Mortgage 101

Calgary has seen an influx of first time homeowners, which means that many people are learning the how-to’s of owning a property for the very first time. One of the main things to understand about owning a property is that you will start paying a mortgage. So, what is a mortgage? Are there different types? Today we are going to answer all these questions for you.

First off, what is a mortgage? A quick google search will produce the following definition: A mortgage is the charging of real (or personal) property by a debtor to a creditor as security for a debt (especially one incurred by the purchase of the property), on the condition that it shall be returned on payment of the debt within a certain period. Essentially, it is a loan you take out to finance the purchase of a property.

Mortgages involve four major things: collateral, principle and interest, taxes and insurance. Your home is your collateral. When you sign off on a mortgage, you are promising to repay your loan (plus interest and other miscellaneous costs). If you do not do this, the lender of your loan can usurp your home as payment for the loan. The principle is the sum of money you borrowed to purchase your property, with interest being what the lender charges you to use that money. Property taxes are put on every home and go towards community upkeep, like maintaining roads and building schools. Insurance is mandatory in order to protect your home in the case of fire, theft, etc. and is required when signing a mortgage to protect everyone involved.

There are four types of mortgages. The one you pick is totally dependant on your immediate and predicted future needs, along with the type of property you are getting a mortgage for. Here are quick summaries of the different types of mortgages you can have:

Open Mortgage: If you want to make mortgage payments in large sums or pay off the whole mortgage without penalty, this is a great option because it is extremely flexible. Interest may fluctuate, but you also have the freedom to pay off the mortgage before the term is complete.

Closed Mortgage: In a closed mortgage you are committed to paying a pre-determined interest rate over a pre-determined period of time. This is a great option because your interest rates won’t fluctuate, but if you do end up paying it all off before the end of the closed term there is a penalty.

Convertible Mortgage: This option is the best of both worlds. You can change the type of mortgage you have at any time. So, you can have a closed mortgage to get the fixed interest rates. However, if you end up being able to pay it off before the term ends, you can do so without penalty.

Reversible Mortgage: This type of mortgage is great for older consumers. They can convert their home equity into monthly payments. Mortgage Consumer writes, “At the end of the loan period, or upon the death of the borrower, the loan balance is due, which is usually settled by the heirs who sell the property to meet the outstanding obligation.”

As you can see there is lots to understand and consider before you sign your name on the dotted line. We recommend searching mortgageconsumer.org to learn more and see what options are available so you have a thorough understanding of how your mortgage will work. This likely the biggest purchase you will make, so be informed!

We also recommend setting up a meeting with Ken Richter! He can help you evaluate the property you want to get a mortgage for along with personal factors to help you make the best choice. With his years of experience, Ken is a fantastic resource and would love to work with you.

To set up a meeting please call his office at 403-630-6363.

Your Real Estate Professional,

Ken Richter

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