Understand The A To Z Of Home Mortgage Canada
One of the determining factors of home mortgage loan is the interest rate. The rate of interest will decide if the loan is affordable or not. Therefore, if you are looking for home mortgage Canada then shop around for quotes from different mortgage companies in the market. Get quotes for the rate of interest applicable on the loan amount. While you are at it, you should be familiar with the different terminologies. We shall throw light on some of the most important terms used in the lending business.
Interest Rate – Rate of interest is the price you pay for borrowing money. The rate of interest may be fixed or adjustable. In fact, there are several variations under the adjustable interest rate. Let us understand the fixed interest rate. As the name suggests, the rate of interest remains fixed throughout the tenure of the loan. Different companies may offer different interest rates. However, the difference may not be huge. It is a marginal difference. Nevertheless, even a marginal difference in the interest rate can help you save a lot of money over the years. Therefore, a 0.5 % difference is also good enough in the long term. A fixed interest rate is determined according to the current market conditions and various indices. When you shop for a home mortgage Canada, this aspect should be given prime importance. The other type of interest rate is the floating or adjustable interest rate. In this case, the rate of interest changes periodically or it is subject to the fluctuations in the market conditions. The adjustable interest rate can be high or low, there is no guarantee of the interest rate.
Principal Amount – It refers to the total amount of money borrowed by you. The interest rate will be charged annually on the principal amount. As discussed above, the rate of interest will depend on the type of interest you choose, fixed or adjustable. For the purpose of repayment of the loan amount, the interest will be calculated and broken into equated monthly installments. These installments would include a part of the principal amount plus interest. With each payment, your borrowed (principal) amount will reduce every month and you will clear your debts. You can get in touch with home mortgage Canada if you have some plans of buying a new home or a second home.
Closing Costs – Closing costs are fees that you will have to bear when you take a mortgage loan. This is an additional expense and we suggest you have some cash on hand to meet these expenses. Typically, closing costs will include loan origination fee, Escrow deposits for taxes, appraisal fees, Title Company closing fees, inspection fees, notary fees, miscellaneous fees like underwriting, wire transfer etc. Be prepared to bear these fees and taxes when you avail yourself of a mortgage loan.
Down Payment – This is the amount that you will pay in cash to the seller of the home. Down payment is the difference between the loan amount and the sale price of a home that you wish to purchase. The amount of down payment can be anywhere around 5% to 15% of the total sale value. The home mortgage Canada bank has no role to play in the process of down payment.
Good Faith Estimate – Good faith estimate is often referred as GFE and it is a process wherein lender provides a GFE to the borrower, i.e. the customer. The Real Estate Settlement Procedures Act regulates it. Good faith estimate is a document that includes the itemized list of fees and other costs associated with a home loan for home mortgage Canada. The lending company provides it within three business days of applying for a loan. However, it may be noted that good faith estimate is merely an estimate of the expenses. The actual expenses or the closing costs may be different.
Mortgage Broker – Mortgage broker is an agent or a broker who can assist you with home mortgage Canada. A broker acts like an intermediary and who sells loans on behalf of a financial institution. Often a mortgage broker is confused with the lending company. A broker will sell mortgage products of various companies and is not restricted to one company. They can guide you with a good product that suits your needs. Since a broker has tie ups with different financial institutions, you can compare different products and get the best deal.
Sub Prime Loan – Subprime loan is also known as near prime loan, non-prime loan or second chance lending. They are high-risk loans and often sold separately from the prime loans. This type of loan is suitable for those with a poor credit history. They too can qualify for this loan since it has non-conforming loan limits and interest rates that make it possible to afford the home mortgage for those with poor credit. It should be noted that this loan is not a traditional one and hence very risky.
Apart from being educated about the various terms used in the mortgage loan industry, it is important to remember certain dos and don’ts. Here is a list of some important things that you must remember while opting for a mortgage loan.
- Have some cash on hand for paying other loan related expenses like origination fees, closing costs, underwriting fees for home mortgage Canada. You may have to incur some expenses while availing yourself of a loan and for this purpose, you need cash.
- Do not miss your payments. Ensure that you repay the monthly installments on time, else it will attract other charges like late fees, debit interest etc.
- Do some research about the different products available in the market? Check the rate of interest before finalizing your home mortgage Canada.
- Get yourself pre-approved for a loan. The procedure is very simple; you merely have to fill up a form and share some details like your income data, credit history etc. Getting a pre-approved loan will take away all the hassles of loan application and approval procedures.
- Decide a budget for the loan amount of home mortgage Canada. Do not borrow more than you can afford. Borrowing a huge amount as loan may seem very enticing but you must remember that it is not free money.
- Choose the right type of mortgage loan, one that suits your requirement. There are different types of interest rates, a mortgage broker will be able to suggest to you the best product and help you crack a good deal.