Mortgage contracts are legal agreements and can be complex. Before signing, make sure you fully understand all terms and conditions.
Mortgage Preapproval vs. Mortgage Approval
A mortgage preapproval is an early estimate of how much you may be able to borrow based on your financial information.
However, a preapproval is not a guarantee you will receive a mortgage.
Final approval depends on:
- Verification of your financial documents
- The lender’s full assessment of your finances
- The property meeting the lender’s requirements
The total cost of a mortgage is usually much higher than the amount borrowed.
This cost depends on factors such as:
- Interest rate
- Payment frequency
- Amortization period (the time it takes to fully repay the mortgage)
- A shorter amortization period usually reduces the total interest paid, but it increases your regular payment amount.
Your lender or mortgage broker must provide an estimate of the total borrowing cost for your mortgage term.
Mortgage payments can be scheduled in different ways, such as:
- Weekly
- Biweekly
- Monthly
- Semi-monthly
More frequent payments can help reduce interest costs and pay off your mortgage faster, but only choose a payment schedule you can comfortably afford.
Your interest rate significantly affects the cost of your mortgage.
Common types include:
Fixed rate
The interest rate stays the same for the term of the mortgage.
Variable rate
The interest rate can change during the mortgage term.
Convertible rate
Allows you to switch from a variable rate to a fixed rate under certain conditions.
Understanding these options helps you choose a mortgage that fits your financial situation.
Mortgage contracts often include fees and penalties. Make sure you understand when they apply and how they are calculated.
Your mortgage broker must clearly disclose all fees in advance.
Common fees include:
Prepayment Penalties
Prepayment means paying more than your regular payment or paying off your mortgage early.
Some mortgages allow limited prepayments without penalties, while others charge significant fees.
Early Exit Penalties
Mortgages are typically agreed to for a set term (often one to five years). Ending the mortgage early may result in penalties.
Administration and Discharge Fees
You may need to pay administrative fees if you:
- Switch lenders
- Pay off your mortgage early
- Exit your mortgage agreement
Late Payment Penalties
Late payments can trigger additional fees and interest charges.
Be Honest on Your Mortgage Application
All information provided to a lender or broker must be accurate and truthful.
Providing false information can result in:
- Mortgage fraud charges
- Legal consequences
- Credit damage
A straw buyer is someone who applies for a mortgage on behalf of another person.
This is illegal and can lead to:
- Financial responsibility for the mortgage
- Damage to your credit
- Legal action or criminal charges
If someone asks you to apply for a mortgage for them, refuse.
Mortgage brokerage payments should be made to the brokerage or company—not directly to an individual broker.
If someone asks for cash payments or payment directly to them, refuse and contact the brokerage.
Some individuals may encourage you to borrow against your home to invest.
Remember:
- All investments carry risk.
- You may lose your investment.
- Your mortgage must still be repaid regardless of investment performance.
Some companies promise large mortgage savings through special programs or strategies.
These offers may involve:
- Hidden fees
- High costs
- Minimal actual savings
Before agreeing to any program, consider getting a second opinion from a mortgage broker or financial professional.