Beginners Guide to Owning a Mortgage

Beginners Guide to Owning a Mortgage

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A Beginners Guide to Owning a Mortgage

Beginners Guide to Owning a MortgagePreviously we talked about the Beginners Guide to Getting a Mortgage. Now that you got your mortgage here is a beginner’s guide to owning a mortgage.

Well, technically you don’t “own” your mortgage. In fact as soon as you get the mortgage you “owe” money to the lender who gave it to you. In this article A Beginners Guide to Owning a Mortgage we will raise awareness about and the importance of managing one of the largest debt’s that you will ever have; a mortgage loan

Mortgage Payment Frequency Options

At the most basic and elementary level, you need to pay back your mortgage on an on-time and regular basis as per the payment frequency you agreed upon with the lender. The Canadian Chartered Banks, Credit Unions, Trust companies, monoline lenders, and others will normally give you the borrower several payment frequency options to choose from; monthly, bi-monthly, bi-weekly, accelerated bi-weekly, weekly, and accelerated weekly.

The shorter between the payment frequency’s the more you are paying the lender back and therefore helping reducing the overall life of your mortgage, called the amortization. As well, the more payments you make, the less interest you pay and more of your payments go towards the principal owing, which in turn, the less you owe in principal the less interest is calculated on the lower principal amount.

We recommend to our clients to consider something in the middle ground. This way they won’t feel the pressure of making weekly payments, and at the same time will be taking advantage of making a little more payments than just 12 a year; the bi-weekly accelerated payment frequency option . The accelerated part means that the lender will increase your bi-weekly payment amount a little more by a certain percentage. For example if your bi-weekly payments are $1,000, then your accelerated bi-weekly could be $1,095. This extra $95 every two weeks can go a long way towards helping you save on interest payments.

Mortgage Prepayment Options

In a beginners guide to owning a mortgage we don’t want to forget telling you about the mortgage prepayment options the lenders give you throughout the year. Depending on which lender your mortgage is with, you are allowed to increase your regular mortgage payments by up to 10%, 15%, 20%, or 25% of the original payment amount.

As well, you are given the option to make a lump sum deposit towards paying down your outstanding mortgage balance. Again, depending on which lender your mortgage is with, you can make a lump sum payment of up to 10%, 15%, 20%, or 25% of the original mortgage amount towards your outstanding mortgage balance. And most lenders permit multiple lump sum payments throughout the year, as long as you don’t exceed the maximum percentages each year.

Although people don’t want to worry about any extra money being paid to the bank during their term with the lender, it is a good idea and a wise one to be mindful of setting aside a set amount each month for making lump-sum payments in the year or at the end of each year. By sacrificing a small amount earlier on in the life of the mortgage you are helping to pay less interest to the lender in the total life of the mortgage. For many borrowers who normally buy their homes at the prime of their life and having job security with a steady flow of income, making extra payments towards reducing their mortgage amount is definitely part of ‘owning’ your mortgage.

Be Wise and Prudent

Beginners Guide to Owning a Mortgage

A beginners guide to owning a mortgage wouldn’t be complete without a mention about being a wise and prudent borrower. Never borrow in excess and beyond your means. You wouldn’t want to put yourself in a situation where in the middle of your mortgage term you are unable to make mortgage payments or the high payment amounts create undue stress on your personal finances. The lenders are flexible and accommodating to a certain extent when it comes to late payments, or missed payments, however, they don’t like to see it happen too often, and certainly not regularly. Otherwise, you could find yourself in a legal mess and at the worst case scenario losing your home.

There are many resources out there, and since this article is a beginners guide to owning a mortgage here is one for your reading. Visit the Financial and Consumer Services Commission of New Brunswick and check out their Saving Money tip, which can help you towards controlling your debts and saving more money towards paying down your mortgage balance.

We always like to hear from our readers relevant feedback and information. What has been your experience with having a mortgage? Would you add anything else in a beginners guide to owning a mortgage?

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Beginners Guide to Getting a Mortgage

Beginners Guide to Getting a Mortgage

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A beginner’s guide to getting a mortgage

In this beginner’s guide to getting a mortgage we will take you through the main steps of applying for a mortgage application. This beginners guide to getting a mortgage will cover the main points that will help you better understand what is involved when getting a mortgage in Canada.

Beginners Guide to Getting a Mortgage

A beginner’s guide to getting a mortgage STEP 1 – find a mortgage professional

We strongly recommend you working with a Mortgage Broker or Agent. They are licensed with their respective Provincial Governments and have met all the required educational standards to become a licensed mortgage broker or agent.

There are many advantages to acquiring the services of a mortgage broker or agent. To name a few;

  1. They work for their client’s best interest,
  2. Mortgages are what they do day-in, day-out,
  3. Because a mortgage broker or agent is not working for any of the lenders there is no conflict of interest for them towards pushing you to one lender or the other,
  4. They constantly stay up to date with the real estate financing world by participating in continuing educational courses and workshops.

A beginner’s guide to getting a mortgage STEP 2 – ‘checks and balances’

Buying real estate is, for most people, the largest single investment they will ever make, and because of this, getting a mortgage should not be taken lightly. Every person thinking about buying their own home whether now or in the future should start planning for the inevitable. What is the inevitable you ask? It is being able to show the lender that you are able to pay them back on a timely manner as agreed upon based on your credit strength and income. And how do you show this in practicality? Lenders such as Chartered Banks, Trust Companies, and Credit Unions follow Government underwriting guidelines, and as well their own internal policy’s, all designed to test how strong or week someone’s personal financial strength is in comparison to their debt level’s to be able to pay back the mortgage loan. To do this the lenders have certain requirements and they ask for information from the borrower when considering whether to approve them for a mortgage loan or not. They want to make sure at minimum the borrower has:

  • Enough income to pay back the monthly principle and interest of the loan
  • At least 5% down payment or more; you can even use gifted money from immediate family
  • A satisfactory credit history and a healthy credit score
  • We also recommend checking your credit report and score regularly, perhaps every year or two at Equifax and Transunion. This is great preparation for when you are ready to apply for a mortgage by making sure there are no discrepancies or fraud activity in your accounts.

Beginners Guide to Getting a Mortgage

That means from now you can start putting aside money each month in your bank account for your down payment and making sure that you have a steady job or income coming in to show the lender that you can afford to pay back the loan. As well, you want to make sure that you are paying back your debt on time, and on a monthly basis, and not be late making those payments.

A beginner’s guide to getting a mortgage STEP 3 – Consult with your Mortgage Broker or Mortgage Agent

Beginners Guide to Getting a Mortgage

Now that you have done your checks and balances, you can contact your Mortgage Broker or Mortgage Agent and consult with her or him about your current financial strength and debt obligations. They will ask you to fill out their mortgage application so that they can better assess your financial health and credit worthiness/readiness to apply for a mortgage. Your mortgage professional will, after reviewing your financial and debt history, ask further questions and give you advice on what steps to take next; whether to continue with your mortgage application or to wait until other matters are taken care of to strengthen and improve your chances of getting approved for a mortgage.

 

This post and its content, we hope, has provided you with the basic information you need when considering applying for a mortgage. Don’t hesitate to Contact Us with your questions, and if you would like to start the mortgage application process. As well, we invite you to share any thoughts you may have about the mortgage application and approval process below in the comments section.

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