How do mortgages work?

Mortgages are loans you take out to buy real estate or turn your home equity into cash. Once approved, you repay the loan according to specific terms that include interest rate, payment amount and timeline. These details are set out in the mortgage document. Your lender registers a charge on your property. If you can’t repay the mortgage, your lender can take possession of your property and sell it to collect any money you owe them.

How much of a down payment will I need?

The down payment usually represents between 5-20% of the total price of the property.

What is the difference between High Ratio Mortgage Insurance and Mortgage Life Insurance?

High Ratio Mortgage Insurance protects the lender against payment default by the home buyer. It is required by most lenders if the home buyer has less than 20% down payment. An insurance premium will apply. Mortgage Life Insurance protects your dependents and loved ones in the event of your death.

When the mortgage lender pays the Property Taxes, how are payments calculated?

The estimated amount of your Property Taxes can be added to the mortgage payment and paid on your behalf at the appropriate times. Depending on the balance in your tax account, it may be necessary to increase or decrease the amount of monthly payments to reflect the timing of Property Tax payments.  Please Note: Tax information consists of general comments only, for full details see the applicable legislation or review with your advisor.

What’s the difference between mortgage amortization period and mortgage term?

Mortgage amortization period is the length of time it takes to pay off a mortgage, including interest. It may be between 5 and 30 years, depending on how much you can afford to pay. For a new mortgage, the amortization period is usually 25 years. Mortgage term is how long you commit to your mortgage rate, details and conditions with a lender. When a term ends, you pay off the mortgage or renew it for another term if your lender agrees. Terms range from 1 to 10 years, but 4- to 5-year terms are most common.

How is interest calculated on my variable-rate mortgage?

To calculate interest on your variable-rate mortgage, you need your outstanding principal balance, current mortgage rate and payment frequency. Multiply the outstanding principal amount by the mortgage rate in effect at the time. Divide that result by 365. Multiply by the number of days in the payment period in which that mortgage rate was in effect. Interest is also calculated this way in leap years. You pay interest on your regular payment dates. If you have a fixed-rate mortgage, interest is compounded semi-annually, not in advance.

What’s the difference between a fixed-rate mortgage and a variable-rate mortgage?

If you have a fixed-rate mortgage, your interest rate and monthly payments stay the same for the entire mortgage term. If interest rates go up during the term, you’re protected because your rate stays the same. If you have a variable-rate mortgage, your interest rate changes when a specified financial index (such as CIBC Prime Rate) changes. Your mortgage agreement explains how and when your interest rate will change. Your regular payments may stay the same. But if interest rates go down, more of your payment goes towards the principal. If rates go up, more of your payment goes towards the interest.

What’s the difference between an open mortgage and a closed mortgage?

You can prepay an open mortgage, in part or in full, without a prepayment charge. Open mortgages usually have higher interest rates than closed mortgages. But open mortgages are also flexible. If rates start to increase, you can easily switch to a closed mortgage. If you prepay a closed mortgage before the mortgage term ends, you’ll pay a prepayment charge. For example, for a fixed rate closed mortgage, the charge is usually the greater of 3 months’ interest or the interest rate differential (IRD). For a variable-rate closed mortgage, the charge is usually 3 months’ interest. Closed mortgages usually have better interest rates than open mortgages.

How do I cancel my mortgage default insurance?

You can’t cancel mortgage default insurance.

Is a home equity line of credit (HELOC) the same as a mortgage loan?

No, a HELOC is not the same as a mortgage loan. With a mortgage loan, you receive funds on a certain date and pay them back according to your mortgage agreement. A HELOC is a line of credit that lets you access up to 65% of your home’s appraised value. You use the funds you need and pay them back. Both a HELOC and a mortgage loan are secured by a registered charge on the title to your property.

What is a credit score?

Your credit score is one of the factors lenders use when they consider you for a mortgage. It’s a number that signals your financial health at a specific time. It also gives information about your financial past, and how consistently you pay off your bills and debts.