Different Types of Mortgages and Rates
There are many different types of mortgages and rates available in today’s marketplace. The fixed rate mortgage loan offers the most stability and terms that do not change over the life of the loan. Adjustable rate mortgages allow borrowers to take advantage of hoped-for decreasing mortgage rates in the future. Low-Interest/High ratio loans are ideal for home buyers who don’t have a large sum of money for a down payment.
A conventional mortgage is a mortgage for less than 80%-in other words the borrower provides at least 20%-25% as a down payment, and is either fixed or variable rate loans.
With fixed-rate loans, the payments remain the same throughout the term of the loan. This is ideal for someone whose income is expected to remain stable throughout the year and who has a low tolerance for risk.
An adjustable rate mortgage loan is a good idea if the borrow believes rates will decline in the near future. This loan rate is tied to the prevailing market prime rate and rises and falls as the prime rate goes up or down. Variable rates are typically lower than adjustable rates and the initial rates are usually very low to make them attractive to borrowers.
If rates do decline, the payment remains the same, but more of the payment is applied to the principal, allowing the loan to paid off earlier. If rates do begin to rise, the loan can be refinanced to a fixed rate.
Low-Interest/High Ratio Loans
A low-interest/high ratio mortgage is a mortgage where the borrower provides a down payment of less than 20%. Mortgages for 75% or more require mortgage insurance, usually provided by Canada Mortgage and Housing Corporation (CMHC) or Genworth. The insurance premium (of up to 7.3% of the mortgage amount) offers the lender the assurance that they will be repaid should your default on your mortgage.
This is merely an overview of mortgage products available to borrowers. Check back often for information on the vast array of products and variations offered to today’s Canadian home purchaser.
