What is a mortgage?
A mortgage - commonly referred to as a "hypothec" - offers a financial solution for buyers who can only afford to pay part of the asking price (down payment) of the property they wish to acquire. To cover the remaining amount, you must obtain a loan from a financial institution, a virtual lender or a private lender.

A mortgage is a legal contract between you and your lender.

Generally repaid over a 25-year period, the mortgage includes the amount borrowed (principal) and interest. Payments can be made weekly, bi-weekly, fortnightly or monthly. During the repayment period, the property acts as collateral in the event of non-payment. If you don't respect the terms of your contract, the lender has the right to seize your home. So it's important to pay your mortgage on time and keep your home in good condition.

Down payment
The downpayment is part of the amount you pay to purchase a property. The amount you pay is deducted from the purchase price. Your mortgage covers the balance of the house price. As a general rule, the minimum amount you need to put down is 5%. However, if your down payment is less than 20%, you'll need to take out mortgage loan insurance.

Open or closed mortgage

Open

With an open mortgage, you can pay off your loan early or terminate your mortgage contract, usually without penalty. It also offers greater flexibility should you ever need to make additional payments. Note that the interest rate on an open mortgage is usually higher than on a closed mortgage.

An open mortgage may be the option for you:

  • If you plan to pay off your mortgage quickly;
  • If you are planning to sell your property in the near future.

Closed

The number and amount of mortgage payments are fixed for the duration of the term. It is not possible to make a full mortgage repayment before the end of the term, otherwise a fee will be charged. Not all closed mortgages allow this, so it's important to discuss the terms and conditions with your lender. It's important to discuss the terms and conditions with your lender or mortgage broker.

A closed mortgage may be the option for you:

  • If you expect to keep your property until the end of your contract;
  • If you find that early repayment offers you enough flexibility to pay off your loan a little faster.
What is a mortgage term?
The term is the period of time during which the mortgage agreement with the lending institution is in effect, according to pre-selected terms and conditions. The term usually varies between 1 and 5 years.

At the end of the term, you must renew your mortgage. There are several terms to pay off your loan in full.

Mortgage interest rates
The mortgage interest rate is the amount you pay your lender for using their money. It can vary from one financial institution to another.

Fixed rate

The rate remains the same throughout the term. It varies only when the mortgage is renewed. This is convenient if you want stable payments.

Variable rate

The variable rate increases or decreases according to fluctuations in the prime rates of banking institutions. If you have a good risk tolerance and want to take advantage of rate decreases, this is the right choice for you.

Calculate the amount of a mortgage loan
The amount you borrow from a financial institution is your capital. This includes :
  • The purchase price of the home minus your downpayment (between 5% and 20%);
  • Mortgage insurance (if your downpayment is less than 20%).
Your mortgage payments
The amount of the mortgage depends on several factors, including the value of the property, the down payment, the term of the loan, the interest rate and closing costs.

To calculate the amount of a mortgage, you need to :

  • Subtract the downpayment from the property value to obtain the mortgage amount;
  • Choose the loan term that best suits your situation (amortization);
  • Determine the interest rate;
  • Choose the payment frequency (monthly, fortnightly, bi-weekly, etc.);
  • Add mortgage loan insurance, if applicable. It can be paid at the time of the transaction or included in the payments.

Then you can calculate the payment amount, which will include principal, interest, taxes and mortgage insurance.

Mortgage pre-approval
A mortgage pre-approval is a crucial step in the buying process. It determines your financial capacity to obtain a loan from lenders. You'll find out the maximum mortgage you could qualify for, estimate your mortgage payments and guarantee an interest rate for 60 to 130 days (depending on the lender). Given current market conditions, this is an essential step in demonstrating your seriousness.

Please note that if a lower rate was available with your lender prior to the mortgage transaction, you would get the lower rate, and if it went up, you would be protected by the rate guarantee.

Information required to obtain mortgage pre-approval

  • Your income
  • Your debts
  • Your credit history
  • All other relevant financial information

5 determining factors for your mortgage

  • Your credit rating
  • Your household income
  • Your employment history
  • Your financial reserve
  • Your downpayment

Required documents

Proof of down payment
  • Promise to purchase signed and accepted with all annexes
  • Property details
Proof of income
  • Employee
    • Letter of employment (date of hire, gross salary and position)
    • Pay stub
  • Self-employed
    • Notice of assessment for the last two years
    • Federal and provincial tax returns (T1 General) for the last two years
For an income property :
  • Certificate of Location
  • Leases
  • Property tax accounts
Mortgage renewal
Your mortgage contract has a defined term that can vary from a few months to five years or more. At the end of each term, you must renew your mortgage or pay it off in full. This is the perfect time to reassess your needs:
  • Can you increase your payments to pay off your loan faster and save on interest?
  • Would you be interested in comparing different lenders and financial institutions?
  • Would you like to change your payment frequency?
  • Are you satisfied with our services?