Everything you need to know about mortgages in Canada 

A mortgage is a type of loan used when purchasing a home. A mortgage is often for a large sum of money.  

In general, a mortgage is a contract between you and the company or person who is lending you money. This contract will include all details of the loan Opens in a new window. and the secured property. This means that the lender may have a legal right to take your property and may do so, if you disregard the conditions of your mortgage.  

The length of time your mortgage contract is in effect is known as the mortgage term, which can range from months to years, and it will include the interest rate.  

It’s important to maintain your home and make all payments on time.  

What should you do before shopping around for a mortgage?  

Let’s start with your credit report. Order a copy of your credit report and make sure there are zero errors because potential lenders will want access to it. 

A good credit score can lead to a decent mortgage size. However, a bad credit score can negatively impact your ability to obtain a loan. In fact, if you have a bad credit score, a mortgage lender may refuse to approve your mortgage, approve it at a lower amount or force a higher interest rate. They might even request a co-signer or demand a large down payment. Learn about your credit report and how to build credit history. 

You’ll need to consider your budget and stay within it to qualify for a mortgage Opens in a new window.. When you’re applying, you’ll have to provide evidence that you can afford these payments. In order to calculate your housing expenses and debt load, mortgage lenders will often review the following information: 

• Your credit report and score 
• Any debt you have 
• Your expenses
• Your income
• The time it will take you to pay off the mortgage in full

In addition, you’ll need to have funds available for closing costs, moving costs and ongoing maintenance costs. 

There are a few key differences Opens in a new window. between mortgage lenders and mortgage brokers.  

Lenders will lend money directly to you. You can apply for a mortgage from a variety of lenders such as mortgage companies, insurance companies, banks, credit unions, trust companies and loan companies. Every lender will offer its own conditions and interest rates for similar products, so it’s important to shop around for the right one.  

Brokers won’t lend money directly to you. Instead, they’ll find a lender for you. Brokers have a wider range of lenders and products available to them, so they can offer a broader range of mortgage options. Since every broker works with different lenders, ask which ones they work with when you’re comparing options. It’s worth noting that brokers don’t typically charge a fee for their services because they’re paid a commission from the lender. 

Additional terms for getting pre-approved for a mortgage include mortgage preauthorization and mortgage prequalification. This process can be divided into steps; however, lenders might have different criteria for each step.  

When you’re looking to get pre-approved for a mortgage, lenders will review your finances and personal information, then conduct a credit check to calculate the maximum amount you qualify for, what your payments will look like and an interest rate number. This is an excellent time to shop around and compare offerings.  

It’s important to note that the pre-approval amount doesn’t guarantee you’ll receive a mortgage for that amount. The approved mortgage is actually based on the amount of your down payment and the value of the property. If you don’t want to stretch your budget too thin, consider homes that fall in a lower price range. 

Your mortgage options can impact your interest rates Opens in a new window.. Since mortgages are typically a large amount of money, any small difference in the interest rate can considerably affect your payments. Canadians can choose between two mortgage interest rate types: 

• Fixed Mortgage Rate locks you into a fixed mortgage payment term, often lasting for five years at a time. 
• Variable Mortgage Rate is tied to the lender’s prime rate and can increase or decrease during your term.  

Essentially, the lower your interest rate, the less you have to pay back.