Whether you are planning to buy your first home, your family is upgrading or downsizing, or you are considering a second mortgage, knowing what to expect from your new home purchase can go a long way towards your decision-making and financial stability.
Here are answers to a few of the basic questions you may have about mortgages before you make your next purchase:
What defines a mortgage?
If you are like many homebuyers, you may not have all of the funds needed to buy a house in cash up-front. A mortgage is loan that allows you to buy a property without paying the full value all at one time. In order for you to obtain a mortgage loan, a lender will require that the property be held as security until the balance is paid.
How does pre-approval work?
You may have heard the term “pre-approval” during your initial home search. Obtaining this document is an important step in the process. Your pre-approval tells you how much you can potentially borrow from a lender, so you can avoid looking at homes out of your ideal price range.
It is important to note that pre-approvals (or pre-qualifications) are generally valid for a period of 90 days and do not always guarantee the ability to get a mortgage loan or secure your interest rate. A lender may also require a co-signer or guarantor.
What is a down-payment and what is the principal?
In general, a home purchase requires a down payment from the buyer. Not only does the down payment serve as an act of good faith, but it also helps to reduce the total amount of the mortgage loan owed. Mortgage loans are repaid by the borrower with interest, and therefore mortgage payments include the principal amount borrowed for the purchase, plus the accrued interest on the loan.
What factors affect the amount of interest you have to pay?
Mortgage interest rates are constantly being updated, and it is important to ask about this factor as you shop for a home. Additionally, the amount of your down payment will affect the total amount you must borrow, and therefore may reduce the total amount of interest you will pay back over the life of the loan.
What is a conventional mortgage?
A conventional mortgage is one for which a homebuyer’s down payment is 20% or more of the purchase price. Homebuyers who pay less than 20% are considered to have high-ratio mortgages.
When does one need mortgage insurance?
High-ratio mortgages require mortgage insurance so that the lender is protected if a homebuyer is unable to make their mortgage payments. Mortgage insurance is different from a homeowner’s insurance policy.
At BlueRock Wealth Management, we believe that working with a professional to help understand your options and how a mortgage can impact your overall financial outlook is important. For that reason, we have partnered with BRM Lending to ensure that all of your finances are taken into account when seeking a mortgage. If you’re considering buying a new home in Collingwood, Ontario, contact us today for an assessment on how this step impacts your financial plan, and we can direct you to BRM Lending and their Mortgage Agents to discover all of your options and the one that will serve you and your family the best.