Choosing the Right Mortgage Loan

In Canada, if you plan to purchase a home, more than likely you are interested in learning about the various types of home mortgage loans that are available. A mortgage is nothing more than a loan that uses the home you purchase as collateral. This means if you do not repay the loan as specified in your mortgage agreement, the lender will retain the home to resell in order to obtain the money you borrowed. Many different institutions lend money to those looking to purchase a home including pension funds, finance companies, credit unions, trust companies, and banks.

In order to obtain a loan, you should be aware of the different types of loans that are available in Canada so you can make an educated decision on the one that will fit your needs the best.

Mortgage Loan

A conventional mortgage is one that will provide you around 80% of the appraised value of the home or in some cases 80% of the purchase price of the home. To obtain a convention mortgage, the home buyer will be required to pay a down payment of 20% of the purchase price upfront.

A high-ratio mortgage is one that will provide you around 80% of the purchase price of the home. With this type of loan, you will be required to pay around 5% of the purchase price as a down payment. This type of loan does require the home buyer to carry mortgage loan insurance. This type of insurance will protect your lender if you cannot pay back the mortgage loan. In the majority of cases in Canada, lending companies are required to have mortgage insurance by law.

An open mortgage is one in which you can repay the loan in full or in part without paying any penalty cost. In the majority of cases, this type of loan has a higher interest rate than closed loans, but is often chosen if you plan to make extra payments or if you are plan to sell the home in a short amount of time after purchasing.

A closed mortgage is one that does not allow the home buyer to make any extra payments and will charge a fee or penalty for those that wish to pay the mortgage off before the term of the loan. The interest rate offered by this type of loan is usually lower than other mortgages.

A fixed rate mortgage is one in which the interest rate will not change at all during the term of the mortgage.

A variable rate mortgage is one that has interest rates that change according to the changes seen in the financial market. In the majority of cases, the amount you pay monthly will remain the same but the amount of money that goes for the principle will be different.

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