Q1. What is a Mortgage.
A mortgage is a loan from a Bank or a Financial Institution to purchase a real property such as a home, building or land. Mortgage can be obtained from financial institution e.g. Banks, Credit Union or Private lenders. In Canada banks provide mortgage loans to people with good credit or borrowing history.
Q2. What is the typical duration of years the loan has to be paid back ?
The mortgage loan are available for up to 30 years, however 25 years amortization is most popular.
Q3 What is the process of getting a mortgage ?
The purchaser should provide a down payment which is typically between 5% - 20% of purchase price of the property. Remaining amount is provided by the bank at a particular interest rate.
Q4. What does the monthly payment comprise of ?
The purchaser has to provide a monthly payment to the bank which consists of Interest+Principal.
Q5. What is the term of the mortgage ?
The mortgage agreement or contract or term is valid for typically 5 years (can be shorter 1 year or longer 10 year). After term expiry the customer can redo the mortgage with the existing lender at the posted interest rate which is prevalent then or get a new mortgage from any other lender.
Q6. What is mortgage penalty ?
There is a penalty charged to the borrower by the lender, in case the borrower wants to end the agreement before the term expiry. All these clauses are mentioned in the mortgage agreement, and the transaction is executed by a lawyer or a public notary.
Q7. What are the term types of an mortgage ?
The term can be closed i.e. the contact cannot be broken without penalty before the term ends, and also can be open, where the borrower can end the contract anytime without penalty. However the open term mortgage rate is higher.
Q8. What is mortgage insurance.
For customers who provide < 20% down payment will need to get their mortgage insured from CMHC (Canadian Mortgage), and the cost is added to the mortgage.
Q9. What are the type of interest rates of a mortgage ?
The mortgage can be fixed interest rate or variable rate. In fixed rate mortgage, the interest rate that is decided at start of the mortgage will remain the same till the end of the term, even if the prime rate (or the rate set by Bank of Canada) changes.
In variable rate mortgage the interest component of the monthly payment can change, keeping the total payment amount same. i.e. if the prime rate increases, bank will take greater percentage of the monthly payment towards interest and less for principal. Generally variable rate mortgage are preferred, however if the interest rates are expected to rise, fixed rate makes sense.
Q10. Where can I see mortgage rates ?
The available mortgage rates are published through bank sites or broker sites. One of them is the ratehub.