There are a wide range of mortgages available to borrowers these days. Below is a list of the most common types of mortgages as well as other financing information that may be beneficial to you as a buyer.
Common Mortgage Options & Terminology
Pre-approved mortgages are a great option for many home owners, especially first time buyers. Pre-approved mortgages allow buyers to look for properties that they know will fall within their allowable mortgage budget which is based on their income, existing debts and current credit rating. If you think a pre-approved mortgage is a right fit for you, I am able to assist you with the process by putting you in contact with a lender that will best suit your specific needs and budget.
Any loan that is less than 80% of the purchase price is considered a conventional mortgage. A conventional mortgage does not require insurance as it is not considered a high risk mortgage.
High Ratio Mortgage – CMHC Insured Mortgage
Any loan that is more than 80% and up to 100% of the purchase price is considered a high ratio mortgage and is required to be insured. High ratio mortgages are typically insured by CMHC (Canada Housing and Mortgage Corporation). However, high ratio mortgages are sometimes insured by GE Capital, private insurers or Federal Government Corporations. The premium can either be added to the mortgage or can be paid in full on closing.
An open mortgage allows you to pay off your mortgage at any time without incurring any penalty. However, the terms for open mortgages are shorter than other options and are typically for only 6 months or 1 year. In addition, interest rates are often 1% higher on open mortgages than on closed mortgages.
Closed mortgages provide security and peace of mind in knowing that you have a fixed payment. Closed mortgages provide lower interest rates than open mortgages and typically have terms from as low as 6 months to as long as 10 years. Although borrowers enjoy piece of mind from knowing exactly how much their payment will be, the down side of a closed mortgage is that if you should ever decide to pay your mortgage off early, you will be required to pay a penalty fee. The penalty is typically 3 months of interest.
Fixed-term mortgages are a good option for individuals who want comfort in knowing that a particular interest rate (usually a low one) is locked in for a specific period of time. The interest rate for a fixed-term mortgage is set for the entire term of the mortgage which ensures that the monthly payment of interest and principal remain the same throughout the entire term. This is a great option to make use of when rates are already low as it will help protect you should rates suddenly increase. The opposite also applies: if rates are on the higher end, a fixed-term mortgage may not be your best option.
Contact me today to learn how I can assist you with obtaining the right mortgage for you and to learn how I can assist you with your real estate needs.