Mortgages A to Z: Essential Mortgage Concepts Homebuyers Need to Know

There are some essential mortgage concepts you should be familiar with when you are looking at homes in a new community in Calgary and Airdrie. The key concepts you will want to research ahead of time are:

• Down Payments
• Interest Rates
• Interest Types
• Monthly Payments

Each of these concepts directly affects the amount you will pay on your mortgage after you are approved for financing. Let’s take a look at these and how they affect your mortgage amounts.

Down Payments

The amount of money you put down on the home reduces the amount you need to finance. The larger the down payment, the less you finance, and the lower your monthly payment. Most lenders like to see between ten and twenty percent down before considering a loan application.

The amount required varies based on the loan program, lender, and other factors. To calculate how much you need down, take the purchase price of the home and multiply it by 10 or 20 percent.

To illustrate, the list price of the home is $427,000. A ten percent down payment is $42,700 and a twenty percent down payment is $85,400. If you only put ten percent down, you would then need to finance $384,300, compared to $341,600 with a twenty percent down payment.

Interest Rates

Interest rates on mortgages are influenced by the current market conditions, economic conditions, and other financial factors. Interest on mortgages is normally calculated over the life of the loan to give you an idea how much you could pay if you only make your regular monthly payments.

Interest Types

The two interest types are fixed rate and adjustable rate. With fixed-rate mortgages, your interest rate is set and does not change, no matter if rates go up or down. With adjustable rate mortgages, if interest rates go up, your rate can increase, along with your mortgage payment. However, when they go down, it does not always mean your rates will also go down.

Monthly Payments

Your monthly mortgage payment is broken down into several smaller payments, which could include:

• Interest
• Principal
• Prepaid Property Taxes
• Prepaid Homeowner Association Dues
• Prepaid Insurance

When you first start making payments, the majority of the payment goes toward interest first and then the principal balance. Over time, the amount paid in interest goes down and more of your monthly payment goes toward the principal.

Prepaid items are put into an escrow account. Every year, the money paid into escrow is used to pay for these additional expenses. The amounts can change annually, so your monthly payments could go up as a result.

• Home Financing Tip: There are mortgage calculators with down payment apps online you can use to help give you an approximation of monthly payments.

For assistance in finding a new home or building your own home in NW and NE Calgary and Airdrie, please feel free to contact Genesis Builders Group at (403) 265-8079 today!