If you are about to invest in your first real estate property, it is important to understand the basics of homeowner’s loan and your individual responsibility in the entire process. Home ownership is a great investment if you get a great mortgage deal. A mortgage is simply a loan in which your real estate property is the security for a debt. You will fully own the property once you pay off the debt after the specific loan term. Your mortgage may be one of the biggest debts you will have in your lifetime with some taking as long as 30 years to fully pay off. This is why it is extremely crucial to have a good understanding of the process and work with the best professionals.
When you want to buy property, you will need to have saved up part of the payment for the property as the down payment. This is the amount that you should pay to the property owner upfront and is not covered by the home loan. In most cases, the down payment is usually 5% of loan amount. However, loans above $500,000 will carry a different charge.
Before applying for the home loan, you will need to talk to a financial professional about your qualifications. This is referred to as the pre-approval stage, in which you can talk to a mortgage broker Vaughan about the interest rates affordable to you and how much you should borrow. The pre-approval stage saves you a lot of time in getting your loan approved. In the pre-approval stage, you also have the opportunity to lock an interest rate so when the interest goes up, you will still get a loan by the locked interest rate. If the interest rates go lower, you will get the mortgage by the lower interest rate.
First time homebuyers may be eligible for an amount of $25,000 from the Registered Retirement Savings Plan. However, you will need to pay back this amount within fifteen years. Failure to do so can lead to tax penalties.
There are two important terms you should be aware off when it comes to mortgage loan timeline. The amortization period is the time in which your loan should be paid in full while the mortgage term is the period of time that the current rate remains constant. In case the mortgage term is something like five years, you can negotiate for a lower payment rate for the rest of the mortgage payments. The longer the amortization period, the lower the monthly payments but also high interest rates compared to a shorter period, which will attract high monthly payments.
You can choose a fixed or variable mortgage payment option. In fixed rate home loans, the rates will remain constant and monthly payments are the same throughout. Even changes in interest rates will not make a difference. However, in variable homeowner’s loans, monthly payments will change depending on the interest rates determined by the central bank. You can make your variable rate mortgage convertible and switch over to a fixed rate within the loan term at your convenience.