How a Mortgage Works
When you apply for a mortgage, you apply for a specific loan amount. The loan amount isn’t the home’s purchase price. The home purchase price minus your down payment is your loan amount.
Lenders look at down payments in percentages. For example, if you buy a home for $100,000 and the lender requires a 5% down payment, you’d need $5,000 of your own funds, plus the closing costs and land transfer taxes.
Along with choosing your mortgage term, rate type, and down payment, you’ll choose a payment option from the following:
- Monthly – Make 12 payments per year
- Bi-weekly – Make 26 payments per year
- Weekly – Make 52 payments per year
- Semi Monthly – Make payments twice a month
With each payment option, lenders start with the traditional monthly payment. If you choose bi-weekly or weekly payments, lenders take the monthly payment, multiply it by 12, and divided it by the number of payments (26 or 52). The accelerated bi-weekly payment takes your monthly mortgage payment divided by two; you pay that amount twice a month.
A mortgage is an agreement between you and the lender. Understanding the factors affecting your mortgage helps you choose the right option. You want an affordable mortgage, but one that includes the most attractive terms, making the most out of your investment in your home.