Buying your first home in Canada as a newcomer is an exciting milestone and one of the most important decisions you will make.
By understanding the world of Canadian mortgages, you’ll be better prepared to achieve your homeownership goals in your new country.
In this two-part series, we will explore the essential aspects of Canadian mortgages beyond just the interest rates, which will assist you to make informed decisions when financing your first home. We’ll dive into important considerations that can help shape your financial journey, helping you build the knowledge to navigate the process successfully.
Understanding Mortgage Basics:
Understanding the fundamental concepts of mortgages is important before embarking on your home buying journey. Here are fundamentals to know:
What is a mortgage?
A mortgage is a loan with interest provided by a lender to finance the purchase of your home and you pay it off over time. This loan is secured by the home you purchase.
What is a down payment?
A down payment is a percentage of your home’s purchase price that you pay upfront. It represents your initial equity in the property.
What do terms like “Amortization period” and “Mortgage Term” mean?
The Amortization Period is the total length of time required for you to pay off your mortgage fully. A typical amortization period is 25 years. Your Mortgage Term, on the other hand, refers to length of time you’re committed to a mortgage rate, lender, and associated conditions, usually ranging from 6 months to 10 years.
What are “payment frequencies”?
When you get a mortgage, you will have options as to how frequently you make payments. You may choose monthly, bi-weekly, weekly or an accelerated payment schedule, such as biweekly accelerated which is the roughly equivalent of making one extra payment each year versus biweekly payments. Choosing the right frequency can impact your repayment strategy and overall interest costs. Be sure to ask your mortgage specialist what may be right for you.
What are the different types of mortgage rates?
Fixed and Variable Rate Mortgages: Fixed rate mortgages offer a consistent interest rate throughout the term, while variable rate mortgages have rates that fluctuate based on the prime rate of your lender.
Open and Closed Mortgages: An Open Mortgage allows you the freedom to put prepayments toward the mortgage loan anytime until it is completely paid off. It may have a higher interest rate because of the added prepayment flexibility and can be converted to any fixed rate term longer than your remaining term, at any time, without any charges. A Closed Mortgage will only allow prepayment up to a maximum amount as percentage of the original principal amount each year otherwise prepayment charges will apply.
Beyond Interest Rates: Things to Consider Before Finalizing Your Mortgage
While interest rates are a significant factor in choosing a mortgage, there are other considerations to keep in mind:
1) Mortgage terms and conditions: Carefully review the terms and conditions of each mortgage option. Look for features such as prepayment privileges, portability (the ability to transfer the mortgage to a new property), and flexibility in payment schedules.
2) Closing costs: In addition to the down payment, you should also budget for closing costs, which include legal fees, property appraisal, land transfer taxes, and other associated expenses. Understanding these costs will help you plan your budget effectively.
3) Mortgage default insurance: If your down payment is less than 20% of the home’s purchase price, mortgage default insurance will be required. This insurance protects the lender in case of default but it’s an additional cost that you must pay.
4) Pre-approval process: Obtaining a mortgage pre-approval can provide clarity on how much you can borrow and help streamline the home buying process. It demonstrates to sellers that you are a serious buyer and can strengthen your negotiation power.
Learn the Mortgage Basics with TD Mortgage Specialists:
Navigating the world of mortgages can be complex, especially for newcomers who are also first-time homebuyers. TD understands this and offers dedicated mortgage specialists who can provide guidance and support throughout the process.
They are here to assist if you need help understanding the mortgage basics, such as down payments, amortization periods, payment frequencies, and the different types of mortgages available.
They can also provide you with helpful resources [1] to ensure you have a solid understanding of the mortgage process and feel confident in your choices. Take advantage of this support to make your home buying journey a smooth and successful one.
Click here for Part Two of this Mortgages 101 series to learn the essential steps you need to take towards financing your home in Canada.
Why Choose TD?
150 years helping Canadians:
TD has a proud history of delivering financial solutions to Canadians for more than 150 years. TD also brings a century of experience helping newcomers navigate the unique challenges of the Canadian banking system.
With over a thousand branches, a reputation for excellence in financial services, and the ability to also serve you in more than 60 different languages, TD has become one of the largest and most trusted banks in Canada, now serving 16 million Canadians.
TD offers online support and resources of interest to newcomers on topics such as banking. basics, moving to Canada, credit score essentials, and more. TD is open longer hours for your convenience. TD has thousands of ATMs across Canada to help you take care of your everyday
banking quickly and easily.
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Learn more about TD’s New to Canada Banking Package today.
Book an appointment to talk with a TD Personal Banking Associate about the TD New to Canada Banking Package. You can book online right away, or visit the TD website to learn more.
Legal Disclaimer: Information provided by TD Bank Group and other sources in this article is believed to be accurate and reliable when placed on this site, but we cannot guarantee it is accurate or complete or current at all times. Information in this article is for informational purposes only and is not intended to provide financial, legal, accounting or tax advice and should not be relied upon in that regard. This information is not to be construed as a solicitation to buy. Products and services of the TD Bank Group are only offered in jurisdictions where they may be lawfully offered for sale. All products and services are subject to the terms of the applicable agreement. The information in this article is subject to change without notice.
[1] https://www.cmhc-schl.gc.ca/en/consumers/home-buying/newcomers