment saved. All borrowers affordability is based on a calculation of their total assets, liabilities, and salary. These calculations determine if you have enough money and salary to comfortably afford your down payment as well as expenses and mortgage payments. These calculations are called debt service ratios.

What type of approval do I need? Pre-Approval, Approval or Refinance?
Mortgage Pre-Approval:

Pre-Approval comes before a home purchase, it gives a potential homeowner the ability to search for a home with the peace of mind that they can spend to a certain level and have a lender provide them with a mortgage.

Mortgage Approval:

A borrower can only be approved for a mortgage if they have an accepted purchase and sale agreement (aka they have bought a property). Mortgage approval is the step to take when a home buyer needs financing for a specific property at a specific date. A mortgage approval will determine the lender and set out all the terms and conditions of the mortgage, including features and rate.

Refinance / Switching a Mortgage:

For individuals that already have a mortgage on a property but would like to inquire about moving the mortgage to another institution and/or increasing their balance. A borrower would switch mortgages to see if there is a better option for them, orthey would refinance their mortgage to take-out existing equity. Be advised, if a borrower is looking to refinance/switch their mortgage, the maximum amount they can borrow is 80% of the value of their property.

Open vs. Closed Mortgage, What’s the Difference?

Most home buyers will choose a closed mortgage because it offers them a better rate and the key features needed for the average home buyer. Open mortgages are generally used if a home buyer is flipping a house, or about to come into a large amount of money.

Closed Mortgage

Cannot be repaid in full before the end of the borrower’s term without a penalty. However, because they come with a larger breaking penalty, they usually come with much lower rates and better features compared to open mortgages.

Open Mortgage

Enables a borrower to repay their mortgage, in part of whole, at any time without any penalties or notice. Open mortgages are useful if a home buyer knows that they will be moving out within a short period of time, or if they are coming into a large amount of money (such as from a home sale or inheritance) and wants to pay off their mortgage quickly. It is important to note that open mortgages come with a much higher interest rate.

Fixed vs. Variable Rates - What Should You Do?

A fixed rate is a loan where the rate stays the same through the term of the mortgage. For example, if you have a rate of 2.93% on a 5-year fixed mortgage, the rate will be the exact same all 5 years of the term and your payments will not change.

A variable rate is a loan where the rate may change up or down over the term of the mortgage based on market conditions. For example, if you have a 2.7% 5-year variable mortgage, the rate may go down to 2.6% on year 2 and 3, and up to 2.8% on year 4 and 5. Monthly payments will stay the same, however, the amount of interest paid off will change based on the rate.

Buying with someone else or with the help of your parents?
Buying with a Co-Applicant

When you have someone who will also be responsible for the mortgage and will own it along with your property.

Buying with a Cosigner

When an immediate family member co-signs the mortgage but does not have any ownership in the house. This can enable you to afford a more expensive home if the co-signer has the finances and credit to support you.

Buying alone

You will be the only one financially responsible for the mortgage.

Buying alone with a "Gift"

When you are buying alone, but a portion of the down payment will come from someone else (such as a family member). This is money that is meant only for the down payment and is not to be repaid by the buyer.

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