Myths and truths about mortgages

Here, we’ll share a series of myths and truths about mortgages so that you can start your path with complete confidence.

A mortgage is an agreement you make with a lender, which gives the lender the right to take your property if you don't pay back the borrowed money plus interest.

Mortgages are used to either buy a home, or borrow money against the value of a home you already own.

Not really. This is a common misconception stemming from the historical way mortgages were created. A mortgage is a charge or debt on the property. Although it gives the mortgagee (the person who lends the money) certain powers over the property, it does not give them ownership of the property.

Yes. Mortgage lenders can exercise something known as “power of sale” if the mortgagor (the person who borrows the money and usually owns the property) fails to meet their obligations under the mortgage agreement.

However, this does not mean that the bank can show up at your door with a real estate agent, ready to sell the property, just because you have a late payment. The power of sale can only be exercised under very specific circumstances, and through very strict procedures.

Indeed, you will typically need a minimum deposit of 5% to buy a property. However, in recent years, some financial institutions have offered mortgages for 100% of the property’s value. Although there are not many 100% packages, it must be taken into account. To apply for this option, you must have a relative (or someone close to you) willing to serve as a guarantor, and offer their property as collateral.

Although the amortization of a mortgage may be less than what you pay for your monthly rent, this does not mean that a lender will automatically approve it. Before making a decision, the lender will evaluate your income and expenses in detail, to ensure that you can meet your payments in the event of a rate increase.

Despite having the ability to pay, getting a mortgage can be difficult if you have a low credit score. However, with many people facing financial difficulties in recent years, there are a number of lenders that are willing to help by offering packages specifically designed for people with low credit scores.

While it may be tempting to go straight for the cheapest option, there are other very important considerations to weigh in. This includes the type of agreement (interest rate/tracking agreement), the term of the mortgage, package fees and closing expenses, among others.

It's a common misconception that lenders view anyone who doesn't work full-time as a risk. With the rise of freelance, flexible, and contract work, some lenders today are able to take a much more individual approach when it comes to assessing people's employment status. There are many possibilities that you may qualify for a mortgage loan as long as your ability to pay comes from a stable, secure, and adequate source of income.

Many people in their 20s and 30s think owning a home is a very distant reality, but this is far from the truth. Although it is common for young people to see the deposit as the most significant obstacle towards obtaining a mortgage, this should not discourage them from buying a property. Purchasing a property at a young age can be a wise decision.

Mortgage lenders now offer loans for up to 95% of a property's value, meaning you'd only need to raise 5% for a deposit, not to mention the help from the government’s homebuyer assistance program.

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