We live in a digital world where payments for most transactions can be completed with a simple tap from a credit card or your smartphone. The story changes when it comes to buying a property!
A home is usually the largest purchase a person makes in their life. The financing arrangements for such an expensive buy are more involved, but the basics aren’t too complicated if you know a few concepts.
Let’s look at ten mortgage-related terms you should know.
1. HELOC
A HELOC stands for Home Equity Line of Credit, a common way for homeowners to leverage their home’s equity to borrow money for excellent rates. Homeowners are free to use the cash from the ongoing line of credit however they choose, but it’s common for big expenses like education, investment opportunities, or home renovations that boost its ROI.
First, an independent assessor conducts a home appraisal to determine your property’s current market value. The higher it is, and the more of the mortgage you’ve paid off, the better the terms you’ll enjoy..
A Burke Financial mortgage broker can help you decide if a HELOC is right for you, and if so, they’ll secure favourable borrowing rates.
2. Home Equity Loans
A home equity loan is like a HELOC, except homeowners receive a lump sum of money instead of a line of credit. As with HELOCs, the more equity you’ve built, the better borrowing terms you get.
Your property’s market value also impacts the lending rates. Reduce your monthly payments, stabilize your debts, rebuild credit, or find the money for life’s milestones by accessing up to 85% of the equity in your home.
3. Bridge Loans
What happens if you find your dream home on the market before closing the sale of your existing home? In such circumstances, you need a bridge loan, or bridge financing, to support this transition.
Because they’re only needed in the gaps between homes, they usually last three to six months but can extend to 12 months or longer.
4. Debt Consolidation
Life is expensive, and most people need to take on debt. However, not all debt is healthy. If you have several lingering debts, it may be difficult to stay on top of monthly payments.
As a top-rated firm accredited by the Better Business Bureau, Burke Financial specializes in debt consolidation loans that help thousands of Canadians make informed decisions and save money through debt relief strategies such as consolidation loans.
Paying back debts will be more straightforward, and there’ll be less money to repay!
5. Second Mortgages
Second mortgages are another way homeowners maximize the value of their home’s equity to help afford big-ticket purchases. Burke Financial will pair you with the right second mortgage lender, so you can save up to $1,000 each month.
We listen to our clients to understand their lifestyle and financial goals. If you can benefit from a second mortgage, we’ll explain the rationale and all your other options until you’re confident and comfortable.
6. Private Mortgages
Banks aren’t always willing to lend money to people with bad credit, unorthodox sources of income, those buying unusual properties, and more. When banks won’t lend the money people need for a home, they must find alternatives.
Many turn to private mortgages offered by individual lenders, mortgage investment corporations, and other sources. Private mortgages enable people to afford homes who otherwise couldn’t.
Private mortgages may be a last resort and come with higher interest rates and fees. However, they get approved quickly and can be a great way to get out of a jam.
7. Down Payment
The down payment is the part of the mortgage a homeowner deposits upfront, usually between 10-20% of the mortgage. If a home costs, say, $1 million, you’ll need $100,000-$200,000 before the monthly payments start.
Making a larger down payment lowers your monthly payments and potentially the payment period. Always consult our mortgage brokers to get personalized, professional advice on the right strategy.
8. Amortization
Amortization refers to the time it takes to pay off a mortgage in full. If your down payment is under 20%, the longest period you’re allowed is 25 years.
The longer the amortization period, the more you pay in interest. However, for many people, extending this period makes monthly payments more manageable and may be the optimal path for you.
There’s no one size fits all solution, but it’s essential to understand how time bears on your payments. You don’t want to invest all your money in your home upfront because you’ll have other necessary expenses, but the longer the amortization period, the more you pay for your home.
9. Interest Rates
Interest rates refer to the rates banks charge to lend money. Interest rates are a hot topic of discussion right now because, for the first time in years, the Bank of Canada is increasing interest rates by a full point, from 1.5% to 2.5%.
The banks are trying to fight rising inflation by increasing the cost of borrowing, which in turn is likely to make home prices drop somewhat, or at least slow growth. Existing homeowners may struggle to make their monthly payments as interest rates rise, depending on whether their mortgages include fixed rates.
10. Equity
Every time a homeowner makes a monthly mortgage payment, they essentially own a larger chunk of their home. This chunk is known as equity, and homeowners can leverage this stake to get preferred borrowing rates if they need to access cash.
After renters pay their monthly rent, that money no longer works for them. Homeowners build up value over years that can help fund retirement or create generational wealth.
Home buyers need to work or invest in finding the money needed for a home, but Burke Financial is there to show you how to put that money to its best use. Optimizing your mortgage lets you manage payments more comfortably and saves you substantial money. Speak to the experienced, professional, and dedicated mortgage brokers at Burke Financial to answer any questions you may still have and get you financially sorted and stable today.
