A mortgage loan is a debt instrument and a type of loan secured by collateral in the form of real property. Businesses and individuals use mortgages to buy real estate without having to pay the purchase price up front. In French, the term mortgage denotes ‘death contract’ whereby the pledge ends when the real estate is seized through foreclosure or the obligation to repay the loan is fulfilled.
Mortgage financing is the key mechanism to finance the purchase of commercial and residential properties. A basic component of mortgage lending is the security interest of the creditor in the real estate, as a result of which restrictions may be in place on the disposal or use of the property. Restrictions include, for example, the requirement to pay off the outstanding balance before the property can be sold or the requirement to buy mortgage insurance or home insurance. Another component of mortgage lending is the physical residence or property to be financed, with the lender being the mortgagee. Lenders are banks and other financial establishments, along with investors with interest in mortgage loans. Borrowers, on the other hand, are businesses or individuals who create or have an ownership interest in real estate. The two other components of mortgage financing are the mortgage’s interest and principal. Interest is basically a financial charge lenders require for the use of their money. The original size of the mortgage is known as the principal, and it can involve certain costs. The principal amount goes down with repayment. Finally, repossession and foreclosure refer to the possibility that financial institutions seize, foreclose, or repossess a property. This aspect makes mortgage loans different from other types of financing.
Mortgage amortization refers to the length of the mortgage loan. Most mortgages in Canada have a total length of 20 to 25 years. In general, amortization is the elimination of certain liability, in this case a mortgage, within a specified period and in regular payments. The payments made should be sufficient to cover the interest and principal. Payments go mostly toward paying the interest initially but eventually, more and more of the payment goes toward covering the principal. The process through which payments are made to pay the principal and interest is known as amortization. It is a process through which the borrower repays the mortgage loan and owes less debt, making regular payments. The monthly payment amount is calculated in a way to be large enough to repay the loan at its term.
Mortgage rates in Canada differ across different mortgage providers, be it Alberta mortgage providers, Calgary mortgage providers, or other Canadian financial institutions. The interest rate also depends on the type of mortgage – whether it is closed term or open term, for example. Historically, interest rates were calculated at prime less a certain percentage and on an ongoing basis. The prime plus is used today as a benchmark. For instance, if the prime rate in Canada is set at 3.00 percent, holders of a prime plus 0.60 percent mortgage are paying a 3.60 percent interest rate.
Generally, the term mortgage rate refers to the interest rate mortgage lenders charge for advancing mortgage loans. Mortgage rates can be fixed meaning that they remain the same over the mortgage’s term. Alternatively, they can be variable or fluctuating with the benchmark rate of interest.
A fixed rate mortgage in Canada is a fully amortizing loan, which is offered with a fixed interest rate over the term of the mortgage loan. It is a fully amortizing loan in that the principal is repaid within a specified period and according to an amortization schedule. Repayment is usually made through equal payments. The monthly payments (interest and principal) stay the same over the mortgage’s term and regardless of interest rate fluctuations. Thus, interest rates may go up or down, but borrowers know the exact amount of their monthly payments. This makes personal budgeting simple, especially for borrowers who choose a mortgage with a longer term. Canadian borrowers who seek mortgage financing of this type can look into RBC fixed rate mortgages, Bank of Montreal fixed rate mortgages, or the products offered by other banks in Canada.
A variable rate mortgage is a mortgage loan, which provides flexibility, which is the case when interest rates are going down. The interest rate on home loans of this type can be adjusted monthly and usually, the ratio between the interest and the principal fluctuates while the payments remain the same. Some Canadian lenders give a substantial discount on the interest rate as a welcoming offer. The variable rate mortgage is normally fully convertible, and no penalty applies.
Basically, when the interest rate is going down, borrowers pay more of the principal and less in interest charges. When the interest rates are going up, borrowers pay less of the principal and more in interest. The borrower’s monthly payments may not cover the principal and interest if the interest rates go up substantially.
Variable rate mortgages are offered by different lenders in Canada – banks in Toronto and Winnipeg, financial institutions in Vancouver and Calgary, and other locations.
