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With current lending requirements becoming increasingly tighter, qualifying to buy a home can sometimes be challenging. It is more common in today’s environment to see lenders requesting a larger down payment, or declining clients who have reasonably minor blemishes on their credit. Advanced Private Lending can help alleviate some of these issues by lending the difference or lending to a client when the banks won’t.

The following is a comprehensive list of useful mortgage information for first time home buyers.

Mortgage Basics

Mortgage payments are composed of two elements:

Principal - The amount borrowed

Interest - The cost to borrow the money

The best scenario for any type of mortgage is to minimize the amount of interest, and in turn, pay your mortgage off faster.  There are several options that allow you to accomplish this goal:

  1. A larger down payment - A larger down payment means your home ultimately costs less because a smaller mortgage accrues less interest.
  2. A shorter amortization - Shortens the period over which a loan is repaid.
  3. A weekly or bi-weekly payment schedule - Accelerating your payment schedule can allow you to save money, as you are making more payments per year than you would with a monthly payment.
  4. Lump sum payments - The ability to make additional lump sum payments is a great advantage available with most mortgages. These payments not only decrease your mortgage amount, but your principal and interest payments as well.

Mortgage Interest Rate

Mortgage rates are the cost of borrowing, and the interest on your mortgage loan is paid to the lender. There are two types of mortgage rates: fixed and variable.

A fixed rate is locked in and will not increase over the term of the mortgage.

A variable rate is set each month by the lender, based on the prevailing market rates, and will fluctuate.  Your mortgage payment is fixed to be the same each month for the term of the loan, but the percentage of each payment that goes towards the interest, and the percentage that pays down the principal will change with the rate.

Mortgage Term

The term of a mortgage is the length of time that certain factors, such as the mortgage rate and pre-payment privileges, are set at the level negotiated with the lender.  A mortgage term can last anywhere from 6 months to 10 years.  When the term expires, the mortgage is either paid off or renewed, with the option to renegotiate its terms and conditions.

Amortization

This refers to the amount of time over which the entire mortgage will be repaid.  Most mortgages are amortized over 25 or 30 year periods.  The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay over the mortgage period. Opting for a shorter amortization period is a good way to pay your mortgage off faster.

Open Mortgage

An open mortgage gives you the option to repay the loan, in part or in full, at any time without penalty. Taking advantage of an open mortgage usually means a slightly higher interest rate, but can be a good choice if you are planning to move or upsize in the near future.  Most lenders will allow you to convert to a closed mortgage at any time.

Closed Mortgage

The benefit of a closed mortgage is that it usually offers the lowest interest rate available. However, closed mortgages are not as flexible as open mortgages and there are often penalties or restrictive conditions attached to prepayments or additional lump sum payments.

Mortgage Approval Process

A mortgage approval should take only a few days, but it is best to allow up to 2 weeks.  During this process, the lender will do a credit check and verify the other information you have provided to us in your application.  In addition, an appraisal of the value of your home or property may be necessary.  If required, a request for mortgage loan insurance is submitted to CMHC or a private insurer.  The lender will then make the decision whether to approve your mortgage application.

Mortgage Pre-approval

Obtaining a pre-approval is very common in today’s market, and highly recommended by Mortgage Professionals.  A pre-approval gives you confirmation that your lender approves the amount of your mortgage.  Once your pre-approval has been decided, you are given a written or verbal confirmation for a fixed period of time.  This allows you access to the current mortgage rate for as long as 365 days in some cases.  Although a pre-approval gives you a head start on your search for that dream home, your final approval is still subject to a review of the property and your financial situation at the time of offer.