Hello everyone my name is Kevin Carlson, I'm a mortgage broker here in Canada. Thank you so much for joining me on my channel today to learn a little bit more about mortgage financing. Today I'm going to be going over mortgage financing 101, going back to the basics of exactly what a mortgage is and kind of the ins and outs of the
different types of mortgages that there are. If you've ever had just a standard loan like a student loan or car loan, you know that those loans are set up as like a term so the terms
can be anywhere between say 3 years, 5 and sometimes even 7 years to pay the life of the loan off. The payments are set up as such that there will be a zero balance at the end of the term. Now mortgages really aren't set up that way, initially. When you go to purchase a home if you
were to set up mortgage up for a term of only 5 maybe 7 years and your mortgage is over 2 or
3 hundred thousand dollars, well the payments might be a bit excessive.
So for that reason mortgages are split up into shorter terms over a longer amortization, so that is the entire life of the mortgage. If you're purchasing a home with less than 20% down payment the maximum amortization
available is 25 years. If you're putting more than 20% down or you're mortgaging your house for no more than 80% of its value then you can have a maximum amortization of up to 30 years. The terms that are available to split up your mortgage amortization into is anything from 6 months up to a 10 year term. As a mortgage broker one of the key things that I need to do is keep a keen eye on
the term that the client might be requiring. One of the big questions that I often ask for home buyers especially is how long do you think you'll be in this home. Will you be in it for 1 or 2 years or will it be longer.
I always try to match the term of the mortgage with their ownership goals so if they're only looking at being in the house for a couple years then a 5 year fixed and closed term is really not for them. I look to put them into something much shorter to avoid any penalties. So let's go over the different types of mortgages there are so there's the open term mortgage where you're allowed to pay the mortgage out anytime you want without any penalty. An open term mortgage is for people who aren't sure how much longer they're gonna be in that mortgage and in that house, it's typically for people who are just needing short term mortgage money and they're gonna be moving on soon. We don't recommend open mortgages for very long at all if you have an open mortgage the interest rates going to be a little bit higher than if you had a closed term mortgage. On the other side there is a closed mortgage, so a closed mortgage means that you can't just pay it out whenever you want and you need to keep a keen eye on that term.
So closed mortgage you could be exposed to some penalty if you pay the mortgage out before the term is up. So let's talk about the other type of mortgages are there there's fixed-rate mortgages and variable rate mortgages. So fixed-rate mortgages. just like it sounds it's a mortgage is a fixed rate for a given term and those are available anywhere between that 6 month and the 10 year term.
Variable rate mortgages they cut out ride the market so they can be done between a 3 or a 5 year term on a variable rate and what happens is that the rate is based on the Bank of Canada prime lending rate, so typically your variable rate will be prime minus a certain amount anywhere between say 1/2% to 1%. Now if the prime rate starts climbing and you start getting nervous well you're actually allowed to lock that rate in later so even though you took a variable and prime starts climbing up and you get a little bit nervous go ahead and lock it in, you just contact the lender and the rest of your term is gonna be done on a fixed rate based on what their fixed rate term is at that day.
Over the last 30 years variable rates have actually done really well, but we've seen quite a bit of market volatility and they're not always the best choice, so it really matters on what's happening
with prime at the time and with fixed rates at the time so sometimes variable rates a great idea and then sometimes fixed rates are. One of the big benefits with a variable rate is that the penalty
is almost always going to be just 3 months worth of interest, whereas a fixed rate you could be facing some pretty stiff penalty based on what your current interest rate is and what the rate is going to be at the time.
This is why it's really important to make sure that you try to match the
term of your mortgage with how long you're going to be there. This helps you avoid any prepayment
penalties that you might be looking at. With both of the fixed rate and variable rate mortgages over and above your just your regular payment you're actually allowed to do what's called pre payments, so over and above your regular payments you're allowed to do pre payment privileges of usually up to 15% of the original mortgage amount as a lump sum once per year and you're also allowed to increase your payments by typically at least 10% if not 15% sometimes 20% to your original payment to reduce your amortization a lot faster and pay your mortgage off quicker. So that's about it for mortgage basics I think I've gone over most of the important points when it comes to mortgage financing and the different types of mortgages there are.
Thank you so much for joining me on
my channel and if you're looking for mortgage financing and you live in Canada I would be more than happy to help you. Please contact me through my website which would be linked below and I'd be more than happy to get in touch with you. If this is your first time on my channel maybe go have a look at some of the other videos that I've done on home purchase and purchase plus improvements and even mortgage refinancing. If you enjoy my videos I would encourage you to like or comment on any of them and also subscribe to my channel to be notified when additional videos come out.
Thank you so much for your time and have a great day..