Which kind of Mortgage is Right For Me?

There are two main types of mortgages, traditional and high-ratio. A traditional mortgage method you’ve put down at the minimum a 25 per-cent down payment on the home. For example, if the buy price is $300,000, you will need to put down $75,000. Doing this exempts you from paying mortgage insurance. A high-ratio mortgage method you have less than 25 percent of the total buy price, and will need to get the mortgage insured. In Canada, the two major mortgage insurers are Canada Mortgage and Housing Corporation (CMHC) and Genworth Financial Canada. The insurance protects the bank if you default on the loan. The insurance premium varies between 0.5 and 2.9 percent, depending on the mortgage amount.

There is great argue among buyers on which mortgage is best: fixed or variable.

A fixed mortgage method your interest rate (and consequently your payments) are the same over the life of the loan. The interest rate on a variable mortgage fluctuates with overall interest rates, meaning your payments will vary. While studies have shown variable rates can be less expensive over time, many people choose a fixed rate because they want a set, predictable sum to pay each month.

It sounds more like the sunroof of that Mini Cooper you saw zooming down your street, but mortgages do come open, closed or convertible. An open mortgage is one that you can pay off, revive or refinance at anytime without penalty. The catch is that you often pay a higher interest rate for this privilege. A closed mortgage has a fixed interest rate and a set term that cannot be changed without penalty. The advantage is that you typically get a lower interest rate. Many closed mortgages allow you to make an annual prepayment of 10 to 20 percent. There are many variations of this, so ask a lot of questions about what you can and can’t do. A convertible mortgage is similar to a closed mortgage, but can be converted to a longer term without penalty. There are also mortgages that have a “conversion” characterize that will allow an early renewal into a shorter length term. It’s best to check with your lender on the options for this kind of mortgage.

You may also qualify for a “zero down mortgage” if you have a substantial income, a good credit rating and you plan to live in the home you are buying. In March 2004, CMHC relaxed its rules to allow borrowers to make down payments from any source, including borrowed funds and lender motive programs. Prior to that, borrowers had to provide the down payment from their own pocket, or that of an immediate family member.

While this program is a great way to help people to become homeowners, it sends a chill up the spine of those who don’t believe in carrying too much debt. Remember that the larger your mortgage, the larger the monthly payments. You will also wind up paying more interest to the bank over the long term. These are some of the basic types of mortgages. As a buyer, you have many mortgage options and should choose the best one for you.

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