What is a property mortgage and how does it work.

Let me start of by telling you a bit about us.  Carey and I were 22 and 21 when we bought our first home.  We were engaged to be married, right out of school.  We bought our house from a builder.  And we didn’t have a clue about anything we were doing. We told a family member we bought a house, they congratulated us and said,” Welcome to mortgage city".  I responded by crying and saying, “What did we do?”  If I look at my oldest son, who is now twenty one, I am sure he would not have any more of a clue than we did.  I am sure this stand true for most first time buyers.

When you are ready to buy your first home in Thornberry Woods, Vaughan, Thornhill or anywhere else in Toronto, buying a first home should be an exciting time not a scary time.  Understanding the terms and how things work makes all the difference. 

What is a mortgage?

 A mortgage is the amount of money you borrow from a bank or mortgage broker (lender).  You pay it back slowly with interest (a sir-charge).  The amount of money you have saved is your down payment.  The amount of mortgage or loan that your need is the Purchase price (cost) of the home you are buying plus the other closing cost (which I will talk about later) less your down payment. This amount you have to be able to afford.  Getting pre-approved is finding out the amount of money you can afford to pay back on a monthly or weekly bases at a set rate of interest added on.

What does it mean to get pre-approved for a mortgage?

When you get preapproved, you take proof of income to a lender and they use formulas to figure out how much you can afford to pay a week or month on your mortgage.  They figure it out based on your GDR (gross debt ratio) and your TDR (total debt ratio).  Your GDR is your income divided by the amount of interest, principle and property taxes (government taxes on the home) which should be less than 30%usually.  Your TDS includes interest, principle and taxes plus all other fixed expenses i.e. car loans, student loans, etc.  This should be less than 40% usually

How does the mortgage work?

A mortgage has a Term which is the length of time you are borrowing the money for.

The amortization is the number of years it would take to pay off the amount of the loan (principle).

The interest rate is the premium amount added to the loan as a cost to borrow the money.

When you borrow money and pay it back over a period of time (the term); in the beginning your payments pay off a small amount of the loan (principle) and a larger percentage of interest.  The more payments you make, the principle goes up. The longer the amortization period, the longer the loan will take to pay off.  However, the longer the amortization period, the lower your payments will be, because you have a longer time to pay off the loan.  Having a mortgage also means that the lender of the money becomes a part owner on the title of your property until you pay it off.

What are the different types of mortgages?

A fixed mortgage is a mortgage that is set for a fixed term or time and at a set rate of interest.  This means that the amount that you have to repay every month or week will not change for however long the term of your mortgage is.

A variable mortgage means the amount of interest added to your mortgage changes as the interest rates change.  

A blended mortgage is a combination of both

An open mortgage means that the rates are set and the term is set, however you can pay extra payment whenever you want or you can pay off your mortgage whenever you please.

A convertible mortgage means that your mortgage can be moved from one property to another.

With the cost of a buying a house you may have the cost to arrange your mortgage which is usually added to the principle amount.  You may also have legal fees, moving expenses, taxes (land transfer taxes) home inspector etc. 

We have a folder available with more information free of change.