If you are a new homebuyer, then you have probably researched homes to buy. But have you checked out the mortgage market first? That is more important than knowing where you are going to raise a family. If you are a homeowner, have you seen the latest mortgage options? If not, take a gander at some of the latest money-saving tools at your disposal if you are looking to refinance or renew your mortgage.
Here are nine types of mortgage options available to Canadians:
1. Traditional Mortgage Options
A traditional mortgage is exactly what it sounds without gimmicks. This is what you can expect:
- Principal sum ($300,000 or $600,000).
- Interest rate.
- 25-year amortization period.
- Down payment between 10 percent and 20 percent.
- Closing costs, real estate contract, and any taxes you need to pay.
That’s it. With these types of mortgage options, you do not need to worry about anything else. You have a mortgage, you pay it off, and then you are mortgage-free for the rest of your life. That is pretty good, eh?
2. Variable Rate Mortgage Options
If you are paying off a mortgage in an environment where central banks are lowering interest rates or keeping them at historic lows, like they are today, then you see it in a variable rate mortgage. This is when your rate fluctuates based on market changes. When rates go down, you will see less of your payment being applied to interest and a greater sum decreasing your principal – and vice versa.
3. Fixed-Rate Mortgage Options
Did you buy a home when interest rates were close to zero percent? Good job! Now, did you select a fixed-rate mortgage? If so, then you likely have a mortgage that has the same interest rate throughout the full amortization period instead of a floating rate.
4. Open Mortgage Options
An open mortgage is when you can pay off your mortgage in parts or even in its entirety without having to be concerned about penalties and additional charges. It should be noted, however, that interest rates on these mortgage options are typically greater than that of a closed mortgage.
5. Closed Mortgage Options
These mortgage options consist of a prepayment limit. What does this mean? Borrowers are only allowed to pay 15% of the original principal balance of the mortgage each calendar year instead of making payments at any time and by any amount.
6. Capped Rate Mortgage Options
Capped rate mortgages offer the same benefits as a variable rate mortgage, but the lending institution will install a cap on the rates. So, rates will vary with the prime market rates, but lenders can offer a guarantee that you will never be required to pay a rate of interest beyond that cap.
Just be warned: If you decide to pay off your mortgage in full, then be ready for a steep penalty.
7. Reverse Mortgage Options
One of the latest gimmicks in this hot housing market is the reverse mortgage – you have probably heard about these products on the radio ad nauseam. So, what is it exactly?
A reverse mortgage is when you can transfer the equity in your home into cash value. There are several caveats for these mortgage options, including the homeowner needs to be at least 62 years of age, a significant amount of equity in the home, and how much cash can be borrowed.
8. Convertible Mortgage Options
A convertible mortgage is a somewhat new product available in the mortgage market. Financial institutions will offer a fixed rate between six and 12 months. Afterward, you can lock in your rates for an extended period of time, just as long as you utilize the same lender. If not, then you will pay a steep penalty so the bank can recoup the costs.
9. Portable Mortgage Options
In the era of house flipping, it is common for borrowers to not only have a mortgage on their own property but also a series of mortgages on other houses, condominiums, and cottages. Banks are facilitating this market by offering a portable mortgage.
A portable mortgage allows the borrower to transfer his or her mortgage balance to a new property and with the same lender. What makes this product attractive is that there are no penalties to deal with; you get the same terms!
Mortgage debt is the No. 1 debt for Canadians today. So, when you see that debt is at an all-time high, do remember that our trillions in the red are mostly because of our home loans and there are many debt consolidation plans developed to manage our finances.
The real estate market in Canada, especially in the key markets, continues to be troubling for young families who want to purchase a home to live in for the rest of their lives. Because a starter home in Toronto, Vancouver, or Montreal is around $500,000, families are being kicked out of the cities where they were born. That said, if you do wish to remain in these cities, then it is imperative to know what your mortgage options are, so you can live your dreams with the best mortgage.