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It’s about time your money starts working for you
Whether you’re curious about real estate investments or simply looking for homeownership, it’s worth learning the basics.
The vast majority of Canadians don’t have all the money needed to buy a home in cash. A mortgage is a loan that helps you finance the difference between what you can pay up-front and what you need to borrow from a lender. Payments cover interest on the loan plus part of the principle.
Plan in advance with an advisor so when it’s time to begin looking for your home, everything will be lined-up.
Look at purchasing another property to add to your passive income at retirement. Meet with an advisor to discuss your options.
Help get access to some of your money for home repairs and renovations.
Areas mortgage lenders look at to determine how much you qualify for:
Understanding the fundamentals can help you make the best informed decisions about your mortgage.
Down payment
Your down payment is the amount of money you put towards the purchase of your home. The more money you put upfront, the lower and more manageable your mortgage payments will be. The minimum down payment can be as low as 5%, but if you can put 20%, you’ll qualify for a conventional mortgage and won’t need to purchase mortgage default insurance through CMHC.
Minimum down payment based on the purchase price of your home
| Purchase price of your home | Minimum amount of down payment |
|---|---|
|
$500,000 or less |
5% of the purchase price |
|
$500,000 to $999,999 |
5% of the first $500,000 of the purchase price |
|
$1 million or more |
20% of the purchase price |
Mortgage term
A mortgage term is the length of time your mortgage contract is in effect. This includes everything your mortgage contract outlines, including the interest rate. Terms can range from just a few months to five years or longer. You may want to choose a longer-term when interest rates are low so your monthly payments stay the same, and a shorter-term if interest rates are high or falling so you can renew at a lower rate. .
Amortization period
An amortization period is the length of time it would take to completely pay off your mortgage in full based on your payments and a certain interest rate. A longer amortization period means that you will pay more in interest. Conversely, a loan with a shorter amortization period would result in less interest paid at the end of the period. The maximum amortization period for high-ratio mortgages is 25 years.
Payment Options
The most common payment options are monthly, bi-weekly, and accelerated bi-weekly. Accelerated programs will save you money in interest over the length of your mortgage, and can pay down your mortgage sooner. In some cases, you can make lump sum payments towards your principal to help build equity and overall reduce interest.
Open mortgage
An open mortgage helps you with flexible options to increase your mortgage repayments, either increasing your regular payments or by making a lump sum. The interest rates tend to be higher due to this flexibility and could be ideal if you’re optimistic you can pay off your mortgage sooner.
Closed mortgage
A closed mortgage on the other hand limits your prepayment options but usually offers you a lower interest rate. A closed mortgage cannot be prepaid, renegotiated or refined before the end of the term without having penalties to pay. There are some exceptions to the rule. Some closed mortgages allow you to make prepayments each year of a certain percentage of your mortgage.
An advisor can help with everything you need to know about planning for homeownership, so all that’s left for you to do is find your dream home.
