You are someone who wants to take control of your financial future. We can help get you there.
At our office, we are enthusiastic about mortgage education and keeping you informed throughout the process. Having a basic understanding of mortgages and how they work can set you up for success and financial health down the road, and can also help you understand additional types of loans. Below you’ll find a basic overview of the terms you should know before you apply for a mortgage.
A pre-approval is an in-depth review of your current financial situation and will include: the amount you’re approved for, what your monthly payments would look like at that amount as well as an interest rate that has been secured for up to 120 days.
When you get a pre-approval, make sure that it is an actual pre-approval and not a pre-qualification; the latter is less comprehensive and will not secure an interest rate for you.
Your mortgage term is the length of time your interest rate is guaranteed for a mortgage (the most popular mortgage term is 5 years). Once this term is up, you are required to renew your mortgage. This is a great time to speak to a broker about your options, as switching to a new lender with a better product or lower rate would not involve a penalty at this time.
Your amortization is the entire life of the mortgage loan. If your payments and interest rate remained the same, this is how long it would take you to pay off your mortgage completely.
A fixed rate (and your mortgage payments) will stay the same until your mortgage term is up.
A variable rate, on the other hand, will fluctuate according to your lender’s prime rate. Prime rate is generally based on the overnight lending rate set forth by the Bank of Canada (which is announced 8 times per year).
A mortgage commitment is the same as a mortgage approval. This is a contract that outlines the terms of your mortgage, as well as any conditions you might need to meet before your mortgage is fully approved. Your broker should go through these conditions with you and help you gather the documentation necessary to meet them once the commitment is received.
Mortgage insurance (commonly referred to as CMHC fees) is insurance that protects your lender - not you - in the case that you are unable to make your mortgage payments. This type of insurance is required for any mortgage where you put less than 20 percent down on the property.
Condition of Financing Date
Your condition of financing date is the day by which you need to have mortgage financing in place for the property you are looking to purchase (which means you will need to meet all conditions outlined in your mortgage commitment before that date). When your condition of financing is removed (your Realtor® will help you with this), this means there is a firm sale and your offer is no longer dependent on whether you are financially approved.
Want to learn more about this important date? Take a look at our recent condition of financing blog post.
If you have any questions about the mortgage process, we would be happy to help! Simply leave a comment below or contact our office and one of our certified Mortgage Brokers will reach out to you shortly.