When you are looking to take a loan, you must’ve heard the word ‘mortgage’ being thrown around. At this time, many people would advise you to reach out to a Mortgage Broker Hamilton. In case you are baffled by the whole process of mortgage and are confused, no worries. We are here to tell you all that you need to know about a mortgage. This knowledge will come in handy and help you to make a wise decision about the same.
What is a mortgage?
A mortgage is a type of loan you take from the bank or a moneylender when looking to buy property. This kind of loan allows the lender to make the purchase without paying the whole price upfront. Instead of making the complete payment, what happens is that you only need to pay a specific percentage of it. This set percentage that you pay to the lender is referred to as a down payment. The remaining amount would be taken care of by the loan. This loan is then paid off by making regular payments. The amount that you would be paying would include the interest and the principal.
How does a mortgage work?
Suppose you take out a mortgage on the house that you are planning to buy. In such a case, you need to pay a certain amount of the price of the property as a down payment. Once the down payment has been made, the remaining cost of the property is covered by the loan. The minimum down payment you would be required to do would be around 5% for the properties which have a value up to $500,000. If the property value is more, then you would have to pay an additional 10% in the down payment.
What is a mortgage term?
The mortgage terms are the terms and conditions on which the loan is taken. It includes the interest rate that would be charged till the end of the term. If you haven’t paid off the loan by the end of the mortgage term, you would have to renegotiate the loan with your lender to continue making the payments.
What is the amortization period?
The amount of time it will take to pay off the complete mortgage with regular payments and interest is called the amortization period. When the amortization period is shorter, you would have to pay the mortgage off quicker. Which means that you would be making higher payments. When the amortization period is longer, then the payment would be smaller. The interest rate would be high. The size of the mortgage payment is determined by this period.
Are interest rates fixed?
The interest rate to be paid on the mortgage can be fixed or variable. When there is a fixed rate, then the interest on the mortgage would remain the same throughout the loan. However, with variable rates, the interest might change depending on the market rates. Usually, variable rates are lower than fixed rates. It can be tedious to predict whether it will always be a low-cost option or not.