A mortgage is one of the most important financial tools you’ll use in your lifetime. It’s how most people in New Brunswick buy a home and understanding how it works puts you in control of the process and helps you make decisions that fit your life and your budget.
What is a mortgage?
A mortgage is a loan that helps you buy a home. It’s a legal agreement between you and a lender, where your home acts as security for the loan. If you meet all the terms of the agreement, you will own the property outright by the end of the specified period -- usually 25 years.
Unless you’ve saved hundreds of thousands of dollars, you’ll likely need a mortgage. That’s true for most New Brunswickers. Understanding how mortgages work can help you borrow wisely and avoid surprises down the road.
Mortgages come with a lot of terminology, but the main components of the typical mortgage are the principal, interest, amortization period, and term.
The amount of money you borrow from a lender to buy your home. It’s calculated by subtracting your down payment from the total purchase price. For example, if your home costs $300,000 and you pay $60,000, your principal is $240,000.
Why it matters: Your principal is the base of your loan. The larger your down payment, the smaller your principal—and the less interest you’ll pay over time.
The cost of borrowing money. It’s a percentage of your principal that you pay to the lender. Interest rates can vary depending on your personal credit score, income, the lender’s terms, and the Bank of Canada’s prime rate.
Why it matters: Even a small change in your interest rate can make a big difference in your monthly payments and the total cost of your mortgage.
The total length of time you’ll take to pay off your mortgage. In Canada, the typical amortization period is 25 years, but it can be shorter or longer depending on your financial situation and lender.
Why it matters: A longer amortization period means lower monthly payments—but you’ll pay more interest over time. A shorter period means higher payments, which means you could be mortgage-free sooner and pay less interest overall.
The length of your current mortgage agreement—usually between 1 and 10 years. During this time, your interest rate (fixed or variable) and lender terms are locked in. When the term ends, you’ll need to renew your mortgage based on the remaining balance, often at a new rate.
Why it matters: Think of the term as a checkpoint. It’s a chance to reassess your financial goals, compare lenders, and potentially negotiate better terms.
Your interest rate stays the same for the entire term. This gives you predictable payments and stability, which can be helpful for budgeting.
Your rate can go up or down based on market conditions. If rates drop, you’ll pay less interest. If they rise, your payments could increase.
Choosing between fixed and variable depends on your comfort with risk. If you prefer consistency, fixed might be best. If you’re okay with some uncertainty and want to potentially save money, variable could work for you.
Leaves you “open” to make additional payments without penalty. This gives you the option of paying off your debt quicker by making extra lump sum payments or accelerated payments. The added flexibility usually comes with a higher interest rate.
You’re limited in how much extra you can pay. Some closed mortgages charge penalties for early repayment, while others allow small prepayments each year.
If you expect to pay off your mortgage quickly or make lump-sum payments, an open mortgage may be worth a higher interest rate. If you want lower interest and don’t plan to pay extra, a closed mortgage might be a better fit. Always review and understand your loan agreement to make sure you have the flexibility you need for your financial situation.
Before you start house hunting, it’s important to know how much you can afford. A lender can pre-qualify for a certain-sized mortgage you based on your income, assets, and debts. This gives you a rough idea of how much you can borrow.
For more certainty, get pre-approved. This means a lender has reviewed your finances and agreed to lend you a specific amount. Pre-approval helps you shop with confidence and shows sellers you’re serious.
Also, keep in mind that lenders will often require proof of homeowners’ insurance before finalizing your mortgage.
Mortgage brokers and associates are licensed professionals who help you find the right lender. They don’t lend money themselves—they act as intermediaries between you and potential lenders.
When working for you, a broker will compare offers from different lenders to find the best fit. In New Brunswick, brokers must be licensed and meet education requirements set by the Financial and Consumer Services Commission of New Brunswick. Check if your mortgage broker is licensed.
Once you’re pre-approved and ready to buy, your mortgage becomes part of the home-buying process. You’ll work with your lender to finalize the loan, sign the paperwork, and start making payments. From there, your mortgage becomes part of your monthly budget—and your long-term financial plan.