Mortgage Basics: Key Insights for a Successful Home Loan Journey

Are you considering buying a new house with a mortgage or refinancing your existing mortgage? Then you must know these mortgage basics to make the right choice.

12K+

Mortgage Deals

25+

Lenders & Brands

$$

Huge Savings

Mortgage Basics Overview

Mortgage loans, in general, can be stressful. Applying to make the mortgage payments can all be stressful. Our mission here at approvU is to help you enjoy an exciting homeowner experience, free of stress and headache from selecting the wrong mortgage loan type.

You need to know the mortgage basics to select the right mortgage loan for your unique situation.

You’ve heard the all-familiar phrase, “mortgage is one of the most significant financial transactions most Canadians will make in their lifetime.”

The unfortunate truth is that most Canadians get into a mortgage agreement without fully understanding what type of contract it is, including their rights and obligations, as well as the rights and obligations of the lender.

Luckily, it does not have to be that way. It is essential to fully comprehend a mortgage: what it is and is not, what type you need, and how to get approval. This guide covers all this and more.

Shop Across 25+ Lenders For Your Best Mortgage Deals

See Your Personalized Mortgages Online With approvU

Mortgage Terminologies Detail Guides

These guides on mortgage termonologies will empower you with the knowledge to go through the mortgage financing process like a pro.

What Is A Mortgage Loan

If you took a mortgage to buy your house, you might not know that you do not outrightly own your property.

Mortgage Commitment Letter

A mortgage commitment letter establishes the official approval of your mortgage loan.

Title Insurance

A title insurance policy protects the new homeowner and their mortgage lenders from legal challenges to their property ownership.

Elements of Mortgage Rate

The mortgage rate is the price you pay for a mortgage loan. This rate can either be variable or fixed.

What Is An Assumable Mortgage

An assumable mortgage is a type of mortgage program that gives you the option to transfer your mortgage loan to the new buyer of your house.

Conventional Mortgage

An essential first step in mortgage financing is finding out about your available mortgage options, weighing them, and planning

Fixed-Rate Mortgage

A fixed-rate mortgage has an interest rate that is fixed throughout the mortgage loan term.

Variable-Rate Mortgage

A Variable Rate Mortgage is a type of home loan with an interest rate that adjusts over time to respond to changes in the market.

Mortgage Discharge

If you took a mortgage to buy your house, you might not know that you do not outrightly own your property.

More Mortgage Basic Guides

Shop Across 25+ Lenders For Your Best Mortgage Deals

See Your Personalized Mortgages Online With approvU

What is a Mortgage Loan

A mortgage is a loan you contract from an individual, bank, or other financial institution to buy a house and other real estates. A mortgage puts you in a legally binding relationship with a mortgage lender (the individual or entity) that funds the mortgage loan.

A mortgage is a secured loan, which means the house or real estate you wish to finance will be used as collateral. The lender can take possession of the collateral (your home or the secured real estate) if you fail to repay the mortgage loan as required in the foreclosure process.

Mortgage loans have a consistent repayment schedule which is either monthly, weekly, semi-monthly, or bi-weekly. They also have a timeframe to pay off their loan, usually 25 to 30 years in Canada.

How Does A Mortgage Work

A mortgage is an amortized loan. For every payment, part of it pays down the borrowed amount (the principal portion), and part goes to the mortgage loan fee (interest portion).

How many people in your area or circle own a house?

Based on your knowledge of these individuals, did they buy their homes outright?

Can you say, Not Really!

Many house owners, you know, 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 total 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 our financing 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 have afforded their homes.

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.

It is expected that both you and the lender will fulfill the obligations in the mortgage contract.

Your Obligations In A Mortgage Contract

Your contract obligations are meant to protect the lender. Lenders want to make sure you pay back the mortgage loan amount in full, or they can recover the entire mortgage loan in case the property goes into foreclosure.

Your obligations within this covenant allow the lender to take over the property if you fail to meet your commitment or are reckless with the status of the property.

The usual four required obligations in a mortgage contract for a borrower are:

You are required to repay the loan amount as agreed in the mortgage contract.
You have to pay the property taxes. Some lenders will include the property tax in your mortgage payment and transmit the money quarterly to the appropriate City Tax Office.
You must pay for property insurance.
You must maintain the property in good marketable condition.

Shop Across 25+ Lenders For Your Best Mortgage Deals

See Your Personalized Mortgages Online With approvU

How Your Mortgage Contract Rate Is Determined

Lenders used a risk-based pricing model to determine the mortgage rate for each application.

That means that two applications for similar mortgage products should expect different mortgage rates if their income, credit, and property profiles differ.

You usually see the lowest mortgage rate advertised online. These are plain vanilla mortgage rates.

Premiums and discounts are applied to these advertised rates according to the risk of each application.

Mortgage Commitment Letter - Your Mortgage Approval

A mortgage commitment letter establishes the official approval of your mortgage loan. This letter contains the terms of the mortgage loan and the conditions you have to fulfill to get the loan funded.

This letter confirms the lenders ‘conditional willingness’ to finance your mortgage transaction.

Conditionals because there are set of conditions like confirming income, which you have to fulfill to get the loan funded

Regardless of the mortgage transaction type (house purchase or mortgage refinance), a mortgage commitment letter generally signifies the official approval of your request for a home loan.

There is no universal format for a mortgage commitment letter.

Still, in general, a mortgage commitment letter will contain the mortgage loan amount, property value, interest rate, mortgage payment amount, mortgage payment frequency, conditions you need to fulfill to get the money, the name of your underwriter, and the expiration date of the letter if no action is taken on your part.

There is no universal format for a mortgage lender.

Get A Mortgage With approvU

approvU is everything you need to make the right mortgage decisions like a Pro!
Born in Canada for Canadians
Largest mortgage marketplace with over 12,000 mortgage deals from 25+ lenders
No baiting; not a lead generator; your information is never sold
Skip the appointments and apply online anytime; it takes less than 6 minutes.
Multiple approvals from a single submission
Control and track every step of your application as it moves through to funding.

Mortgage Basics: Key Insights for a Successful Home Loan Journey

12K+

25+

$$

Explore This Guide

Mortgage Basics Overview

Shop Across 25+ Lenders For Your Best Mortgage Deals

Mortgage Terminologies Detail Guides

What Is A Mortgage Loan

Mortgage Commitment Letter

Title Insurance

Elements of Mortgage Rate

What Is An Assumable Mortgage

Conventional Mortgage

Fixed-Rate Mortgage

Variable-Rate Mortgage

Mortgage Discharge

More Mortgage Basic Guides

Shop Across 25+ Lenders For Your Best Mortgage Deals

What is a Mortgage Loan

How Does A Mortgage Work

Your Obligations In A Mortgage Contract

Shop Across 25+ Lenders For Your Best Mortgage Deals

How Your Mortgage Contract Rate Is Determined

Mortgage Commitment Letter - Your Mortgage Approval

Get A Mortgage With approvU

Education

Tools & Resources

About approvU