After visiting countless houses, you have finally found a place to call home. Now the hard part: figuring out how you will finance the purchase. When you approach a lender about a mortgage, they will ask you to make financial decisions that can impact your ability to pay off the loan, and so it’s wise to know what your options are beforehand. Saskatoon real estate agents, like myself, can provide you with useful advice, and the following is a list of things that every first time homeowner should know.
What is a mortgage?
A mortgage is a loan for property. You use the house as collateral to obtain money under the condition that you pay off the debt within a certain period of time. There are two types of mortgage:
A conventional mortgage requires a 20% down payment based on the purchase price or market value – whichever is less. The loan is thus 80% of the property’s value.
A high-ratio mortgage allows you to make a down payment of less than 20%. However, it requires mortgage loan insurance, the cost of which you will have to pay for by the time your mortgage ends.
What is a mortgage term?
A mortgage term is the length of time you have to pay back the loan as well as the interest rate of the loan. There are several different types of interest rates:
This mortgage interest rate is locked-in and will not change for the entire term.
This mortgage interest rate will fluctuate with market conditions.
With an adjustable rate, market conditions will determine both the interest rate and the mortgage payment.
What is the difference between an open and closed mortgage?
With an open mortgage, you can make a large payment or pay off the entire loan at any time during the term.
A closed mortgage cannot be paid off before the term ends- only in prearranged monthly installments.
What is amortization?
Amortization is how long it will take for the debt to be repaid. Often, mortgages are amortized over 25 years. Longer amortizations mean lower monthly payments but more interest earned.
If you’re thinking about investing in Saskatoon real estate for the first time and have questions about financing a mortgage, please contact me.