One necessity for a human’s survival is a shelter. Everyone desires to have one; it would be a bonus to get a fine one, too. Preparing for the arduous voyage to home ownership can be very exhilarating and stressful. There are a lot of considerations to make like the location and property. Before arriving at those decisions, financial matters should be settled well first.
In today’s time, houses become really expensive. Figures have it that prices of houses in Canada have been continuously swelling since 2009. The market for housing is even predicted to ascend for the years to come. With prices mounting as time passes, home ownership becomes more difficult.
In a report done last 2015, over 40% first-time house buyers cannot purchase an abode on their own. This means that a lot of house buyers needed financial assistance in order to buy one. It is good to note that mortgages are present to save the day.
It pays to be educated about mortgages; a lot of people are still not aware of what they could get out of it. For the first-time buyers and even for those who have taken this path before, it is necessary to know about the different mortgages in Canada that are available.
Open vs. Closed Mortgage
(both applies to the flexibility the borrowers have in paying the mortgage)
Open Mortgage gives the borrower a freedom to pay their mortgage in its entirety or parts at any time throughout their term without fines or penalties. The term usually runs from six months to a year. However, in choosing this mortgage, borrowers will have to pay higher interest rates. Borrowers who are financially unstable or those who are expecting for a great sum money from an insurance claim, inheritance, etc. could choose this kind of mortgage rule.
A more common option among Canadians is the closed mortgage. In this type, the fee for borrowing will end up lesser since it has lower interest rates. It is also possible to pay in lump sum or a snowballing monthly payment. If the borrower wants to pay the mortgage swiftly, they can also opt to have pre-payments.
Nevertheless, a hefty penalty awaits those who break or refinance the mortgage before it ends. The term is longer compared to the open mortgage; it lasts between six months to ten years. This is the most viable choice for the mortgagor who seeks stable payments that their budget can afford and those who want steady payment schedule.
Fixed vs. Variable vs. Hybrid vs Convertible Mortgage
(how to apply and calculate the borrower’s interest rate)
Currently, there are over 65% of Canadians who have fixed rates. Throughout your mortgage term, the borrower’s payment stays the same. Consequently, the mortgagee will demand a premium. They must expect to pay higher interest rates.
On the other hand, variable mortgage rates may be changed during the mortgage term. Interest rates are attached to primes that unpredictably goes up and down depending on money market conditions. Bank advertisement would often give prime minus .2% for the variable interest rate; this means that mortgagor has .2% off the prime interest rate. This rate fluctuates during your whole mortgage term. In taking this, borrowers should prepare to take the risk. Although the design is like that, this type allows the lender to have constancy in its monthly payments and reap the benefits if interest rates fall. This is an unpopular choice among Canadians with just over 25% of them availing for this.
The next option is a combination of the two – hybrid mortgage. The part of your loan is a fixed rate and other is at a variable rate. This is quite complicated to manage.
If a mortgagor wants to transfer from variable to fixed, they can get a convertible mortgage. This is a sound option if a borrower wants to stick for a moment to variable rate but expects rates to go up.
Conventional vs. High Ratio Mortgage
If a borrower is capable of paying the down payment, that is 20% of the house’s purchase price, he/she can apply for a conventional mortgage. This traditional mortgage will let the mortgagor borrow up to 80% of the property’s appraised value.
However, for those who do have less than 20% of the property, borrowers can opt to have high-ratio mortgages; they can get a loan above 80% until as much as 95%. In getting this mortgage, lenders will be asked by the law to get a mortgage insurance. The premiums for the insurance is added to the loan payment or pay it at the loan’s closing.
Portable and Assumable Mortgage
When the borrowers want to take another property instead, the portable mortgage is possible. In this, borrowers can take their existing mortgage and apply it to other property. Usually, no penalties are given for breaking the mortgage contract.
It is possible to assume the mortgage of others too. For this to happen, the borrower should seek the approval of the present lender; once it is successfully transferred, mortgage terms will remain the same.
Indeed, there are a lot of types and options for mortgages and borrowers can combine these according to their needs. Weigh all your options and if you are still having a hard time, the best way is to ask assistance from a mortgage professional.
Having your own home is still reachable; you just have to choose the best mortgage that suits your needs.