Mortgage in Canada- Learn How it Works

Before you plan to buy a new home, find out how mortgages work in Canada. Not does every Canadian have the money to pay the full purchase price of their dream home! And that’s why they take loans or mortgages to afford the cost of their dream home. The process includes borrowing money from banks and other financial institutions and then, slowly paying off the amount borrowed with interest.
It might sound simple but there are many considerations that must be taken care of before one applies for a mortgage in Canada.

Here is a guide that will help you in understanding how the mortgage works in Canada.

1.   Prepare your Down Payment
It is important that you have enough money to make your down payment while purchasing a house in Canada and that must be paid up front. The percentage of the down payment can vary from lender to lender. But in general, homebuyers must be able to pay 20% of the home price as a down payment.

2.   Get Pre-Approved before Applying for Mortgage
Before you apply for a mortgage, it is essential that you get pre-approved for it. This way you will be able to find out how prepared you are to take the responsibilities of homeownership and hence, you will be able to set a more realistic budget. In order to get pre-approved by a lender, you will be required to provide the lender with some documents.

3.   Find out which Type of Mortgage is best for you
There are Open and Closed Mortgages, open terms allow the mortgage borrower to pay off the entire mortgage without any penalties and the closed terms have some penalties attached to the final payout. There are also Variable and Fixed Mortgages that exist within these terms. A fixed mortgage rate will remain the same for the defined period or term. For a variable rate the fluctuation of BoC (Bank of Canada Rate) may affect the rate and therefore the mortgage payment per month. Both mortgages can be paid off sooner by utilizing prepayment privileges. With open mortgages there are no restrictions and On the other hand, a closed mortgage offers you a lower interest rate but at the same time, limiting how much extra money you can add to make faster mortgage payments. You can also be charged a penalty fee if you want to make prepayments that exceed the limit.

4.   Time you can take to Pay off your Mortgage Completely|
The amortization period is the time that you take to pay the principal amount of the loan along with the interest. It is usually between 10 and 25 years for insured mortgages and the monthly payments you will be making, depends on the amortization period you choose. A longer amortization period is available for uninsured purchases or refinances and it means more interest to be paid.

Getting a mortgage in Canada is not easy. But if you know the right procedure to do it, the task will get a lot easier. Make sure that you compare different options before choosing the one for you. There are many online comparison platforms that you can use to make a comparison. RateShop.ca is one of those platforms that gives the borrower a better picture of their options for mortgages.