Buying your first home is a very big step that is both exciting and overwhelming. As it is a very large investment, it’s important to have all of the information beforehand so that you’re well prepared.
There are several aspects you need to consider when buying a home, including tax credits and a home inspection, for example. The biggest aspect to think about is the mortgage, which is the loan you require to purchase the home. You can shop around for different rates and see which lender will provide you with approval but the basics of a mortgage will be similar no matter which lender it’s from. You will be required to make payments to the lender and the amount will consist of the principal payment, which is the loan amount, as well as the interest. Other elements like property tax and home insurance can be a part of the payments as well if you bundle them together. Those details will all be discussed with the lending institution prior to receiving approval.
At first, a big portion of the payments will go towards the interest as opposed to the principal, however, as time goes by, this will change and the payments will go towards the principal. This is very common when it comes to mortgages because of the large amount that is being borrowed.
All mortgages will have a term that indicates how long the details and agreement of your mortgage are applicable. A common term is five years, although other options are available as well depending on your situation. During this term, you will be required to make payments based on the rate you agreed upon, which will be either a fixed rate or a variable one. Once you’re locked into either of those rates you will need to make payments accordingly. Your term will also dictate the interest rates you’ll be given as term lengths do make a difference.
Amortization is another aspect you need to be familiar with as it calculates the length of time you’ll be required to pay off your mortgage, including the principal and interest. Twenty-five years is the longest amortization in Canada for insured mortgages. A longer amortization will mean lower monthly payments but keep in mind that means more interest payments. Amortization and a term are different concepts when it comes to a mortgage, so make sure you know the difference and that you’re clear on the details.