What is a mortgage?
Since most people don’t have the cash available for a home, a mortgage is a loan that can help cover the balance. When you take out a mortgage you agree to pay back the sum at an agreed interest rate.
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How much can you qualify for?
Your mortgage is determined by a formula that includes these factors:
Household annual income
Includes your household’s gross annual income.
Monthly expenses
Includes heat, property taxes and monthly maintenance fees.
Debts
Includes car payments, personal loans and credit card balances.
Down payment
Money saved for your initial payment on the cost of your home.
Qualifying interest rates
You must pass the stress test, along with meeting other criteria.
Helping you finance a home
Buying a home is stressful, whether it’s your first house or a lakefront cottage. Because few Canadians have the cash to purchase a home outright, many will look to acquire a mortgage. This represents a significant investment, so it’s crucial that you’re fully informed and prepared for this major step in life.
A financial security advisor with Freedom 55 Financial can show you how a mortgage fits into your financial security plan.
Mortgage basics
Before we dive deeper into the world of mortgages, let’s go over a few of the key concepts to help you make informed decisions.
Open mortgage
An open mortgage can be repaid in part or full at any time without having to pay a penalty. Because of this flexibility, open mortgage rates tend to be higher than the rates available through closed mortgages. It’s ideal if you’re confident you can pay off your mortgage in the near term.
Closed mortgage
Choosing a closed mortgage means you’re essentially saying that you have no plans to pay off your mortgage in full, or more than prepayment privileges will allow during your mortgage term. A closed mortgage will offer a lower interest rate than an open mortgage, giving you the opportunity to pay less in interest.
Down payment
Your down payment is the amount of upfront money that you put toward the purchase of a home. A larger down payment could mean having a more manageable mortgage. The minimum down payment is 5% but if you can put down 20% or more, you’ll qualify for a conventional mortgage and avoid paying mortgage insurance.
Amortization period
The amortization period, up to 25 years, is the length of time available to you to pay off your mortgage. Longer amortization periods mean lower payments, but they increase the total amount of interest you pay. A shorter amortization period will lead to big interest savings. Plus, you could become mortgage-free sooner.
Mortgage term
The mortgage term is the length of time you commit to a particular type of mortgage. It can range from 6 months to 10 years. You may want to choose a longer-term mortgage when interest rates are low to keep your payments the same. A shorter-term strategy works best if interest rates are either high or falling, so you can renew at a lower rate.
Payment options
Choose monthly, semi-monthly, accelerated bi-weekly or accelerated weekly payments with your mortgages. Accelerated payments will save you interest over the length of your mortgage, and could mean you’ll be mortgage-free sooner. Also, our prepayment privileges allow you to make lump sum payments towards your principal to build equity in your home faster and substantially reduce interest.