A mortgage is a loan from a bank, online lender, or mortgage lender that allows you to buy a home. The house you buy with a mortgage loan serves as collateral for the money you borrow. Whether you’re a first-time buyer or your fifth home, understanding how a mortgage works can help you navigate the borrowing process better.
What is mortgage credit?
A mortgage loan is an offer of credit allowing us to finance a house. As the name suggests, the borrower must put a mortgage in order to obtain the loan. In exchange for the funds received by the buyer to buy property or a house, a lender obtains the buyer’s promise to repay the funds within a certain time at a certain cost.
The mortgage is legally binding and guarantees the bill by giving the lender the right to exercise a legal claim against the borrower’s house if the latter defaults on his obligations. Basically, the borrower is in possession of the property or the house, but it is the lender who owns it until everything is repaid.
The principle of repayment of mortgage credit
Mortgage credit generally needs to be paid back in the form of monthly payments, which include interest and a principle. The main thing is the repayment of the original amount borrowed, which reduces the balance. Interest, on the other hand, corresponds to the cost of borrowing the principal for the past month.
A monthly mortgage payment includes taxes, insurance, interest and principal. Taxes are remitted to local governments as a percentage of the property’s value. These tax amounts may vary depending on the place of residence of the borrower and are generally reassessed once a year.
Insurance payments go to mortgage and sub-prime insurance. Property mortgage insurance (PMI) protects the lender from losses incurred in the event of borrower default, while risk insurance protects both the borrower and the lender from property losses. Funds may be frozen or the lender may collect taxes and insurance.
Typically, the PMI is not necessary if you put 20% or more on your home. Until your payments are late, PMI payments are automatically terminated when you are halfway through your loan or when the loan to value ratio (LTV) reaches 78%. You can request a cancellation when your LTV reaches 80%.
Apply for a mortgage: the steps to follow
The mortgage application process can be stressful. The first thing the borrower should do before going to his bank is to get a copy of his credit report and to check it for errors. If incorrect information is provided, it should be challenged, as pending issues can lead to the rejection of a mortgage application or cause lenders to charge a higher interest rate.
How to find the right mortgage lender?
A good mortgage lender will not only give you the best terms available, but they can also give you a specific loan feature that will give you a better experience. Here are some tips to help you find the best mortgage lender for your situation.
- Know your credit scores
Some lenders prefer to work with borrowers with near-perfect credit scores, while others are willing to work with borrowers with lower credit ratings. Checking your score is a smart first step, allowing you to understand which lenders to focus on.
- Finding the right mortgage
Some lenders specialize in certain types of loans and some even offer special loans that you cannot get anywhere else. Knowing what type of loan you need will help you narrow your search.
- Buy different lenders
Take the time to shop around to get an idea of what’s going on. Seeking advice from family, friends and colleagues is a good option. You can also consult your bank or your caisse to find out about the offers on offer. And be sure to ask questions to find out about their loan specialty, as well as the time it takes to get pre-approved or close a loan.
- Get some loan estimates
Compare the deals by talking to at least three different lenders to help you find the best deal. The more rates you get, the more you are a lender, the more you will get the lowest rate available for your financial profile and your credit profile.