Mortgages can be obtained through your current financial institution or through a mortgage broker. I always recommend shopping around to find which is best for your situation. Your current financial institution already has the information needed for pre-approval and pre-qualification making the process easier and can provide overall financial advise. Unlike a bank, a mortgage broker has access to a broader amount of mortgage products provided through many different lenders and they are specialized in mortgages. I am able to connect you with either financial institutions or mortgage brokers who are part of my trusted network of professionals.
The first step many buyers take is to seek out a mortgage pre-approval from their mortgage broker or financial institution. A pre-approval will give you a rough estimate of how much money you can borrow based on information you provide about your assets, income and liabilities. Be aware that this is an informal process, and does not guarantee or formally approve a mortgage for the amount you pre-qualify for, but it does give you a good idea of how much lenders are willing to give you.
Mortgage pre-approval is a formal process in which the lender will investigate and verify your credit, financial and employment information to confirm you can qualify for a mortgage. Pre-approval is important to have prior to house hunting, as it will strengthen your position and ability to make an offer once you find your dream home.
Open versus Closed Mortgage
An open mortgage allows you to repay the mortgage fully or in part anytime during the term with out additional penalties or repayment costs, and the term is usually shorter than a closed mortgage like 6 months or a year. This flexibility does come at the price of higher interest rates, but are ideal for those expecting to be able to pay off the whole mortgage from an inheritance or sale of another property just as an example. A closed mortgage remains unchanged for the entire length of the term; they usually offer lower interest rates and different options to pay down a specified lump sum amount each year. If you are not planning on selling your home for the length of term, or pay off the mortgage in its entirety a closed mortgage could be the right fit for you.
Fixed vs. Variable Interest Rates
A fixed rate mortgage means that the interest rate does not change throughout the entire mortgage term. With a fixed rate, your monthly payments will remain unchanged making budgeting easier and will pay down a specified amount of principle each year. A variable interest rate means the interest rate will fluctuate with the markets throughout the entire mortgage term. Variable interest can provide flexibility and are appealing when interest rates are on their way down. Typically your mortgage payment will remain the same, but the amount paid on the principle and interest will fluctuate.
Short Term vs. Long term
Mortgages are in terms that can range from a few months to five years or longer. When the term ends the lender will offer a renewal agreement, though it is wise to investigate what other options are available in the market. Choosing term length is entirely depend on what best suits your needs and lifestyle. If you are purchasing a property and will most likely move in a few years, a shorter term like 3 or 5 years that’s portable may be your best bet. Also consider interest rates when deciding length of term, as they are difficult to predict in the long term.
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