Arranging a Mortgage
Arranging financing for your home can often be a confusing process, with many options to choose from. That’s why it’s important to talk to the experts. In this section Cheryl King brings you detailed information on home financing. You’ll find expert advice and the tools you need to make arranging a mortgage an easy and comfortable experience.
Making the Mortgage Decision
By definition, a mortgage is the term used to describe the loan by a financial institution for the purchase of a home. The land upon which the home is built, as well as the home itself, provide collateral for the loan. The cost of the home and lot, minus the down payment is considered the principal, with interest charged on the principal by the lender.
Because the price of a home is usually significant, mortgages are typically financed over a period of between 15 and 35 years. This is referred to as the mortgage’s amortization period. The mortgage’s term describes the period in which the payments are calculated and would typically be anywhere from 6 months to 10 years, depending on your lender. If less than the amortization period, which is typical, the mortgage must be renegotiated with the same or different lender until the mortgage has reached maturity.
The total cost of the loan and the interest is calculated into equal payments divided over the term of the mortgage, based upon the amortization, with most of the early payments going toward interest, and later payments going toward the principal.
While there are several types of mortgages, most common are fixed and variable rate mortgages. A fixed rate mortgage features a fixed interest rate throughout the term of the mortgage. Payments and the interest charged on the principal will not change for that period, meaning less risk for the mortgagee.
A variable rate mortgage retains the benefit of having a fixed payment, however as interest rates increase and decrease, so does the amount of interest paid on the principal. Because there is more risk associated with the variable rate mortgage, often interest rates will reflect this with a lower rate at the time of purchase.
Mortgage Application Checklist:
Before you begin shopping for your new home, it is advisable that you get preapproved for a mortgage, so you know what your budget is.
To ensure your application process goes smoothly, make sure you have the following information:
- Social Insurance Number (SIN #)
- Date of Birth
- Addresses over the past 3 years
Employment information (past 3 years)
- Income Verification Documents (pay stubs, Notice of Assessments)
- Employers address
Personal Banking Information:
- Institution Name
- Account Type
- Account Balance
Personal Asset Information:
- Rental properties
Personal Liability Information:
- Auto Loans/Leases
- Lines of Credit
- Credit Cards
When buying a home there are legal and administrative fees and disbursements. Knowing what to expect can help you prepare a more accurate budget and lead to a more comfortable home-buying experience.