What is a Mortgage?

A mortgage is a type of loan used to purchase real estate. In this agreement, a lender provides funds to a borrower to buy a home, and the borrower agrees to pay back the loan over time usually in monthly instalments with interest.

Until the loan is paid off, the lender holds a legal claim on the property. If the borrower fails to meet the repayment terms, the lender can foreclose on the property to recover their money.

How Does a Mortgage Work?

Mortgages typically involve:

• Principal – the amount borrowed.
• Interest – the cost of borrowing money.
• Term – the duration of the loan (usually 15, 20, or 30 years).
• Monthly Payment – includes principal, interest, property taxes, and insurance.

Each monthly payment reduces your loan balance (principal) and pays interest. In the early years, a larger portion of the payment goes toward interest. Over time, more of your payment reduces the principal balance.

Types of Mortgages

There are several types of mortgage loans. Understanding each can help you choose the right one for your situation:

1. Fixed-Rate Mortgage

• Interest rate remains the same throughout the loan term.
• Predictable monthly payments.
• Best for buyers who plan to stay long-term.

2. Adjustable-Rate Mortgage (ARM)

• Interest rate changes periodically after an initial fixed-rate period.
• Initial rates are usually lower.
• Suitable for buyers who plan to sell or refinance early.

3. FHA Loans

• Insured by the Federal Housing Administration.
• Low down payment (as low as 3.5%).
• Designed for first-time buyers or those with lower credit scores.

4. VA Loans

• Available to eligible veterans and active military.
• No down payment required.
• Backed by the U.S. Department of Veterans Affairs.

5. USDA Loans

• For rural and suburban homebuyers.
• Low or no down payment.
• Income limits apply.

6. Jumbo Loans

• For high-value homes that exceed conforming loan limits.
• Require excellent credit and a larger down payment.

Mortgage Process Step-by-Step

Here’s a breakdown of the typical mortgage process:

1. Pre-Approval

Before house hunting, get pre-approved. This shows sellers you’re a serious buyer and reveals how much you can afford.

2. House Hunting

Find a property within your budget. Work with a real estate agent to compare listings and make offers.

3. Mortgage Application

Submit a formal application. Provide documents like income statements, bank records, and credit history.

4. Loan Processing

The lender verifies your financial details, orders an appraisal of the property, and checks title history.

5. Underwriting

An underwriter evaluates the risk of lending to you. They may ask for additional documentation.

6. Approval & Closing

Once approved, you’ll sign the final paperwork, pay closing costs, and officially become a homeowner.

Factors That Affect Mortgage Approval

Lenders evaluate several criteria before approving a mortgage:

• Credit Score: Higher scores get better rates.
• Debt-to-Income Ratio (DTI): The percentage of income used to pay debts.
• Employment History: Stable jobs show reliability.
• Down Payment: Larger down payments reduce risk for lenders.
• Savings/Assets: Lenders want to see that you can cover payments in an emergency.

Tips for Getting the Best Mortgage Deal

1. Improve Your Credit Score: Pay off debts and keep credit usage low.
2. Save for a Down Payment: Aim for at least 20% to avoid PMI (private mortgage insurance).
3. Compare Lenders: Get quotes from at least 3–5 lenders.
4. Lock In Your Rate: Interest rates can fluctuate, lock it in when it’s favourable.
5. Understand All Costs: Account for taxes, insurance, HOA fees, and closing costs.
6. Avoid New Debt: Don’t open new credit lines before closing.

Final Thoughts

A mortgage is likely the biggest financial commitment you’ll ever make. The more you understand it, the better your chances of securing a favorable loan and avoiding costly mistakes.

Whether you’re buying your first home, refinancing, or just exploring options, being informed puts you in control.

If you’re ready to take the next step or need help comparing mortgage offers, contact our expert advisors today.