Buying a home in Canada is a long-cherished dream for many of us. But to make that dream a reality, most of us don’t have hundreds of thousands of dollars in our bank accounts. Here’s when financial institutions lend a helping hand by offering home mortgages. However, getting mortgage approval is easier said than done. It is a long, arduous process that comes with many rules and regulations. So, how do mortgages work? Let’s dive into the details to find out more about mortgages in Canada.

What is a home mortgage?

A mortgage is a loan that can be used to purchase a property. Usually, it is a large sum that you pay off in a period of 25 or 30 years. When you sign up for a mortgage, you are not only signing up for a large amount of money. You are also signing up to make regular payments comprising the interest and principle. And in the process, you also agree to let the lender take possession of your property should you default in your payments.

What is the process for a mortgage?

To acquire a mortgage in Canada, the foremost requirement is to qualify with a financial institution. All banks and lenders have strict qualification rules, and once you qualify, the bank transfers the required amount to the seller of the property you’ve purchased. Now, you own the property, but you have to repay the mortgage to your lender. The amount and the duration of your payment are dictated in the terms and conditions laid by your lender.

What should you do to get a mortgage in Canada?

In Canada, the requirements to get a mortgage have become more stringent in recent years as the government explores ways to protect the borrower and the housing market. There are stricter rules to reduce lenders granting mortgages to people who cannot afford to repay them.

A “mortgage stress test” is important metric Canadian banks use to assess your financial ability to repay the mortgage. Passing this stress test means you can afford monthly repayments at a higher interest rate than the current one. Hence, you need to prove that you are financially sound enough to pay your mortgage if the rate increases, which eventually will.

To skip this stress test, some people opt for mortgages from credit unions and other lenders who do not conduct stress tests. However, you should know that they will also have stringent qualification rules to lend mortgages.

Once you are pre-approved, you can start looking for a home that suits your needs. You will have to provide the proper documentation and paperwork to get your mortgage approved. Your lender will scrutinize your documents to check for authenticity and give the green signal only if all the information conforms to their rules.

When is the best time to ask for a mortgage?

The ideal time to think about a mortgage is when you are financially ready with a steady income and committed to living in the same location for at least ten years. Do you tick the above criteria? Then it’s time to buy your dream house!