A reverse mortgage is another mortgage variety and a type of lifetime mortgage or equity release, which makes it possible for homeowners to access some portion of their home’s equity. Homeowners may choose to receive monthly payments over their lifetime or over a specified period of time. The obligation to pay off the loan is deferred until the property is sold, the homeowners pass away, they cease to live in the home, or in case the owners breach the mortgage’s provisions. This can happen upon failure to keep the property insured, pay property taxes, maintain the home in good repair, etc.
An interest only mortgage is another type of mortgage loan where borrowers pay interest only while the principal amount remains unchanged. Once the interest-only term is over, borrowers may choose to convert the loan to an interest and principal payment loan or enter an interest only mortgage loan. While it is possible to obtain an interest only mortgage in Canada, not many financial establishments offer them. Usually, Canadian borrowers can make a few interest only payments, but what they get is a standard amortizing mortgage loan.
A self employed mortgage is a mortgage loan intended for self-employed persons and those on rolling and fixed term contracts. In many cases, financial institutions offer standard mortgages to persons whose contract has been renewed. Some Canadian mortgage providers, however, would do so only on seeing a pattern of renewals. The situation is different with first-jobbers because financial institutions are interested in how employable they are.
Then, self-employed persons are usually required to show 2 or 3 years’ of their earnings. If the borrower cannot provide this information, lenders will want an explanation, and the applicant will have to provide information from his/ her accountant along with further proof of income. In general, a lot depends on what the applicant was doing before. If they are new to an industry, it will be difficult to get a mortgage loan until having established themselves. If the applicant has a track record in a particular field or industry, however, he/ she are a good risk. Generally, Canadian financial institutions take some time to approve applicants so it can be a frustrating wait.
A bad credit mortgage loan is yet another type of mortgage, tailored to the needs of persons with limited exposure to credit. These loans offered by British Columbia mortgage providers, Quebec providers, financial institutions in Alberta, Ontario, and elsewhere. Bad credit mortgages are intended for borrowers with poor credit who fail to meet the criteria of mainstream lenders. Borrowers who get approved for a bad credit mortgage loan and make regular payments can actually improve their credit rating.
A construction loan is one type of debt instrument that can be converted to a mortgage once the certificate of occupancy has been issued. These loans are generally used for the purpose of construction. A special feature of these loans is interest reserves, and the borrower’s payment ability is based on events that may occur when construction is completed. Thus, special guidelines and monitoring are usually in place to ensure that the project will be finished so that the construction loan is repaid.
Mortgage refinancing refers to the process of replacing an existing debt with another debt and under different conditions. Borrowers who resort to refinancing take out a loan to repay another loan. The major benefit of mortgage refinancing is that borrowers can obtain a lower interest rate. For instance, their financial institution can offer a loan at 5.3 percent, replacing a loan at 8.3 percent. Persons who are looking into refinancing in Canada can check TD Bank mortgage refinancing, RBC Royal Bank mortgage refinancing, or CIBC mortgage refinancing options.
Among the top Canadian mortgage lenders are the big banks in the country – CIBC, Bank of Montreal, RBC, and others. The Bank of Montreal offers a variety of BMO mortgage products to its clients. Mortgages are intended for persons who plan to buy their first home, those who want to invest in a second home, as well as borrowers who want to renew their mortgage or switch their mortgage. Borrowers can apply for a mortgage with a fixed or variable interest rate. The bank offers a variety of BMO refinancing options to borrowers who have to bridge a temporary cash flow gap or seek to reach important financial goals. In addition, the Bank of Montreal offers special mortgage products, including mortgages that help customers make energy-efficient choices for the environment. Clients who want to buy a vacation property or an investment property may also check the mortgage products offered by BMO. Clients can discuss financing options with the bank’s mobile mortgage specialists and mortgage representatives or they can begin the pre-approval process online.
