WHAT IS MORTGAGE: –
Mortgage essentially is an agreement between borrower and lender wherein the borrower borrows money to purchase a home or property from lender by paying interest on agreed terms and condition over a fixed tenure and till such time the whole money is paid back by borrower the title of property remains with lender. The word mortgage means pledge that either the obligation of paying back by borrower is fulfilled or the lender retains the title to property. In most cases the borrower is an individual or group of persons jointly purchasing a property, or it can be a firm/company formed by various persons. The lender is generally a bank, or a housing finance company. In Canada most of lenders are big Banks like TD Bank. Scotia Bank, RBC Royal Bank etc.
Broadly speaking mortgage are of two types depending upon rate of interest charged: –
Fixed rate mortgage: – The rate of interest remains fixed during the repayment period and your EMI (equated monthly instalment) remains same throughout the tenure of loan.
Adjustable-rate mortgage: – In this case interest rate changes during the repayment tenure depending upon market rates and consequently your EMI may increase or decrease depending upon market scenario.
Choice of mortgage either fixed rate or adjustable rates depends upon the prevailing rate of interest at the time of signing mortgage loan. If you feel the interest rate is too high and is likely to ease in near future, you may opt for adjustable rate. But if you feel that interest rate is quite reasonable, and you do not want to take risk of uncertain future it is always better to go for fixed rate mortgage.
HOW THE SYSTEM WORKS: –
- Since the system requires quite a few paperwork and legwork you generally need the help of a professional aka licenced Mortgage broker who act as a middleman between you and potential lender. In Canada, their services generally do not cost you anything as they bare paid by lenders once the mortgage is finalised. So its important to get Best Mortgage Broker in Ontario. Value plus mortgage is one of them.
- When you plan to purchase a house, or a property and you have already identified one, generally you do not have enough cash to make payment upfront and you approach a lending institution through mortgage broker for arranging a mortgage. However, you need to have enough down payment (generally between 5 to 20 % of total cost).
- After arranging down payment you need to get preapproval before applying for actual mortgage. You need certain documents for preapproval such as proof of identity, proof of income, proof of address and your credit rating.
- Then you need to decide the tenure of mortgage called amortization period depending upon the cost of house/property and your monthly paying back capacity. In Canada, this period is generally between 10 to 25 years.
- Then you need to decide whether you want fixed rate mortgage or Adjustable-rate mortgage depending upon the market situation and prevalent rate of interest. At present bout 65% mortgages in Canada are on fixed rate. You also need to decide your payment schedule whether monthly, fortnightly or weekly depending upon your income.
- If you are going for conventional mortgage (Down payment of 20% or more) the procedure for final approval is simple compared to high ratio mortgage (down payment of less than 20%). In such cases you need to pay high ratio mortgage insurance premium (CMHC).
- Then you need to decide between choosing an open and closed mortgage. In open mortgage you can pay off the mortgage at any time without any penalty. They also allow you to renegotiate at any time. However, rate of interest is generally higher in such mortgage. In closed mortgage the rate of interest is a bit lower, however you do not get same flexibility. You can always discuss about all these with best mortgage broker in Ontario, Value Plus Mortgage.
In Canada, the first-time buyers are given some additional incentive known as FTHBI (First-Time Home Buyer Incentive). The government contributes between 5% to 10% of down payment subject to few conditions, to a first-time buyer through a shared equity program wherein it shares in any increase or decrease in the home value until the loan is repaid. The buyer does not need to repay this amount to Government until full loan is repaid or the home is sold. The eligibility criteria for such program have been modified recently for cities like Vancouver, Toronto and Victoria in order to encourage the first time buyers. If you have any question, you can always reach out to Value plus Mortgage, the best Mortgage broker in Toronto.
