The most important reason for using a mortgage broker is they are truly the experts in the field. They represent you with the bank or lender and try to get you the maximum amount of mortgage at the best possible rates of interest. They are usually associated with multiple banks and financial institutions offering mortgage loans. They will find a mortgage lender who will offer a loan based on your financial situation. And when you buy a property, you don’t pay the mortgage broker any fees for their services. They save you time by doing the research for a suitable mortgage lender as well as guide you on the process which is complex.
When you are approved for a mortgage, the term of the loans is usually in 5 or 10 year increments. At the completion of a term, if the mortgage is not settled in full, a new term and interest rates are negotiated and renewed. Refinancing is when you decide to swap the existing mortgage deal with a completely different one. In fact, you do not have to wait for the current term of your loan to end before deciding to refinance the mortgage. It can be done at any time. This is a good option when looking to consolidate other high interest rate debt or if you need access to extra funds for renovations or life needs.
Most banks and financial institutions prefer to lend money to customers with good credit. This doesn’t mean people with less perfect credit can’t get a mortgage. The most important factor to a lender is a good, steady income source. They want to ensure you can repay the mortgage installments on time. For borrowers with poor or bruised credit, they will be required to make a larger down payment – likely more than 20% of the purchase price. In addition to this, the borrower may require a co-signor with a good credit score and someone who has a solid repayment history.
The rules for granting a mortgage loan for newcomers are constantly changing. A newcomer to Canada can access a mortgage with a larger down payment, up to 35% of the cost of the property. In addition, they have to prove they can afford mortgage payments for the next 12 months by providing bank statements from a Canadian bank. The amount has to be in the bank account for at least 30 days before they apply for the mortgage approval. The new comer also has to be a permanent resident. Proof of income is required to show repayment is possible and will be made on time. For a self-employed person to qualify for the mortgage, they would need to prove a two year self employment history.
According to the rules, the minimum amount of down payment required is 10% of the value of the property that costs more than 500,000. This amount, is however, limited to the amount over the 500,000. For instance, if the value of the property is $750,000, the down payment will be 5% of $500,000 (= $25,000) and 10% of the balance of $250,000 (= 25,000). Therefore, a total down payment of $50,000 is required.
If you have good credit and require a conventional loan (a loan that is not insured) you are required to put a 20% down payment. However, you can put as little as 5% down payment if you insure the mortgage with default insurance. If you have poor credit, this won’t be an option and you will be required to put a larger down payment – likely more than 20% depending on your circumstances.
The total amount of time a borrower takes to pay off the mortgage loan is known as the amortization period. If the borrower is able to pay the loan off in a shorter amount of time, he will pay a lesser amount towards interest as compared to repayment over a number of years. However, by opting for a longer amortization period, the monthly repayment amounts would be smaller than if the loan was paid in a shorter amortization period. As the borrower pays off each installment of the loan, the principal outstanding will reduce.
Default insurance, also known as mortgage insurance, is the most favoured option for people who are unable to afford a large down payment but dream to buy a house. Default insurance not only helps people achieve their dream of owning a home but also protects the lenders in case the borrower fails to repay the loan amount. This insurance is mandatory for home buyers who put less than 20% as the down payment. Default insurance is available for homes valued under one million. The premium depends on the amount borrowed, along with employment details, type of property and the cost of the home. It is important to note this is not mortgage life insurance, and does not cover the mortgage loan in the event of death.
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