Mortgage 101 – Understanding Mortgages

Most people cannot afford to purchase a home up front, so they need to borrow money from a lender to finance their home.  This is loan is called a mortgage.  A mortgage allows individuals to purchase a home without paying the full cost all at once, and is used to finance their home over time called an amortization period.

The amount of mortgage an individual is eligible for depends on the down payment they put down initially.  Therefore, your mortgage is determined by your down payment less the value of the property.  As with all loans, there is interest paid on top of the mortgage (principle).  Your payments are two-fold:  one part goes towards the interest, and the other goes towards the paying down the principle.  The higher your down payment, the less you will have to borrow, and the less interest you will have to pay over the length of the mortgage.

A down payment that is 20% or more of the purchase price is called a conventional mortgage.  If the down payment is less than 20%, then you have a high ratio mortgage, which requires the lender to insure the mortgage.  The insurance is called mortgage default insurance and protects the lender in case the borrower cannot repay the loan.

The term of the mortgage is the duration of time the lender will loan the funds needed to finance your home.  There are short-term and long-term mortgages.   Short-term mortgage contracts are usually 2 years or less, and offer a lower interest rate.  Long-term mortgages are generally 3 years or more and have a higher interest rate as it appeals to individuals who want stability and the peace of mind of a fixed rate.

2013 Mortgage Statistics**

  • Total mortgage debt of homeowners is $1.17 trillion in 2013

  • 1.65 M Canadians finance their homes with a mortgage and a  HELOC

  • 3.93M Canadians finance their homes with just a mortgage

  • 3.29M of Canadians are debt-free

  • Average mortgage rate of homes purchased in 2013 is 3.23%

  • Canadians are paying down their mortgages by an average of 5.1 years earlier than the amortized period

  • 17% of Canadians regret the size of their mortgage

For all your mortgage questions and needs, please contact VERICO Boomerang Financial Inc.

About VERICO Boomerang Financial Inc.

Boomerang Financial is a Canadian finance company and full service mortgage brokerage, operating from coast to coast. Boomerang offers clients professional advice and strategic financing to achieve the most efficient financial solution. They also offer commercial financing as well as capital commercial leasing. They are a Calgary based company with offices in Toronto, and Vancouver.

For more information visit http://www.boomerangfinancial.com/