TRENDING BASIC MONEY MANAGEMENT TIPS
TRENDING BASIC MONEY MANAGEMENT TIPS
Mortgage 101: What You Should Know
A mortgage is a loan used to buy a home. If you’re currently in the housing market and considering a mortgage, it’s important to understand the unique rules, regulations, and terminology involved in the process. Learn about key mortgage terminology, shopping for a mortgage, getting pre-approved, paying your mortgage, and more in this guide.
Know your mortgage lingo
To fully understand the mortgage process, it’s important to know the key terminology you’ll come across as you research and shop for your home loan. Here are some top definitions to know:
Mortgage Term – Your mortgage term is the length of time of your mortgage contract. Terms can range from six months to 10 years and must be renewed until your mortgage is paid off.
Amortization – The amortization period is the length of time if takes to pay off your mortgage. If you’re down payment is less than 20%, the max amortization period is 25 years.
Down Payment – This is the amount of money you’ll pay upfront. In Canada, the minimum down payment depends on the purchase price of the home.
Mortgage Loan Insurance – If you put less than 20% down, you’ll have to buy mortgage loan insurance. This protects your mortgage lender in case you can’t make your payments.
Interest Rate – The interest rate is the fee your lender charges for your loan. A higher interest rate increases your mortgage payment. You can negotiate the interest rate with your lender or shop around to find the best deal. You’ll renegotiate your interest rate with each mortgage term.
There are different types of interest rates, including fixed interest and variable interest. Fixed interest rates stay the same the entire mortgage term. A variable interest rate can increase or decrease depending on the current prime interest rate.
Shopping for a mortgage
Now that you know all the key terms, you’re ready to start shopping for your mortgage! It’s important to do research and compare your options from different lenders. Most mortgage lenders provide a pre-approval process that lets you lock in an interest rate for a certain number of days. They can also let you know how much you could qualify to borrow and even estimate your monthly payments. You can get pre-approved with more than one lender, which will help you compare your options. This can save you money and help you make the best decision for your needs. To get pre-approved, you’ll need to provide the lender information about your assets, income, debt, and more.
You can also shop around when it’s time to renew your mortgage. Contact other lenders and mortgage brokers to see what they can provide. You can even use any offers you receive to negotiate with your current lender. You may need to provide proof, so be sure to have this information ready.
Paying your mortgage
So you’ve learned all the lingo, shopped around, and found the best mortgage for you. Congratulations! Now it’s time to pay it back. Here’s what you need to know.
- You may be able to pay off your mortgage early. Check if your contract allows you to increase the amount or frequency of your payments or make a lump-sum payment. Talk with your lender to determine your options.
- If you find yourself in a financial crunch, you may be eligible for a mortgage deferral. This is an agreement between you and your lender that allows you to delay your payment for a set amount of time. These are determined on a case-by-case basis, so you’ll need to check with your financial institution.
- Once you pay off your mortgage, your lender still has a legal interest in the property. A mortgage discharge is the final step. During this process, the mortgage is removed the title of your home. You’ll also need a mortgage discharge if you change lenders or sell your home.
Choosing a mortgage and buying a home is an important financial decision that will impact you for years to come. Make sure you’re prepared to make the best decision by learning the lingo, shopping around, and getting pre-approved.