The purchase of a home is one of the biggest financial commitments you will make, so understanding what a mortgage is, how the mortgage process works, and mortgage payment options will help you choose what’s right for you.
Here are a few key facts to help you get started.
What is a mortgage?
How the mortgage process works
Applying for a mortgage – start by using our mortgage calculator to get an idea of what home price you can afford. Then, work with ACU financial advisor to get a pre-approved mortgage.
The pre-approval process is a mortgage application, only without a specific home attached to it. A pre-approval will help you understand how much you qualify for, what price range you can look at, and put you in a better position to make an offer to purchase now that you have solid financial backing.
With your consent, your ACU financial advisor will prepare a mortgage pre-approval application, and require you to provide details such as employment, income, assets, down payment and liabilities. You'll also need to give permission for us to obtain a credit bureau report.
Pre-approvals are subject to your continued good credit and are usually good for 90 days. Any conditions must be met for your mortgage to be fully approved.
Purchasing a home – once you find your dream place, you will finalize your mortgage terms with your ACU financial advisor and use approved funds to pay the seller for the property. In return, you make a promise to repay any money borrowed, plus interest and fees, over a set period of time up to a maximum of 25 years.
Registration - the mortgage is registered on the property with the provincial land registry office.
Moving - you can move into your home as soon as the closing of the sale is complete.
Mortgage basics to know
There are three basic parts to a mortgage:
- Down payment: the amount you need to have to secure your mortgage.
- Fees/closing costs: costs you have to pay up-front, before you’ve got possession of your home – see further down for more on those.
- Monthly payments: the amount you need to be able to afford each month to pay off your mortgage over its length and includes the principal of the loan plus interest.
Variable rate - the mortgage rate will change with the prime lending rate as set by your lender. A variable rate will be quoted as Prime +/- a specified amount, though the prime lending rate may fluctuate, the relationship to prime will stay constant over your term.
Open - can be paid off in full, at any time, with no penalty.
Closed - allows only limited lump-sum prepayments and includes a penalty if it is repaid in full before the end of its term.
Did you know? ACU also offers mortgages that are tailored for specific needs. To learn more visit Specialty Mortgages.
Down payment options
A mortgage down payment is the amount of money you pay upfront when purchasing a home. The down payment, typically expressed as a percentage, is calculated as the dollar value of the down payment divided by the home price. The minimum amount a down payment can be is 5%.
Learn more about down payment options.
The length of time you are committed to a mortgage rate, lender and conditions set out by that lender. A mortgage term can vary in length, from 6 months to 5 years, with the most popular term in Canada being 5 years.
Your amortization period is the length of time it will take to pay off your entire mortgage. The maximum amortization period is 25 years.
Building home equity is important
Simply put, home equity is the difference between the value of your property and the amount you owe on your mortgage. To build your equity faster, there are a few things you can do.
- Higher down payment - the higher your down payment is, the less your mortgage will be.
- Accelerated payments - accelerated weekly or bi-weekly payments will help pay off your mortgage faster and also speed up building equity.
- Extra payments - make extra payments whenever possible to help reduce your mortgage principal(but be aware that extra payments above your prepayment privilege are subject to a pre-payment penalty).
- Home improvements – maintain and make improvements to increase the value of your property.
Mortgage payment options
After you’ve taken possession of your new place, you will make regular mortgage payments with a portion of the payment, the principal, is used to pay down the amount borrowed and a portion of the payment applied to interest.
Choosing how often you make payments in an important part of your overall financial plan. There are a number of options available, including: semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly. Accelerated payment options will help save on interest over the life of the mortgage and speed up building equity in your home.
Tip: To make paying your mortgage a bit easier, schedule your payments to coincide with when you get paid.
About closing costs
It’s important to remember that there are additional expenses that come with purchasing a home, commonly referred to as closing costs. When you start budgeting to purchase a new home, sometimes it’s easy to forget to include these closing costs.
Closing costs typically average between 1.5% and 4% of the home’s purchase price. You usually pay these costs by the time the sale is completed or “closes” so it’s important to factor these costs into your financial plan when saving to buy a home.
Here are some examples of some closing costs you may encounter.
- Legal costs: lawyer fees and disbursements. These costs can vary depending on the circumstances.
- Homeowners insurance: covers losses and damages to an individual's residence. Purchasing home insurance is a condition of getting a mortgage.
- Land transfer tax: a one-time tax based on a percentage of the purchase price of the property. This tax is the cost to transfer the title to your name.
- Property tax: annual real estate tax, used to pay for public services like water, and sewer systems and public school costs. You will be responsible for paying the taxes for the portion of the year which you own the property.
- New build GST: Goods and Service Tax (GST) charged when building a brand new house or condo.
Tip: You may be eligible for a partial GST rebate, visit GST/HST New Housing Rebate to learn more.
- Inspection fees: costs for professional home inspections. In some cases you may need to have the house inspected prior to purchasing a house.
- Appraisal fees: costs for a professional to confirm the market value of the property. In certain situations, the financial institution may require an appraisal.
- Survey certificate: a drawing that shows the property limits and building locations. In some cases, it may be required by your financial institution.
- Mortgage insurance: protects a mortgage lender if you are unable to meet the contractual obligations of the mortgage. If your down payment is less than 20% of the purchase price, mortgage insurance is required.
- Title insurance: protects property owners and their lenders against losses related to the property’s title or ownership. May be required by your financial institution.
- Moving costs: basic costs involved in moving. Some examples include a professional moving company, truck or van rentals, and packing supplies.