Everyone knows that buying a home is a big financial obligation, so here’s a quick mortgage FAQ for those of you doing it for the first time.
Where Should I Go?
This is often the first questions a first-time homebuyer has about mortgages. With only a little searching you can find countless options and they all look tempting. So, what do you do? Don’t rush, that is the first thing, then decide if you think bank, credit union, private lender or trust company would be the best choice. Sometimes, seeing a mortgage broker will point you in the right direction.
What Is Mortgage Pre-Approval?
A mortgage pre-approval is a process where your lender approves you mortgage at a specific amount ahead of time. This approval is based on several factors and it helps homebuyers know where to look, because they have a general idea of what they’ll be able to afford and what they won’t.
What Is a Down Payment?
Even the most novice of homebuyers has heard the term “down payment” before. Just as it seems, a down payment refers to making a lump sum payment upfront, that will come off the total price of the home. A conventional mortgage requires a 20 percent down payment, while a high-ratio mortgage needs 5 percent.
How Much Can I Afford?
Your pre-approval amount can often give you an indication of how much you can afford, but not always. Sometimes, the lifestyle you want isn’t really possible if you assume a mortgage for that much. Some lenders or brokers have calculators that will help, but it’s really about working out the money in vs. money out and see what number works best for you and your family.
What is a Fixed Mortgage Rate?
A fixed mortgage rate comes with a static interest rate for a specific amount of time, or term. The most common term is five years, and this means you don’t have to worry about the interest fluctuating during that time.
What is a Variable Mortgage Rate?
On the other side, a variable mortgage rate is a mortgage that does not have a rate guarantee. The rate you pay fluctuates according to the lenders Prime rate. Sometimes this is good and sometimes it isn’t, based on which direction that Prime rate moves.
What are Closing Costs?
Closing costs are part of every home purchase, and they are payable after the purchase is finalized. Some of the most common include:
- Legal fees and disbursements
- Title insurance
- Land transfer tax
- Property survey
- Property tax adjustment
Home inspection, moving costs and other miscellaneous expenses like tools and appliances will also be part of the process.
What Do Amortization & Term Mean?
Amortization is the period of time in years that it will take you to pay off your mortgage in full. Term is the length of time your interest rate type (fixed or variable) will last. When the term is over, you pay the balance of the mortgage or renegotiate a new term under the current market conditions.
Author Bio:
The author of the article is Jeremy Benson. He has been writing about finance, mortgage and Canadian law since 7 years. Blogging is one among his greatest passions. Follow him on Twitter@jeremybenson19.
