The purchase of a home is one of the biggest decisions and significant financial investments a consumer makes. It is extremely important that you do your research and educate yourself on key mortgage terms in order to make an informed decision about what mortgage product is best for you.

Different consumers are at different stages in their lives. They have different mortgage needs and there are many mortgage products to choose from. The best result will occur when you work with a mortgage professional who can offer sound, professional advice and a mortgage solution that matches your needs and circumstances. Above all, you need to be comfortable with your mortgage choice.
a

Pre-Approval / Pre-Qualification

It is important to obtain a pre-approval or a pre-qualification for the amount of money you can borrow from a lender and avoid looking at homes that may be out of your price range. The pre-approval process usually guarantees a rate for a period of 90 days while a pre-qualification will not provide a rate guarantee . In some cases, a lender may ask for a guarantor to provide additional security for the lender. A Guarantor is a party who signs the mortgage documents along with the borrower, but who does not have any interest in the ownership of the property.


What is a Mortgage?

Few people can come up with the entire amount of money required to pay for the cost of a home and require a loan to finance the purchase their home. The lender will require the property as security in order for the borrower to obtain the loan. The security of land is referred to as a mortgage. A mortgage loan allows individuals to buy property without paying the full value all at once. The mortgagor is the person borrowing money, the mortgagee is the lender of the money.

When negotiating the amount of your mortgage loan, you should be aware that you will most likely be required to provide a down payment, which is the money you put towards the purchase price of your home. The amount of your mortgage loan is determined by the purchase price of the home less the amount of your down payment. As with all loans, a mortgage loan must be repaid by the borrower with interest. There are different types of repayment methods which make up the different kinds of mortgages available.

Like all loans, regular payments made over time go towards paying down the mortgage. These payments are made up of two parts – one part goes towards paying the principal (the amount of money borrowed) and other part goes towards paying the interest (the fee charged for borrowing the money.)

The more money you can put down, the less you will have to borrow, and the less interest you will have to pay over the length of the mortgage.

If you have a down payment equivalent to 20% or more of the purchase price, you will have what is called a conventional mortgage.

If your down payment is less than 20% of the purchase price, you will have what is called a high-ratio mortgage. A high-ratio mortgage must be insured to protect the lender. This insurance is called mortgage default insurance. It protects the lender in case the borrower isn’t able to repay the loan.

Canada Guaranty, Canada Mortgage and Housing Corporation (CMHC) and Genworth Canada offer assistance to first-time home buyers who do not have a lot of disposable funds for a down payment. Ask your mortgage professional for more details.

Consumers     Mortgage Basics   Overview - What is a Mortgage