Q

What is a mortgage?

A

It's a loan provided by a bank or another kind of creditor using a property as collateral.

A mortgage is a loan provided by a bank or another kind of creditor using a property as collateral — meaning that until the loan is entirely paid off, your creditor has a right to take possession of the property and sell it should you default on the loan. In order to get a mortgage, you’ll need some cash on hand to use as a down payment on a property. Twenty percent of the selling price of the home is considered a standard amount you’ll need, but there are mortgages to be had for as low as 5% down (those flush enough to buy a house for a million dollars or more, however, will need to come up with a 20% down payment.)

Most prudent financial minds suggest exercising the utmost caution when considering one of these low down payment loans. Not only will your monthly payment be comparatively high since you’re starting with almost no equity on your property, any mortgage with a less than 20% down payment requires you to purchase mortgage insurance from the Canada Mortgage and Housing Corporation — a product that will cost you between 2.8 to 4% of the mortgage amount. And Canadian homebuyers can never get too comfortable with any one interest rate, since the maximum term of any loan is 5 years (though that amount can be amortized, or paid off, in as many as 25 years.)

Unlike our southern neighbours, whose homes are tied to a specific mortgage, here you and your mortgage are mobile, and if you move before the term of your mortgage is up, you can apply that mortgage to a different house and get an additional loan should you be moving into a more expensive abode.

One big warning: no good can come of defaulting on your mortgage. If you stop paying for long enough, the bank will initiate a power of sale, and you could be evicted and the house auctioned off. Should the sale bring in more than you owed plus all the associated expenses, you may be able to recover some of what you sunk into the place. If the sale falls short of what’s owed, and you lack mortgage insurance, the lenders may even go after your wages. Avoid this expensive scenario at all costs.

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