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Canada loans: the basics of mortgage

Canada loans: the basics of mortgage

Buying a house is an important achievement, but the process behind buying one isn’t merely showing up to the front doorstep at a house that’s for sale with a suitcase full of cash. In Canada, what you’ll need is a mortgage, which is a loan from the bank or an alternative lender that allows you to buy real estate. This gives the everyday Canadian equal opportunity to obtain property instead of requiring the full amount at the very start.

Mortgages can also be considered as a contract between the homebuyer and the lender. Borrowers, also known as the mortgagors, are expected to provide a portion of the purchase price (known as a down payment) at the beginning of the mortgage contract and to continue making payments on a bi-weekly or monthly frequency. The house can act as security; if at any point the mortgagors miss too many payment dates, the property can act as collateral.

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a family looking at their new house

How does a mortgage work?

Before you receive a home loan, you must first apply for it. The application process is important and can determine the outcome of your approval. Financial institutions will conduct credit history, job history, income and credit score checks and will assess your ability to make the required mortgage payments based on the qualification criteria in  the mortgage stress test. Upon successfully passing the stress test and other background checks, you will receive your mortgage approval.

Traditional banks will always carry out these credit and income checks because the results act as proof that mortgagors will be able to afford the mortgage payments with ease. An alternative solution for getting approved with a less than ideal credit background is to provide a large initial down payment. Regardless of your financial status, getting a mortgage means providing  at least 5% of what the house is worth to the financial institution. Those with lower credit scores might be expected to pay more.

After you have been approved and you’ve paid the initial charge, the mechanics of a mortgage is rather straightforward. Once you are given a mortgage, you have an obligation to pay at the frequency that you and the lender agreed upon (typically bi-weekly or monthly). Each payment includes a portion of the interest accrued on the mortgage and a contribution to the principal amount. The duration of a mortgage term varies, but you can expect to see them last 15 to 30 years.

About mortgages on additional property

If you’re already a homeowner, you’re probably familiar with the process of getting a mortgage is, so you might be wondering how different a second mortgage can be from a first. For one, additional mortgages aren’t just for acquiring a second piece of property, even if that’s the most common reason that people apply for another mortgage. They can also be used access the house’s equity or to refinance the mortgage. On the other hand, first mortgages are typically only used towards the property.

When you want to acquire another piece of property, you’ll go through a similar process, with income and credit checks, but the expectations of the mortgagor to qualify may be higher. Getting another home requires a larger down payment, which would be 20% of the house’s value, a significant difference from the first house’s 5%. However, if family members are going to be the ones residing in the property, you may be allowed to pay less than 20%.

The main point is that financial institutions and some alternative lenders want you to be able to pay for two properties at the same time so being able to meet the higher criteria is very important to them. However, not every alternative lender will propose the same criteria. For one, Alpine Credits doesn’t have the same criteria that banks do, thus providing homeowners with an advantage.

Are there mortgage alternatives?

The process of applying for and obtaining a mortgage to buy real estate doesn’t appear to be going out of style anytime soon. Borrowing a large amount of money from the bank is currently the only way to buy a home unless the purchaser has a significant amount of liquid cash to make the purchase outright. Even so, mortgages are beneficial to both mortgagors and lenders. Mortgagors don’t have to save hundreds of thousands of dollars to purchase a house and lenders have the home loan secured by the property’s value.

Some people may look into personal loans because they are aware of the mortgage stress test and their credit scores, but applying for a mortgage is still the safest way to obtain a house. Banks aren’t the only place to get a mortgage, and they can be received from alternative lenders with less stringent criteria and just as many benefits.  An example is Alpine Credits who considers borrowers to satisfy fewer lending criteria.

Where to get a better mortgage

As previously mentioned, mortgages can also be obtained from alternative lenders, not just from the bank. While some lenders will act similarly to financial institutions by looking into borrowers’ credit histories or income, Alpine Credits only considers one factor: home equity. Equity is calculated by taking the difference between outstanding mortgage and the real estate’s overall value.

By only examining equity and not credit histories or income, mortgagors will have a greater chance of getting approved. Alpine Credits helps homeowners access up to 80% of their home’s equity. As long as you have paid down at least 25% of the mortgage, you could be eligible for a home equity loan from Alpine Credits.

Contact one of our Financial Solutions Specialists today. The call is obligation free and anyone on the team will be able to answer all your questions regarding second mortgages with home equity.

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