Things You Should Know When You Take Out a Mortgage

There are many things you should know about taking out a mortgage.


Newmarket Mortgage Frequently Asked Questions


What does mortgage mean?

The loan that you make to buy a house or some other property is called a mortgage. The principal refers to the amount borrowed. Each mortgage payment pays off part of the principal plus the interest.

You have custody over the property. However, if you fail to pay the loan and interest according to the terms of the contract, the lender may repossess the property.



Can you pre-arrange a mortgage?


You can pre-arrange your mortgage and get a mortgage pre-approval from a lending institution or a bank. This pre-approval shows you how much you can borrow, the interest rate you have to pay, and the schedule of payments you have to make.



What is the importance of mortgage pre-approval?


Mortgage pre-approval establishes the highest mortgage loan you are qualified to make. You save time and effort in looking for the right property by knowing exactly how much you can afford. You do not waste time looking at properties which do not fall within your price range.


You also facilitate the negotiation process. You or your broker will be better able to formulate a realistic offer for the property you are interested in.


A mortgage pre-approval keeps the proffered interest rate invariable for 90 days. This protects you from rate fluctuations.


When you have a mortgage pre-approval, you go through the home buying process with a sense of confidence and peace of mind.




Are there ways to save on your mortgage?


When you are able to pay off your mortgage sooner, you save money by reducing interest costs. There are several ways to do this.

1. Opt to make weekly or biweekly payments. When you make mortgage payments more frequently by paying on a weekly or biweekly basis instead of monthly, you reduce the interests you have to pay and save money.

2. Opt for a shorter amortization period. Add small increases in the amount on top of the regular payments required. This will shorten the amortization period.



Down Payment


Some types of mortgage depend on the amount of down payment you can make.


Conventional Mortgage



How much down payment can you afford to pay? Can you afford to put down 20% of the purchase price as down payment? If you are, then you should go for the conventional mortgage.


High Ratio Mortgage



If you do not have the required 20%, you will have to go with the high-ratio mortgage. This mortgage requires that you pay an insurance premium. You have the option of paying it in one payment or adding it to the total mortgage amount. The insurance premium amount is determined by the loan you need to make.


Repayment Plans



What are the repayment plans available to you?


Open Mortgage Repayment Plan



You can repay an open mortgage at any time during the mortgage term without having to pay a penalty. The term is usually shorter, ranging from 6 to 12 months. With this option, you can pay off your mortgage in a shorter period of time. The interest rate, however, will be a bit higher.



Closed Mortgage Repayment Plan



You have a longer set term with a closed mortgage. The term may run from six months to 10 years. On the down side, if you opt for a closed mortgage, you have a limited range of prepayment options. You have to pay a penalty if you decide to renegotiate, refinance or pay your mortgage before your term ends.


On the other hand, you get to enjoy significantly lower rates.




Types of Mortgage Rate



Mortgages in Newmarket come in different types:



Variable Rate Mortgage


When you make a mortgage payment, you pay an amount that goes towards the mortgage principal, as well as an amount considered as interest payment.

A variable rate mortgage depends on the prime lending rate. As the prime rate changes, the amount you pay towards the principal is adjusted accordingly. The mortgage rate increases or decreases based on how the prime rate moves.

It is prudent to choose this type of mortgage if you think that interest rates will continue to go down.



Fixed Rate Mortgage



With this type of mortgage, you pay a fixed interest rate during your mortgage term. Your payments are set; they do not fluctuate with the current interest rates.


It is sensible to choose this type of mortgage if you think that interest rates will continue to go up.


Mortgage Lingo You Should Know


Amortization – the number of years it takes for you to pay off your mortgage loan in full.


Appraised Value – an approximate value of the property presented as security for the loan.


Assumption of Mortgage – the transfer of outstanding mortgage from the present owner to a buyer.


Blended payments – a repayment scheme where the amount of the principal and interest stays invariable.


Closed Mortgage – a type of mortgage where you cannot prepay, refinance, or renegotiate without paying prepayment penalty.


Completion Date – the date wherein all documentation is completed and payments made making the sale and purchase of a property final.


Compound Interest – interest charged on the principal as well as on the accrued interest.


Conventional Mortgage – is a loan that does not go beyond 80% of either the purchase price or the appraised value of the property.


Conveyance – refers to transferring the property title from the seller’s name to the buyer’s name.


Default – the inability to pay the installments specified by the terms of a mortgage.


Discharge – refers to eliminating all financial impediments and mortgages on a property.


Leasehold Mortgage—refers to mortgage that is secured on a property lease instead of on property ownership.


Mortgagee – refers to the person or institution lending the money.


Mortgagor – refers to the person or institution borrowing the money.


Offer to Purchase – refers to the legal document formalizing the offer of an explicit price for a particular real property.


Open Mortgage – a type of mortgage that allows prepayment in part or in full of the principal balance without exacting penalties.


Prepayment Option – refers to the opportunity to prepay specific sums of the principal balance. Penalty interest may or may not be charged.


Principal – refers to the balance of your mortgage that is still outstanding.


Term – refers to the period of time in which the mortgage agreement has legal effect. When the term expires, you may renew the contract for another term and renegotiate the rate.


Underwriting Fees – the payments that lenders collect to compensate for the expenses sustained in the lending transaction.



Types of Protection


There are several types of protection you can avail of.


Disability Coverage


A disability rider assures you that even if you become injured, ill, or unable to work, mortgage payments will still be made.


Loss of Employment



A loss of employment rider assures you that if you become unemployed through no choice of yours, your mortgage payments will continue to be made.


Critical Illness


A mortgage critical illness protection settles your mortgage balance in full in case you have a stroke or a heart attack or are diagnosed with cancer.


Mortgage Life Insurance



Mortgage life insurance enables your family to keep your home in case you die before you are able to pay off your mortgage.