The Difference Between Mortgages and Remortgages

Welcome to! As your reliable guide in the realm of home financing in Canada, we’re here to shed light on the often-confused subjects of mortgages and remortgages. Let’s embark on a journey to clarify the distinctions and understand the nuances of both.

Mortgages: The Starting Point

Definition: A mortgage is essentially a loan specifically used to purchase property or land. The crucial point to remember is that while you use the loan to buy your home, the lender holds the title to your property until the loan is entirely repaid.

Key Points about Mortgages:

  1. Down Payment: It’s the initial amount you pay towards your home’s purchase price. Typically in Canada, this ranges from 5% to 20% (or more).
  2. Interest Rate: Mortgages come with an interest rate – either fixed (remains constant for a set period) or variable (can fluctuate based on market dynamics).
  3. Term and Amortization: The term refers to how long you’re locked into a particular interest rate and conditions with a lender, usually between 1-5 years. Amortization is the entire duration over which you’ll repay the loan, often 25-30 years.

Remortgages: The Next Step

Definition: Remortgaging involves switching your existing mortgage to a new deal, either with your current lender or a different one. It’s essentially a process of revisiting and potentially revising the terms of your home financing.

Key Points about Remortgages:

  1. Reasons to Remortgage: Homeowners may choose to remortgage to benefit from a better interest rate, release equity for home improvements, consolidate debts, or adjust to new financial circumstances.
  2. New Terms: Remortgaging can lead to changes in interest rate type (from fixed to variable or vice-versa), monthly payments, or the length of the mortgage term.
  3. Process: While similar to getting an initial mortgage, remortgaging often requires a new home valuation, credit checks, and potential fees.

Mortgages vs. Remortgages: A Comparison

  1. Purpose:
    • Mortgage: Acquiring funds to purchase a property or land.
    • Remortgage: Refinancing an existing mortgage for various reasons, such as better terms, accessing equity, or debt consolidation.
  2. Application Process:
    • Mortgage: Involves thorough financial checks, property valuation, and potentially a larger down payment.
    • Remortgage: While still requiring financial checks, it focuses more on the current equity in the home and the homeowner’s repayment history.
  3. Associated Fees:
    • Mortgage: Includes property assessments, potential mortgage insurance if the down payment is below a certain threshold, and legal fees.
    • Remortgage: Homeowners might face early repayment charges if they change before their current mortgage term is over, valuation fees, and potential legal fees.

In Conclusion

While both mortgages and remortgages serve as essential tools in home financing, their roles and purposes differ. A mortgage sets the foundation of your homeownership journey, while remortgaging allows for flexibility and adaptation to life’s evolving needs and market conditions.

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