What you need to know about mortgages

To own a new home you will probably be getting the biggest loan of your life!   Let's understand the basics of what a mortgage is and what will work best for you.

First things first, What is a mortgage?

A mortgage is a loan to that you acquire to buy a home.   You need to work with a mortgage broker to secure this loan which is based on your income, debit and credit score.

Where can I find a mortgage lender?

Any bank can work with you to secure a mortgage but there are also a number of companies and individual mortgage brokers who can help you review your credit and look at options for you.   It is always wise to shop around to get the best interest rate.

Fixed Costs, what are they?

Your fixed costs are in essence your household budget.   You calculate how much you spend each month on food, entertainment etc along with any student debt, car payments or loans you are paying on.   It is important to understand this cost so that you are comfortable with the mortgage that you plan to secure for a new home.   

PITH - Principle, Interest, Property Tax and Heat

PITH is a formula that you should work out to determine what it will cost you to live in your future home.   PITH is your monthly housing costs which is your Principle + Interest (Mortgage payment) + Property Tax + Heating Costs.   Your PITH should only be less than 32% of your gross monthly income according to the Canadian Housing & Mortgage Corporation.  

Don't overextend yourself - Get an affordable Mortgage for you.

Once you have calculated your PITH amount, you should then add your monthly household debt to that amount.   It is important to understand that the bank will approve you for a larger mortgage than you may be comfortable with.  It is more important to plan wisely and have extra money in the bank for those rainy days.

How long will it take to pay off my Mortgage?

Now that you have secured a mortgage and have finally purchased your new home, the mortgage payments will begin.   The key components to a mortgage are the interest rate, payment schedule which can be monthly, bimonthly, biweekly or weekly and your amortization period.   Your amortization period is the time it will take to pay back the mortgage in full.  The usual period is 25 - 30 years.

What is the right Interest Rate for me?
There are fixed and variable rates.   Fixed Rates will not change for the term of your mortgage.   If you lock in at 2.25% for the next five years the fixed rate will remain there.   A variable rate can fluctuate with the current markets.  Sometimes the rate will be slightly higher and other times will be lower.

Ultimately the road to homeownership is an exciting one.  Working with a professional mortgage broker and Realtor can help you determine the right price and home for you at this stage in your life.   

I hope I was also to clarify some of the basics concepts of mortgages and look forward to hopefully helping you find a home!

Krista Trask

Krista Trask

CENTURY 21 Seller's Choice Inc.
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