Your Dream Home Journey
Buying a new home is a big event! Whether it’s a condo downtown, a fixer-upper first home or the home of your dreams, there are few things you might want to consider. We will help you through this process.
It is very important to learn the basics of home financing so that you have better understanding of how your mortgage will work. Use our glossory of mortgage terms to familiarize yourself with terminology used.
Fixed Rate Mortgage
In fixed rate mortgage interest rate on will not change throughout the entire term of your mortgage.
Variable Rate Mortgage
Interest rate may vary from time to time because it changes when Mortgage Prime Rate changes.
An open mortgage allows you to pay any amount toward your mortgage at any time, without having to pay any prepayment compensation for doing so.
A closed mortgage requires you to make set payments at set times and pay prepayment compensation if you want to pay more, renegotiate, refinance or transfer your mortgage before the end of your term.
Conventional / Low Ratio Mortgages
A mortgage where the down payment is equal to 20% or more of the property’s purchase price. A low-ratio mortgage does not normally require mortgage protection insurance.
High Ratio Mortgages
A High-Ratio Mortgage is one where the borrower is contributing less than 20% of the purchase price of the property as the down payment. These types of mortgages must have mortgage default insurance through Canada Mortgage and Housing Corporation (CMHC), Genworth Financial or Canada Guarantee; the three mortgage insurance companies in Canada.
Hybrid mortgage is a combination of fixed and variable rate mortgages. With a hybrid mortgage, part of the loan is financed at a fixed rate and the other part of the loan is financed at a variable rate. The terms for both parts may be different, which may be challenging to manage when it comes to renew the term. It may also be difficult to transfer a hybrid mortgage to another lender. Still, you benefit from stability as well as potentially falling rates.
Another name of reverse mortgage is Home equity conversion mortgage. It allows you to transform the equity in your home to cash while still living in the property. This has been touted as a good option for homeowners who are nearing retirement and who have considerable equity in their homes if they aren’t planning on moving and need to supplement their retirement income.
Portable mortgage is a movable mortgage. It means you can take your current mortgage and apply it to another property if you move. You usually won’t have to pay penalties for breaking your mortgage contract, and you get to keep the interest rate of your current loan without going through the approval process again. This is beneficial if your current mortgage has a lower interest than anything you could get with your new home purchase.
Term of Mortgage
Mortgage Amortization Period
Amortization period is the length of time it takes to pay your mortgage, assuming the same interest rate and payment amount. A common amortization period is 25 years but there are other alternatives. Shortening your amortization period can help you reduce your overall cost of borrowing but it will also increase your monthly payments. So, you should talk to a TD Mortgage Specialist about your options.
A thorough Pre-Approval Process completed up-front, before you enter into a contract is the singular most important step you can proactively take to ensure a smooth loan process.
A pre-approved mortgage tells you:
- how much you can afford
- what your interest rate will be
- how your monthly mortgage payments will look
This isn’t a guarantee of final approval, but it can help you to narrow down your search. It will help you make decisions about affordability, neighbourhood and home type or size.
You do not have to spend your full pre-approved amount. Always consider possible changes such as loss of income, increased expenses or rising interest rates.
Down payments of less than 20%
You can buy a home with a down payment under 20% of the purchase price, but you’ll likely need mortgage loan insurance. This protects banks and other lenders against the risk of mortgage default just like property insurance protects you in case of loss.