Debt Pay Off Part 2 – The Mortgage

This is part 2 of a series of how I paid off $95,778.5 in less than 3 years.

I was 20 years old when I bought my first property. It was a joint venture with my mother. Prior to purchasing our first home we were renting, so this was quite an adventure for the both of us. I wouldn’t recommend buying a property with someone else unless you REALLY trust them and like them. Of course if you are going to live with someone, it should be someone you get a long with and you know quite well.

Since this was my first purchase, I knew very little about purchasing a home. I worked at the Bank of Montreal at the time, so I decided to do some research before making this big leap. The big question I had was, what exactly was a mortgage and how did it work. Yes you read right, I worked in a bank and didn’t fully understand what a mortgage was and how it worked. I knew it was a loan, but that was it. So please do research before you decide to get a mortgage.

Research is very important when selecting a mortgage. Before you get a mortgage, ask as many questions as you need answers to. Ask, ask, and ask. You can never ask too many questions, plus there’s no point in going into that much debt without being completely at ease that you understand what you’re getting in to. Your banker should be able to answer all of your questions. If they don’t know the answer, try someone else.

Mortgages can be very complicated and it’s easy to get in over your head if you don’t fully understand how they work. Webster’s definition of a mortgage is a conveyance of or a lien against property (as for securing a loan) that becomes void upon payment or performance according to stipulated terms. In other words the bank technically owns your home until you pay off your mortgage.

Types of Mortgages

Conventional Mortgages

If you have 20% or more of the purchase price (or appraised value if this is less than the purchase price) as a down payment, you can apply for a conventional mortgage.

High Ratio

If you have less than 20% of the purchase price (or appraised value if this is less than the purchase price) as a down payment you will require mortgage loan insurance. There are three mortgage loan insurance companies in Canada. Canada Mortgage & Housing Corporation(CMHC), Genworth, and Canada Guaranty. Purchasing insurance is a very common way to qualify for a high ratio mortgage. The insurance premium is charged once per mortgage and is payable at the time of advance. You may pay this upfront yourself or you can just add it to your mortgage, which is what most people do.

Home Owner Line of Credit(HOLC) or Home Equity Line of Credit (HELOC)

This is a little bit different from a mortgage, but it falls under the same category. This is usually offered if you have outstanding credit and have 20% or more as a down payment. A HOLC allows you to borrow from the value of your home up to an approved credit limit. This is revolving and a mortgage is not.

Click here for part 3

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Debt Pay Off Part 3 – Interest Rates, Terms, and Amortizations

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