The Canadian Mortgage Myth
Mortgage is defined as “a debt instrument that is secured by the collateral of specified real estate property and that the borrower is obliged to pay back with a predetermined set of payments.” Mortgage loan is usually used by individuals and investors to purchase properties, without making full payment up front. There are a number of myths about mortgage in Canada, some of which are given below.
The maximum amortization period in Canada is 30 years
Amortization period refers to the time period given by the lender to the borrower to pay off debt in regular installments. According to the myth, one should, in any case, pay back the loan in 30 years – but this is not true. The amortization period can be increased or decreased depending upon the down payment you make. You can qualify for amortizations of 35 to 40 years by making a down payment of 20 percent and above on an uninsured mortgage. Remember, a longer amortization period reduces your monthly installments.
A minimum of 5% down payment is necessary to qualify for a mortgage
Conventional lenders in Canada do ask the borrowers to make down payment of at least 5% of the property’s purchase price, but there are exceptions for first time home buyers and most mortgage companies have reduced it to 3% to help an average citizen buy his/her dream home. However, there is a possibility that you may get the mortgage at a interest rate higher than the one prevailing in the market.
I have to pay for a mortgage broker
New borrowers usually have a misconception that like all other facilitators and agents, mortgage brokers will also charge them a fee, which is not true. Mortgage brokers in Canada never charge their customers, their services come at no cost.
A pre-approval means you have been confirmed a mortgage loan
People, applying for a mortgage loan for the first time in their life, think getting pre-approved for mortgage means they have been assured money, which is not true. Mortgage approval is no doubt a big step towards getting the loan, but there is still a lot of financial paperwork that needs to be done before releasing your loan.
You will never qualify for a mortgage if you have a poor credit history
No doubt having a good credit score plays a crucial role in your mortgage qualification process, but having a poor credit history or low credit ranking does not mean you can never qualify for a mortgage. ‘B’ and ‘C’ grade lenders mostly specialize in dealing the borrowers with “less than perfect” credit history. You may be required to make a higher down payment, or pay a higher interest rate, but it is still possible.
