How Does a Mortgage Work?

A mortgage is a loan that a lender gives you to buy a home or piece of land. It is typically structured to be paid over a period of 25 years. Without a mortgage, the only way to buy a home is to have enough cash to cover the entire cost. Good luck with that Rockefellar!

Your mortgage payment has a principal portion and an interest portion. The monthly payment is both of these portions added together. You can see exactly how much principle and interest your paying over the course of you mortgage by looking at the amortization table. To see an example of an amortization schedule check out our mortgage calculator.

The lender will qualify you for a mortgage based on:

Down Payment

Credit History and Score



Your mortgage payment is based on:

Mortgage Amount

Interest Rate

Amortization Period

Generally, you will need a credit score of 680 or higher to get a mortgage. It is possible to get financing with a lower credit score, but you’ll probably have to pay a larger down payment.

The Importance of a Mortgage Broker

The first step to getting a mortgage is to get prequalified by a mortgage broker. You can also get a mortgage directly from a bank, but we recommend using a broker as they have access to many lenders and can typically get you a better rate and a product that will suit your specific needs.

We have personally worked with brokers as well as banks for mortgages and prefer working with a broker.

Mortgage brokers are paid a commission from the lender on your mortgage.
It doesn’t cost the home buyer anything to use a mortgage broker.

A mortgage broker works for you as their client. They act in your best interest at all times.

A mortgage specialist at a bank works for the bank as their client.
They will be acting in the lenders best interest at all times.

To figure out what your mortgage payment would be, check out our mortgage calculator.

Mortgage Calculator

Stress Test

If you haven’t heard of the stress test, it’s a rule that the government of Canada has put in place to limit your buying power. Their reasoning behind it is to prevent you from buying a property that you won’t be able to afford in the future - If interest rates go up.

The government of Canada has put in a stress test qualifying rate of 2 percentage points higher than your actual mortgage rate or 5.25%, whichever is higher. What this means is that when determining how much financing you qualify for, the lender will use an interest rate of 5.25% to determine your qualifying mortgage payment. Now, this is not the mortgage payment that you’ll be paying, its only used to see that you could afford your mortgage payment if interest rates were to rise in the future.

Example of a 25 year mortgage

Mortgage Amount
Lender Rate
Mortgage payment
Qualifying Rate
Qualifying Mortgage Amount

Your actual payment will be $2,018 based off the lenders rate.  The lender will use the qualifying mortgage payment of $2,696 to be sure that you can afford that payment,  if rates go up.

Looking for more information? Get personalized advice from our team!