Thunder Bay Homes, Mortgage Information

Mortgage Information

A mortgage is a loan that is used to finance the purchase of a house or other property. The property being purchased is considered security to the lender to ensure that the buyer repays the amount of the loan plus interest.

There are many types of mortgages available today. They can range from fixed rate mortgages, where the interest rate does not change, to variable rate mortgages, where interest is determined according to the Bank of Canada rate, allowing the interest to increase or decrease depending on fluctuations in the economy. There are a number of other products which attempt to offer the advantages of the fixed rate with the flexibility found in variable rate mortgages.

Aside from interest, another important factor to consider is the term of a mortgage. You can choose from a short-term mortgage that must be renegotiated each year, or a long-term mortgage where you lock your loan in for up to 25 years.

The first thing you should do is meet with a representative from your financial institution to go over the different options available to you in detail. Your lender will be able to point out the advantages and disadvantages of each product, and provide insightful information on which options are best suited to your current situation and future financial plans.

There are three basic mortgage formats

Conventional Mortgage: In a conventional mortgage, the buyer must have saved a minimum of 25% of the purchase price as down payment. The other 75% of the purchase price or the appraised value of the property (whichever is less) will be provided by the lender.
Insured or High-Ratio Mortgage: In a high-ratio mortgage, the buyer has less than a 25% down payment, which means that the mortgage must be insured. These mortgages are granted under the provisions of the National Housing Act. You can borrow up to 95% of either the purchase price or the appraised value of the property (whichever is less), but MUST insure the mortgage, which involves a one-time insurance premium based on the value of the mortgage. Insurance may be provided by either the CMHC (Canada Mortgage and Housing Corporation) or a government-approved private insurer. The insurance premiums generally range anywhere from 1.25 to 3.75%, depending on the size of the down payment. The insurance premium may be paid up front or added to the amount of the mortgage. There are other factors to consider within this type of mortgage, that your lender can explain in more detail. Some of these factors are: minimum loan terms allowed, maximum amortization periods, allowable purchasers' debt levels, source or the down payment if less than 10%, use of property, etc.
Pre-Approved Mortgage: A pre-approved mortgage isn't actually a mortgage. It is the approval of a lender based on the buyer's application for a mortgage. If you are going to be house shopping, it is a good idea to get a pre-approved mortgage. This will let you know the maximum amount of mortgage the lender will allow based on your finances. This way, you won't get your heart set on a house that is more that a lender will give you.

Other Features

Lenders may add additional features and incentives to their mortgage products to attract more business. Look for a mortgage solution that suits your current finances and your long-term goals. You can choose from many payment structures, which offer flexible monthly plans and pre-payment options, which can actually save you money.

If you would like further information on mortgages, or would like to be referred to a lender, please contact us.

DINO CICCHITANO Broker

Mortgage Information