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Disclaimer: This article is intended for the purposes of providing information on mortgages in Ontario and is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
With housing prices creeping higher and higher, most home purchases involve a mortgage. The first step in the home-buying process is often getting pre-approved for a mortgage, which gives you an idea of how much you can afford to spend on a home.
With mortgage requirements changing and interest rates rising, it is more important than ever to fully understand the principles behind how a mortgage affects your purchasing decisions. This article will outline how your mortgage relates to the purchase of your home, including reverse mortgages. For any other questions about mortgages in Ontario, we encourage you to reach out to our team today!
What is a mortgage?
A mortgage is a loan that you use to purchase a home or other property. The loan is secured by the home itself. This means that if you default on the loan, the bank can foreclose on the home to recoup its losses.
The lender is typically a bank or other financial institution, and the borrower is the person taking out the loan. You may hear someone refer to your mortgage as a “charge”, especially in the context of registering it on the title of your property.
The mortgage gives the lender an interest in the property. This means that if you default on the loan, they can take possession of the home and sell it in order to recoup their losses.
There are many options to choose between when it comes to your mortgage, such as its term and interest rate. You can also choose between a fixed-rate or variable-rate loan. Discuss these choices with your lender or mortgage broker to get a better sense of what the right choice is for you.
Pre-approval versus a letter of commitment
A pre-approval is not the same thing as a letter of commitment. A pre-approval is simply an estimate of how much you could borrow based on your current financial situation. It’s important to remember that a pre-approval is not binding, and is subject to change if your financial situation changes.
A letter of commitment, on the other hand, is provided after a deeper level of analysis by the lender. It’s a binding agreement where the lender commits to loaning up to a certain amount, provided you meet certain conditions.
If you make an offer subject to financial approval, ensure you get a letter of commitment instead of a pre-approval. This will give you more peace of mind that your financing is in order before moving forward with the purchase.
What is a reverse mortgage and should I obtain one?
A reverse mortgage is reserved for those over 55 years of age. It allows them to borrow against the equity in their home. The borrower does not have to replay the loan until the borrower dies or sells their home.
The pros of a reverse mortgage are that it can provide you with additional income in retirement. As well, you do not have to repay the loan until you die or sell your home. The cons are that it can be expensive, and it can decrease the inheritance you leave to your heirs.
If you’re considering a reverse mortgage, speak with a financial advisor to ensure it’s the right decision for you.
Get the right advice for financing your home
Every step of the journey to your new home will run more smoothly if you have a team of professionals by your side. When it comes to your legal needs, trust our team at Beeksma Law to make sure that everything is in order.
One of our clients recently said, “Beeksma Law made our buying and selling experience stress free and easy.”
If you want a smooth real estate experience and information on mortgages in Ontario, contact our office and speak to our team. We would be more than happy to help.