All about mortgages

A detailed look at mortgages and associated definitions

When it comes to getting pre-approved, you can choose a mortgage broker who will look at the rates and terms across several financial institutions or you can choose a mortgage representative from your current bank who will work with that bank's rates. With either choice, they will ask you for your financial information, which includes proof of income, amount available for downpayment, all of your assets, and any liabilities.

Your lender's job is to review your situation and determine the amount of a mortgage you qualify for and then lock in an interest rate. Your pre-qualification period is typically for 90-120 days, so if you do not find your home during this time you will have to renew your agreement, which will typically be the going interest rate at the time your locked in rate expires. There are many options available for mortgage terms, and can often be confusing. It is your mortgage specialists job to help and guide you through the process, so don't hesitate to ask them questions.

You will have to choose a mortgage term that works for you. This is the time frame that you pay your mortgage at a specified interest rate, and can range anywhere from 6 months to over 10 years. If interest rates are low now and you worry they will go up, locking in a longer term for 5-7 years may be a really good option. Alternatively you may choose a shorter term mortgage if interest rates appear to be falling which would allow you to take advantage of lower rates while giving you more flexibility to lock in and convert to a longer term when you feel more comfortable with the going interest rate.

The amortization period is the length of time it takes for you to pay back your mortgage in full. Remember, the longer the amortization period the more interest you will be required to pay however that also means you will have smaller monthly payments.

Mortgage rates can be fixed or variable. A fixed-rate mortgage is a mortgage where you must pay the same amount every month over the entire loan, regardless of changes to going interest

Mortgages can be open or closed. An open mortgage is a mortgage that you can repay at any time without a pre-payment penalty, which is great if you are commission based like me and income fluctuates. The extra money you have can be used against the principal, which would really reduce the time it takes to repay your loan in full. To note however, interest rates are typically higher with open mortgages. A closed mortgage has the advantage of lower interest rates, and have a cost for pre-payment though some options may have pre-payment of up to 20% per year.

Payment terms vary, you can choose to pay weekly, bi-weekly, or monthly. Monthly means 12 payments per year, bi-weekly is 26 payments per year, and weekly is 52 payments per year.

Mortgage deeds may need to be insured depending on the size of the downpayment you have. A conventional mortgage is one where the mortgage loan is 80% or less of the lending value of the property and requires no insurance. High ratio mortgages on the other hand are mortgage loans that are higher than 80% of the lending value of the property, and do require insurance. That's because there is a higher level of liability associated with high ratio mortgages and thus must be insured against default by the Canada Mortgage and Housing Corporation, Genworth Financial, or Canada Guaranty.

Pre-qualification certificates typically last around 90-120 days, so if you don't find the right home during that time you will have to renew your agreement at the now current interest rate.

Once you have put in an accepted offer, you simply send the agreement of purchase and sale and a copy of the listing to your mortgage specialist and they will then convert your pre-approval into an actual mortgage. They may require further documentation, but I will be there to help you with all of that.