The Royal Bank of Canada offers mortgage products to its clients in Toronto, Vancouver, Edmonton, and many other places in Canada. Clients of the bank can choose from a variety of RBC Royal Bank mortgage products, including RBC self employed mortgages, variable rate mortgages, fixed rate mortgages, vacation home mortgages, energy saver mortgages, and others. The vacation home mortgage, for instance, is a good solution for persons who consider purchasing a second home or a vacation property to be used for year-round or occasional enjoyment. Such mortgages are offered with a range of mortgage terms and features to choose from. Another RBC mortgage to look into is the self employed mortgage, which is an ideal solution for self-employed persons and business owners. Self employed mortgages are featured with competitive interest rates, and the funds can be used for renovating, refinancing, and buying a property. Persons who opt for a cash back mortgage (another of the bank’s products) are offered cash back at the time the loan is advanced.
The Canadian Imperial Bank of Commerce also offers a variety of CIBC mortgage products to its clients. The money can be used for purchasing a property, refinancing, renovation, and other purposes. Clients of the bank can choose to move their mortgage to CIBC, use their home equity, renew their mortgage, and buy their first home or next property. Borrowers can choose from different mortgage solutions, including better than posted mortgage, convertible mortgage, and fixed-rate open and closed mortgages. One option to look into is the CIBC fixed-rate open mortgage, which allows clients to make regular large sum payments or repay their mortgage loan entirely. Clients can make extra payments, which go toward the principal, and they can increase the monthly payment amount at any time. Clients also benefit from long amortization periods, which make it easier to repay the loan and improve their cash flow. Clients can choose from different frequency payment options and they know the exact amount of their monthly payments. The CIBC closed mortgage is another option for borrowers who prefer to have a fixed interest rate. They can make additional payments and prepay a portion of the loan annually. Clients who choose this type of mortgage enjoy longer amortization periods which improve their cash flow. Another option to look into is the convertible mortgage. It is a short-term mortgage loan that can be converted to a mortgage with a longer term.
In addition to the mortgage types, clients of the bank can opt for a self employed mortgage, cash back mortgage, or another mortgage loan or program of choice. Self employed mortgages are featured with a simplified application process and are designed for self-employed persons and entrepreneurs. Cash back mortgages are offered with cash back, and clients can put the money towards anything they choose. Clients of the bank can apply online, but the online application can be used only for owner-occupied properties on the territory of Canada. To get started, applicants should specify the purpose of the mortgage (transfer from another bank, refinance, or purchase) and the type of mortgage they want to learn about. A mortgage representative contacts clients within three business days to answer their questions.
TD Bank is another financial establishment to check with, offering TD mortgage products. Toronto Dominion promises a superior mortgage experience to borrowers who are refinancing or purchasing a home. They are offered easy-to-understand and straightforward mortgage products and competitive interest rates, allowing clients to make wise borrowing decisions.
Finally, clients of the Bank of Nova Scotia can look into the types of mortgages the bank offer. Clients can choose from different Scotiabank mortgage products, including fixed rate mortgages with competitive, low interest rates, variable rate mortgages with low payments and low interest rates, and special programs. Clients of the bank can choose from open and closed mortgages, offered with different terms. Insured and conventional financing is available. The bank also features special programs combining lower rates and longer terms as well as mortgages with a guaranteed rate discount. In addition, there are Bank of Nova Scotia mortgage loans for temporary residents who are living and working temporarily in the country. Another mortgage type offered by Scotiabank is the self-employed mortgage, featured with variable and fixed rate of interest and different payment options. Again, clients can choose between insured and conventional financing. Finally, clients of the bank may opt for a secondary mortgage, whether they are purchasing a second home in Calgary or buying and investment property in Toronto. Clients can apply for a mortgage as to finance the purchase of a cottage or a vacation home in Canada. They can even choose to buy a vacation home in Central America, Mexico, and the Caribbean. Mortgage specialists at local branches in various locations offer Scotiabank mortgage financing to residents of Canada, the United Kingdom, and the US who are looking to buy a vacation property.
Homebuyers who need to buy mortgage insurance can turn to the Canada Mortgage and Housing Corporation, which provides mortgage-backed securities and mortgage loan insurance, along with housing search and housing policy and programs. The mortgage loan insurance is designed to protect Canadian financial institutions against default on mortgages with a down payment of less than 20 percent. Besides providing insurance, the CMHC offers financing to housing renovations and projects. It specializes in funds’ research and housing market analysis. To this, the agency offers guidance and assistance to the private sector in the planning, design, and building of houses.