Mortgage broker Kevin Carlson from Regina Saskatchewan explains the basics of mortgage lending in Canada. Understanding how mortgages are structured will help homeowners make the best decisions to be able to save interest costs and pay their mortgage off faster.

Video Chapters
0:00 Intro
0:24 Amortization & Term
1:07 Maximum Amortization
1:26 Terms
2:08 Open vs Closed
2:55 Fixed Rate
3:12 Variable Rate
3:55 Fixed vs Variable
4:42 PrePayment Privileges
5:13 Conclusion

A mortgage is just loan secured against your home but it's not structured like any other type of loan financing. A term loan like for the purchase of a vehicle, is set up for one set amount of years called a term. These terms can be anywhere from 2 to 7 years. The payments are set up so that the loan is paid in full at the end of the term. Mortgages for the purchase of a home are somewhat different.

If you've ever had just a standard loan like a student loan or car loan, you know that those loans are set up as like a term so the terms can be anywhere between say 3 years, 5 and sometimes even 7 years to pay the life of the loan off. The payments are set up as such that there will be a zero balance at the end of the term. Mortgages really aren't set up that way, initially. When you go to purchase a home if you were to set up mortgage up for a term of only 5 maybe 7 years and your mortgage is over 2 or 3 hundred thousand dollars, the payments might be a bit excessive. For that reason mortgages are split up into shorter terms over a longer amortization, so that is the entire life of the mortgage. If you're purchasing a home with less than 20% down payment the maximum amortization available is 25 years. If you're putting more than 20% down or you're mortgaging your house for no more than 80% of its value then you can have a maximum amortization of up to 30 years. The terms that are available to split up your mortgage amortization into is anything from 6 months up to a 10 year term.

One of the big questions that I often ask for home buyers especially is how long do you think you'll be in this home. Will you be in it for 1 or 2 years or will it be longer. I always try to match the term of the mortgage with their ownership goals so if they're only looking at being in the house for a couple years then a 5 year fixed and closed term is really not for them. I look to put them into something much shorter to avoid any penalties. So let's go over the different types of mortgages there are

An open term mortgage where you're allowed to pay the mortgage out anytime you want without any penalty. An open term mortgage is for people who aren't sure how much longer they're going to be in that mortgage and in that house, it's typically for people who are just needing short term mortgage money and they're going to be moving on soon. I don't recommend open mortgages for very long at all if you have an open mortgage the interest rates going to be a little bit higher than if you had a closed term mortgage. On the other side there is a closed mortgage, so a closed mortgage means that you can't just pay it out whenever you want and you need to keep a keen eye on that term. A closed mortgage you could be exposed to some penalty if you pay the mortgage out before the term is up.

Mortgages can be done in 2 basic different ways, fixed and variable. Fixed rate mortgages are just like it sounds, it's a mortgage is a fixed rate for a given term and those are available anywhere between that 6 month and the 10 year term. Variable rate mortgages ride the prime rate and terms available 3 or 5 years. The rate is determined on the Bank of Canada prime lending rate. Typically your variable rate will be prime minus a certain amount, anywhere between say 1/2% to 1%. If the prime rate starts climbing and you start getting nervous, you are actually allowed to lock that rate in later so even though you took a variable rate.

With both of the fixed rate and variable rate mortgages over and above your just your regular payment you're actually allowed to do what's called pre payments, so over and above your regular payments you're allowed to do pre payment privileges of usually up to 15% of the original mortgage amount as a lump sum once per year and you're also allowed to increase your payments by typically at least 10% if not 15% sometimes 20% to your original payment to reduce your amortization a lot faster and pay your mortgage off quicker.

#mortgagebroker #mortgage #reginarealestate

Connect with me on:
Website: www.KevinCarlson.ca
Instagram:   / kevin.carlson.amp  
Twitter:   / kevincarlsonamp  

Kevin Carlson Mortgage Broker FCAA Lic. 315902
Verico Xeva Mortgage FCAA Lic. 509752