How a mortgage works
A mortgage is a loan used to buy a property. How much interest you pay depends on 3 factors:
- How much you borrow (the principal)
- The interest rate on the loan
- How long you take to pay it back (the amortization period)
Shop around and compare interest rates. You also may end up with a better rate if you negotiate with your lender.
Your down payment
The bigger your down payment, the smaller your mortgage and the less interest you’ll pay. Aim for a down paymentDown payment The money you put into buying a large item like a car or home.+ read full definition of at least 20% of the purchase price.
If you can’t afford to put down 20% of the purchase price, you’ll need to apply for a high-ratio mortgageMortgage A loan that you get to pay for a home or other property. Often the loan is for 20 years or more. You make a set number of payments for a set amount each year.+ read full definition. You will have to buy mortgage default insurance with this type of mortgage because there is a greater chance you may default on your mortgage payments.
Where to get a mortgage
- Mortgage companies
- Insurance companies
- TrustTrust An account set up to hold assets for a beneficiary. A trustee manages the assets until the beneficiary reaches legal age.+ read full definition and loanLoan An agreement to borrow money for a set period of time. You agree to pay back the full amount, plus interest, by a set date.+ read full definition companies
- Credit unions.
Consider a mortgage brokerBroker A registered person who brings together someone who wants to buy investments with someone who wants to sell. Brokers often charge a fee or commission for buying and selling investments for you.+ read full definition
A mortgage broker has access to a number of lenders and may be able to get you a better deal. And it costs you nothing – most lending institutions will pay the broker’s fee.
How much interest you pay depends on:
- How much you borrow
- The interest rateInterest rate A fee you pay to borrow money. Or, a fee you get to lend it. Often shown as an annual percentage rate, like 5%. Examples: If you get a loan, you pay interest. If you buy a GIC, the bank pays you interest. It uses your money until you need it back.+ read full definition on the loan
- How long you take to pay it back
In 2011, about 40% of all recent buyers in Canada got their mortgages through mortgage brokers. This number does not include mortgages that were refinanced or renewed.