Are you a resident of Canada that is looking to get out of a renting situation and become a homeowner? You may be looking at your options for getting your first mortgage. While the home search part of the process can be fun and exciting while you look at all the different homes you are interested in, the mortgage process can be stressful. This is especially true for those who are applying for mortgages for the first time. However, there are some things that consumers can keep in mind when examining options for mortgages in Canada.
Terms for Mortgages in Canada
In Canada, standard mortgages are considered a five year term that has a 25 year amortization period. This means that every five years a borrower has to refinance the balance of their mortgage; this will occur five times over the life of the loan. At each refinance the borrower may receive a new interest rate on their loan, which can either increase or decrease their monthly payment. Borrowers may also face prepayment penalties if they try to pay off their loan early.
Another thing to consider is that mortgages in Canada can transfer from one home to another. This comes into play if a borrower moves before the five year term is up; the old mortgage will be applied to the new mortgage. If the new home is a higher amount than the previous home the borrower will have to take out another loan for the additional amount.
Canada Mortgage and Housing Corporation Mortgages
Mortgages insured through the Canada Mortgage and Housing Corporation also have specific requirements that borrowers have to meet. The borrower must have at least a five percent down payment for owner occupied properties; 20 percent is required for non owner occupied properties. At the five year refinance point the borrower is able to borrow a maximum of 80 percent of the home value. Borrowers can also take advantage of government backed mortgage insurance if the purchase price of the home is less than $1 million.
Key Terms to Know for Mortgages
There are also some key terms that borrowers should keep in mind when looking for mortgages. Examples of key terms include:
- Blended payment: this payment includes proceeds towards both interest and principle
- Amortization: the total length of time required to repay the mortgage
- Closed mortgage: this type of mortgage cannot be repaid before the end of its term
- CMHC insurance premiums: this is a type of mortgage insurance paid to the Canada Mortgage and Housing Corporation if the borrower has less than a 20 percent down payment
- Gross debt service ratio: the amount of pre-tax income that can be spent on housing expenses
- Vendor take back mortgage: the seller of a property finances mortgages instead of a lender
If you are interested in your options for mortgages in Canada consider talking to a mortgage broker in your area at places like The Mortgage Centre - Northeast Alberta. They can help you determine what will be the best option for your financial situation.