2.1 Mortgage Basics

Understanding the basics of mortgages is essential for first-time home buyers in Canada. A mortgage is a loan that allows you to purchase a property while paying back the borrowed amount plus interest over a specified period. Here are key elements to consider:

Mortgage Types: There are various mortgage types available, including fixed-rate mortgages, variable-rate mortgages, and hybrid mortgages that combine elements of both. Each type has its advantages and considerations, such as stability or flexibility in interest rates.

Mortgage Terms: The term refers to the length of time you commit to a particular mortgage agreement. Common terms in Canada range from 1 to 10 years. Shorter terms offer more flexibility but may have higher interest rates, while longer terms provide stability but may limit your options for renegotiation.

Interest Rates: Interest rates can be fixed or variable. Fixed rates remain the same for the entire term, offering predictable payments, while variable rates fluctuate with market conditions, potentially leading to savings or increased costs over time.

Amortization Period: This is the total time it takes to pay off your mortgage fully. The most common amortization period in Canada is 25 years, although shorter or longer terms are available. Longer amortization periods lead to lower monthly payments but result in higher interest costs over time.