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What is a Mortgage?
Commonly known as a mortgage loan, mortgages are agreements between an eligible borrower and their prospective mortgage lender. In most cases, these agreements are drafted about the purchase of a home or property when the borrower can’t afford to pay upfront. Borrowers simply go to mortgage lenders for mortgages on their interested homes.
While the idea of getting a mortgage sounds enticing, note that the mortgage lenders can repossess a property when a borrower fails to meet the terms of the agreed mortgage.
Who gets a Mortgage?
A large percentage of homeowners in Canada purchase their homes with a mortgage. If you can’t simply afford the full cost of a home, it’s safe and wise to get a mortgage. Anyone eligible for a mortgage can get one anyways.
In some instances, it goes beyond a buyer’s inability to pay the full cost of their dream home all at once. Even when a buyer can afford a one-time payment, mortgage properties enable buyers to seize other financially-lucrative opportunities through investments.
How Does a Mortgage Loan Work?
When borrowers secure mortgages for their homes, a lender funds them with the amount of money needed to purchase the property. Borrowers have to sign agreements that bind them with the payment of the loans with interests over a few years. Legally, mortgage lenders own the homes until the mortgage plan is fully sorted by the borrower.
Unlike other loans, mortgage lenders can easily sell their borrowers’ homes to recoup their losses when they fail to pay. Well, people do not always have to return items they got with credit card payments.
How to Get a Mortgage
The first step to securing a mortgage for a home is getting preapproved by the mortgage lender. This process sometimes requires that a borrower tender proof of funds before they get the mortgage. With the approval sorted out, a borrower can now shop for the right home or make an offer on a house they already have in mind.
After making an offer on the property, a borrower still has to forward the offer to the mortgage lender for approval. The lender needs to review the terms of the offer before financing can be approved to purchase the property.
What are the Parties Involved in a Mortgage?
Three parties should be involved in any mortgage transaction before approval. First, is the mortgage lender who is responsible for financing the purchase of the proposed home. The lender is an integral part of the process because they have to review and access a borrower’s eligibility for getting a mortgage.
The second party is the borrower interested in getting a mortgage loan for the purchase of a home. For the mortgage loan to be approved, the borrower needs a co-signer. In mortgage loans, a co-signer is not just anyone willing to vouch for a borrower’s credibility. They have to be willing to also assume full responsibility for repaying the mortgage if things go south.
Are there Different Types of Mortgages?
There are majorly two categories of mortgage loans; conforming loans and non-conforming loans.
Conforming Loans
These are strictly home loans that are not backed by the Canadian government. Conventional conforming loans like are funded by private mortgage lenders that do not include the government in their operations.
Non-conforming Loans
Private lenders sometimes offer their borrowers government-issued mortgages on their homes. Non-conforming loans are specifically designed to cater to the mortgage needs of low-to-medium-income earners as well as first-time borrowers without credit scores.
What is in a Mortgage Payment?
Depending on a borrower’s mortgage lender, there are often four aspects of every mortgage payment plan. The principal payment, interest, tax and insurance, and mortgage insurance. Every loan’s principal is the amount of money to be paid after deducting the amount already paid on the mortgage.
Mortgage lenders or providers get their profits off interests on home loans. The amount of interest expected should be discussed and agreed upon at the initial phase of the mortgage loan. Most mortgage payments in Canada come with property taxes and homeowners insurance. Except borrowers make at least 20% down payments on their homes, their mortgage payments attract mortgage insurance.
About Mortgage Insurance and Interest Rates
Some mortgage loans charge MIP (Mortgage Insurance Premium) on loans before the loan is issued and on monthly payments. Conventional mortgages generally come with Private Mortgage Insurance (PMI) to protect mortgage lenders. Some mortgage lenders charge funding fees that borrowers have to pay with their principal monthly. PMI is often required on borrowers that pay less than 20% down payment on the property.
Interest rates on mortgage loans show the exact percentage every borrower owes their mortgage lender every month.
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