What are The Different Mortgage Types

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There are actually around 50 different types of mortgages available in Canada today! There’s everything from a ‘Canadian military’ mortgage to an ‘insured new to Canada’ mortgage to a ‘reverse mortgage’. I’m not going to describe them all for you. What I will do is briefly describe the most common kinds of mortgages, ones that most people will probably choose from when deciding to buy a home.

A Conventional or Low-Ratio mortgage is when you have 20-25 percent or more of the home’s purchase price as a down payment. For this kind of mortgage, you usually don’t need mortgage protection insurance. You can get this mortgage at any major financial institution.

A High-Ratio mortgage is when you have less than a 20 percent down payment of the purchase price of a home. This kind of mortgage must be insured through a mortgage insurance company. The premium is charged only once per mortgage. Most people add the price of the insurance on top of the mortgage instead of just paying it outright.

With an Open Mortgage you’re able to pay any amount over the set payments whenever you want. So you can pay off your mortgage in part or in full at any time with no penalties. You’re also able to renegotiate your mortgage if you choose, when you choose. However, this flexibility comes with a high interest rate.

The Closed Mortgage involves set payments every month, no more, no less. You must pay a ‘prepayment compensation’ if you want to make any kind of change before the end of your term. The good news is you’ll get a lower interest rate.

Choosing a Fixed Rate Mortgage gives you a mortgage rate that won’t change for the term of your mortgage – the payments stay the same as well. No worrying about the market or changing interest rates. This peace of mind comes with a slightly higher interest rate.

On the other hand, a Variable Rate Mortgage is affected by changes to the prime lending rate set by your lender. It doesn’t affect your monthly payment. What is does affect is the portion of your monthly payment going toward interest costs. When interest rates go down, you’ll pay your mortgage down faster. If interest rates go up, not only will it take longer, it will cost you more.

Then there’s a Capped Variable Rate Mortgage. This also has a variable interest rate but it has a maximum rate that you decide on with your lender at the beginning of the term. If the market goes above this pre-determined rate, you pay only that maximum rate, nothing more.

The Adjustable Rate Mortgage offers a low interest rate and low payments for a limited period – usually from one month to five years. At the end of that term the mortgage is adjusted to a new rate with new payment terms. If you don’t plan on staying more than five years in a house, it’s a good choice.

A Collateral Mortgage lets you borrow money from your home during the term of your mortgage if you meet certain conditions– and you don’t have to refinance or pay legal fees. However, you cannot transfer this mortgage to another lender when the term is up. Some home buyers don’t realize they’re signing a collateral mortgage, so make sure to read all the fine print.

A home owner 62 years and older can convert equity in their home into cash with a Reverse Mortgage – without selling the home and with no monthly payments. They can borrow between 10-40 percent of the home’s appraised value. The loan and accrued interest is paid when the owner sells the property or dies.

If you don’t have the best credit, you need fast financing, and you want a short term loan, you can get a private Interest Only mortgage from a private mortgage lender. It usually runs from 1-3 years. Instead of judging the borrower solely on their credit history, private lenders consider the house’s overall value and marketability.

As you have seen, there’s a lot to choose from when it comes to getting a mortgage. Work with your financial institution or a mortgage broker to find just the right loan for your specific circumstances. As always, exercise due diligence when it comes to doing your own research, and reading the fine print on anything you’re asked to sign. Don’t be afraid to stop the process until you’re completely satisfied that you know exactly what you’re getting into, and that it’s what you want.

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