A mortgage is an amortized loan. For every payment, part is allocated to pay the principal loan, and the other portion goes towards the loan’s interest expense.
The majority of house owners use some form of loan to buy their homes. This loan is what is called a Mortgage.
Let’s see how you can use a mortgage loan to finance your real estate purchase.
After a tormented six months of searching, you finally find your dream home. The house is on the market for $500,000. You love this house but do not have the cash to buy the house outright. All you have saved is $25,000.00.
To buy this house, you will need $475,000.00 more plus your saved $25,000.00. So, you approach a lender and get approved for a mortgage. The straight mortgage loan (excluding default insurance premium) is for $475,000.00.
You promised to repay this money over 25 years. To start, the lender issues you a contract for a five-year term. You can buy your dream home with this $475,000.00 from the mortgage lender, plus your $25,000.00 savings.
Without a mortgage, I believe more than 94% of homeowners in Canada would not be able to afford their houses.
You can use a mortgage loan to buy your dream home. A mortgage puts you in a legally binding relationship with the lender that funds your mortgage loan. You and the lender are expected to fulfill the obligations in the mortgage contract.
Ontario’s Financial Services Regulatory Authority (FSRA) lists the obligations and that of your lender in a mortgage contract.
