Understanding Mortgages – What Is a Mortgage?

Understanding Mortgages – What Is a Mortgage?

When a person buys a property in Canada they most often take out a mortgage. Which means a buyer borrowing money, a mortgage loan, and using the property as collateral. The borrower must contact a mortgage broker or representative employed by a Hypothecary Brokerage. A mortgage broker or representative must locate a lender willing to lend the borrower the mortgage loan. Island Coast Mortgage near Cape Coral

The mortgage lender is often an entity such as a bank, credit union, trust firm, caissepopulaire, investment firm, insurance company or pension fund. Private individuals often lend the money to mortgage lenders. The mortgage lender will collect monthly interest payments and hold a lien on the property as security that the loan will be paid back. The borrower must collect the mortgage loan, and use the money to buy the property and receive property ownership rights. The lien is eliminated when the mortgage is paid out in full. If the borrower fails to repay the mortgage the lender can acquire the house.

Mortgage payments are combined in order to include the loan sum (the principal) and the borrowing fee (the interest). How much interest a borrower owes depends on three things: how much is borrowed; the mortgage interest rate; and the borrower’s amortization duration, or length of time, to repay the mortgage.

The length of an amortization period depends upon how much each month the creditor can afford to pay. If the amortization period is lower the borrower may pay less in interest. A standard amortization period lasts 25 years, and when the mortgage is renewed, it can change. The majority of homeowners plan to extend their mortgage every five years.

Mortgages are repaid on a regular schedule and are usually “equal” with each installment, or equivalent. Most lenders choose to make monthly payments but some choose to make payments weekly or bimonthly. Often mortgage payments include property taxes which are passed on by the corporation collecting payments to the municipality on behalf of the borrower. That can be done during the initial talks on mortgages.

The down payment on a house in conventional mortgage conditions is at least 20 per cent of the purchase price, with the mortgage not approaching 80 per cent of the appraised value of the home.

A high-ratio mortgage is when the down payment to a house by the borrower is less than 20%.

Canadian law allows borrowers to buy Canada Mortgage and Housing Corporation (CMHC) mortgage loan protection. This is for the lender to be covered if the borrower defaults on mortgage. The cost of this policy is usually passed on to the purchaser and, when the house is bought or added to the principal amount of the mortgage, can be charged in a single lump sum. Mortgage loan insurance isn’t the same as mortgage life insurance that pays out a full mortgage if the borrower or the partner of the borrower dies.

First time home buyers will often obtain a pre-approval mortgage from a prospective lender for a pre-determined amount of mortgage. Pre-approval means the lender can pay the mortgage back without default. The lender must carry out a credit-check on the borrower to obtain pre-approval; request a list of the borrower’s assets and liabilities; and request personal information such as current employment, income, marital status and number of dependents. A pre-approval agreement that lock in a particular interest rate during the 60-to-90-day period of themortgage pre-approval.

There are a few other forms a borrower can get a mortgage. A home buyer often chooses to take over the mortgage of the seller, which is called “taking an existing mortgage.” When accepting an existing mortgage a consumer gain will not have to find new financing when saving money on lawyer and valuation costs, and may get a much lower interest rate than the interest rates offered on the current market. Another choice is for the home-seller to lend money or provide the buyer with some of the mortgage financing for buying the home. This is regarded as a Vendor Take-Back loan. Sometimes a Vendor Take-Back Loan is sold at less than the bank rates.

Robert Cline