What is a Mortgage?
When buying a home, most of us will be paying just a part of the purchase price and this is called the down payment. The remaining balance is generally covered by a lender. The lender will provide the loan, which is known as the mortgage. The mortgage is actually a legal contract between the buyer (you) and (your) lender. In this contract you’ll find the specifics of the conditions of your loan. The home or property acts as security against the loan. With a secured loan, the lender has the legal right to take away the property. This may occur if the conditions of the contract are not respected, including making timely payments and home maintenance.
Unlike most types of loans, with a mortgage:
• a property secures your loan
• you my still owe a balance at the end of your contract
• you usually need to renew the contract multiple times to pay off the balance
• you need a down payment
• if you need to break your contract, you will pay a penalty
• your loan is typically for an amount in the hundreds of thousands of dollars
• you may need to meet qualification requirements for a loan approval (like a stress test)
The Mortgage Principal
The amount you borrow from a lender for the purchase of a home is the principal amount. This amount usually includes:
• purchase price of the home minus your down payment
• mortgage loan insurance if your down payment is less than 20% or if your lender requires it
About Mortgage Payments
Mortgage lenders use factors to determine your payment amount. When you make your mortgage payment, your money goes toward the:
• principal amount
• interest
• optional mortgage insurance (if purchased)
• property taxes (if paid through your lender)
Important Mortgage Considerations
• Terms
• Amortization
• Interest Rate
• Types of Interest (fixed vs variable vs hybrid or combination)
• Payment frequency (monthly vs semi-monthly vs biweekly vs weekly vs accelerated weekly vs accelerated weekly)
• Property Taxes
When the market is unique and getting a loan can be daunting or challenging, there are actually numerous financing options to consider. If a conventional mortgage is not possible, there are ways to still purchase the property of your dreams. Additionally, it is also important to be familiar with some of the terminology you make come into contact with when speaking with banks and various lending organizations.
Further mortgage details will be covered in the following post. If you have any queries or are looking for some expert advice, it is highly recommended to contact a mortgage professional. Looking for one? Send me a message and I’ll get you in touch with a few!