Types of Mortgages from your Trusted Mortgage Knowledge Professional
Purchasing a new home can be a stressful experience. On top of that, there are enough mortgage options in the marketplace to make your head spin. When it comes time, how will you know which one is right for you? Here are the most common mortgage options that you will come across, and why they may (or may not) be right for you.
As long as you have a 20 percent down payment, you will be able to apply for a conventional mortgage. These have a low loan-to-value ratio, meaning that the amount of the loan is low, relative to the value of the property.
This is a mortgage option where the borrower is contributing a down payment of less than 20 percent. These mortgages must have Mortgage Default Insurance through the Canada Mortgage and Housing Corporation (CMHC).
An open mortgage allows you the flexibility to make a lump sum prepayment or accelerated payments at any time before the end of the amortization period, without penalty. Although this option has greater flexibility, it tends to have a slightly higher interest rate.
Variable Rate Mortgage
These mortgages are initially set up like a standard loan, based on the current interest rate. The mortgage is reviewed at set intervals and if the prime rate has changed, either changing the size of the payment or the length of the amortization period, the lender will then alter the repayment plan.
Capped Rate Mortgage
This mortgage option offers a variable rate that is capped by the lending institution. Rates may fluctuate in the market, but the lender will offer a guarantee that you will never pay an interest rate above their cap.
Fixed Rate Mortgage
A fixed rate mortgage features an interest rate that is fixed for a set period of time. It’s easier to manage a budget as your payments won’t change during the term. Not only does this bring peace of mind, but you will also benefit from a lower rate than that of a variable rate mortgage.
With this option, you can move from a variable to a fixed rate, or a shorter to a longer term, at any time without a penalty. This is a good option to consider if you want to stick with a variable rate for the moment, but expect rates to rise in the near future.
A reverse mortgage provides you with the opportunity to transfer the equity in your home into cash value, if you have a need to do so. You will not have to worry about selling or vacating your home in the process. It has been touted as a good option for home owners who are nearing retirement and who have considerable equity in their home.
So, as you can see, there are many mortgage options available to you. If you’re feeling overwhelmed by all of this information, set up an appointment to discuss all of these options and more with a Trusted Mortgage Knowledge Professional.