Mortgage Options

Just imagine, you have saved up a tremendous amount of down payment for your first home. You are ready to go, but wait. You come across various mortgage terms like, interest rates, closed mortgage, amortization period, and much more. You are so confused, its like spinning around on a Ferris wheel at a carnival.

Well, don't worry about all of those mortgage terms. Here is a quick summary that every home buyer should know ahead of time. Even people, who have already bought a home should touch up their knowledge.

The Bank of Canada (BoC), regulates all of the Canadian monetary funds . They lend money to banks and lending institutions at a set rate.  From there those institutions set their mortgage rate in which the public will have to pay. Now, here is what you as the potential buyer of a property needs to know. When choosing the right mortgage plan for you and your family.

First, Conventional Mortgage vs. High-Ratio Mortgage?

Conventional Mortgage: A mortgage loan up to a maximum of 80 percent of the lending value. Otherwise stated, the homeowner has put down at least 20% of the purchase price.

High-Ratio Mortgage: The down payment is less than 20% of the purchase price. This will constitute a mortgage loan higher than 80% of the lending value. High-Ratio Mortgages will be insured by Canadian Mortgage and Housing Corporation (CMHC)

Second, Open or Closed Mortgage?

Open: An open mortgage could be suitable to a person whom knows they will be selling the property fairly quickly after purchase. Or, if you like flexibility to make larger lump-sum payments. Be advised, that with this type of mortgage, the interest rate will be higher.

Closed: The amount of money that you will pay. Will be the same each month for the term of the mortgage. This type of mortgage is good avenue if you like to know exactly what your monthly amount will be. Therefore, you can budget your monthly bills. In addition, there is flexibility in the allotment of paying down your principal through lump-sums.


Third, Amortization, Term, & Payment Schedule?

Amortization: By definition is the period of time in which your entire mortgage will be payed back to the financial institution. For example, there is 20, 25, 30 and so on. 30 years is the longest period in which you can have a mortgage.

Term: This is the actual length of time, (6 months- 5/10 years) that the banking institutions or lending institutions have you under contract.. Than you can renew your contract at the end of the term.

Payment Schedule: This is the frequency that you as the home buyer will make towards your mortgage. Example, monthly, bi-weekly, or weekly.


Fourth, Fixed, Variable and Adjustable Interest Rates?

Fixed Rate: The rate in which you receive from your banking or lending institution is fixed for the entire mortgage term.

Variable Rate: The payments remain the same, however the interest rates changes based on conditions in the market place.

Adjustable Interest Rate: The interest rate and mortgage payments vary depending on market conditions at the time.

Best practices, is to contact a professional mortgage specialist. To find out what option is best suited for you and  your family.
Compliments of New Home Guide GTA Jan21-Feb4, 2012 issue - Mortgage Options

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