What is a mortgage?

- A mortgage is a loan given by a bank or other lender to help you buy a home.

- It can allow you to get into a home sooner than if you had to save up for the whole purchase price.

- The house acts as security or “collateral” for the money you are borrowing.

How does a mortgage work when buying a home?

- The buyer uses funds from a mortgage to pay the seller for the property and the buyer repays the lender the borrowed amount, plus interest and fees, over a set period of time (e.g., 5, 10, 15, 20 or 25 years).

- The buyer usually pays the lender generally every month.

- A portion of the payment, the principal, is used to pay down the amount borrowed and a portion of the payment is applied to interest.

- The mortgage is registered on the property with the applicable provincial or territorial land registry office.

- In many cases, the buyer can move into the new home as soon as the closing is complete (contract terms can sometimes specify a later move-in date).

Choosing the right mortgage

- Choosing a mortgage is one of the biggest decisions you’ll make.

- Consult a mortgage specialist for overall guidance and support.

- With fixed-rate mortgages, you have one set-in-stone interest rate for the entire term of your mortgage.

- With variable-rate mortgages, your rate will go up or down based on the prime market rate, set by your bank or lender.

Mortgage term

- The mortgage term is length of time a mortgage rate and other terms and conditions set out by the lender are in effect.

- Typically terms range from six months to up to 10 years.

- At the end of the term, the mortgage is repayable to the lender. However, typically, the terms and conditions can be renegotiated and the mortgaged can be renewed.

Amortization period

- The total length of time it will take you to pay off your mortgage, typically people choose 25 or 30 years amortization periods.

- A longer amortization period usually means lower monthly mortgage payments.

- It can also mean you’ll pay more interest overall because you’re taking longer to pay back the mortgage principal to the lender.

- Note that if you choose an amortization over 25 years, you must have a down payment of at least 20% of the purchase price.