Ever wonder what types of mortgages are available to you? Ever wonder if your mortgage broker or bank has placed you in a mortgage best suited to your needs? We’ll help you uncover what type of financing you have in place, and we will review this financing with you to determine whether there is a better option for you.
While a mortgage is fundamentally a loan that is secured against real property, there are many variations to the type of mortgage that can be utilized, depending on your specific needs.
Based on your current financial situation, future goals, investment portfolio, and your wants and needs, we can unearth what type of financing you require. Below is an introduction to the different types of mortgages available to you and once you have read your options it will be easier to understand what type of financing you have, and need.
A conventional mortgage is a loan that does not exceed 80% of the value of the property. By putting down 20% of the property value, you avoid Insurance Fees (CMHC, Genworth, and AIG). If avoiding an insurance premium is important to you, then this may a great option for you.
On the other hand, a high-ratio mortgage exceeds the 80% loan to value mark and enables home buyers to put down a nominal 5% down payment. If preserving your cash is important, and if leverage is important as an investor, then a high-ratio mortgage may be ideal for you. While there may be an insurance premium added to your total mortgage amount, it enables those individuals that do not have the funds for a large down payment, to purchase a property.
Extended Amortization Mortgages are another option available to home buyers and provide a unique way of decreasing your monthly mortgage payment amount by extending the length of your mortgage. For investment buyers this is ideal because it increases your monthly rental cash flow. Often times buyers who are on a strict monthly budget will utilize this type of mortgage as it enables them to purchase more home for a lower payment.
Open Mortgages allow you the flexibility to repay the mortgage at anytime with no, or little, penalty. Open mortgages are usually available in a variety of term, beginning at 6 months to 5 years. For persons who are commission based and know they may receive large sums of money at anytime, this mortgage option may be ideal for you as you can pay off your mortgage at a faster rate by making additional lump sum payments directly toward your principal balance. An open mortgage is also ideal for someone who may be looking for short term financing because again, it can be paid off at anytime with little or no penalty.
Most Canadians have a closed mortgage as they tend to offer the lower rates and also allow for a pre-payment option of usually up to 20%. A closed mortgage offers variable or fixed payments and usually ranges from a 1 year to 10 year term. If you want to pay off your mortgage balance prior to its maturity date then you will incur a penalty and this is determined by the interest rate and term left in your mortgage.
Fixed Term Mortgages offer a homeowner the security of fixed monthly payments as the interest rate is set for the entire term of the mortgage. Regardless of whether rates move up or down your payment amount will not change. For some homeowners this is an important budgeting tool.
Variable Rate Mortgages tend to offer lower rates than fixed mortgages do, but your monthly payments will vary depending on the Prime Interest Rate. The amount being allocated toward your principal will increase or decrease reflective of current interest rates.
Adjustable Rate Mortgages also tend to offer lower rates but your monthly payment amounts typically remain the same and the amount allocated to principal and interest adjusts accordingly. This tends to offer the best of both worlds; the lower rate with flexibility, combined with the budgeting tool of knowing what your monthly mortgage payment is.
Home Equity Secured Lines of Credit are another great option for homebuyers looking for flexibility. There is not pre-payment penalty if you wish to pay off your mortgage prior to the end of its term. It also provides you with the variable rate and they are interest only which means you only make interest payments, and you only make these payments on the dollar amount that has been used on your line of credit. You do not have to draw funds until you need them and again, only once you use them do you begin to make payments.
Bridge Financing is another type of financing and homebuyers are often not aware that this type of financing exists. Bridge financing, or interim financing, is utilized for short periods of time (typically 30-60 days maximum) and is used to cover the time gap when two properties, both firm sales, are involved and the closing dates don’t match.; the property being purchased closes prior to the one being sold.
Now that we have informed of your varying mortgage options (please note some types of financing have not been mentioned but feel free to contact us at www.mbnmortgage.com to learn more), are you able to decipher which type of mortgage suits your specific needs? Have you determined whether the mortgage you are currently in is the ideal solution for you?
We can help you sort through any confusion and work out payment variations depending on the type of mortgage you choose. Contact MBN Mortgage, your Calgary and Southern Alberta Mortgage Specialists at www.mbnmortgage.com, or by calling us at 1.866.955.9662 for your free one-on-one consultation.
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