- July 12, 2023
- Written by Admin
Understanding Different Types Of Mortgages In Canada And What's Best For You
The first question that may cross your mind when buying a new home must be, what type of mortgage will be the right one for you? As mortgages come in all sorts of shapes and sizes in Canada. It might get tough for home buyers to choose the right one according to their needs. As a home buyer or first-time mortgage buyer, you need to be aware of all types of mortgages available on the market, how each one works, and the types of property and borrowers they are designed for.
Here we have provided a list of commonly available mortgages made by real estate experts in Canada, so when it is your time to make the final decision, you are ready for it. Let’s begin.
1. High Ratio Mortgage
If you have a down payment of less than 20%, then the High Ratio Mortgage can open the door to homeownership for you. In this type of mortgage, you will be required to purchase loan insurance to protect your Ontario’s private lender in case you fail to pay your mortgage payments. This is why High Ratio Mortgages are also known as "Insured Mortgages."
2. Conventional Mortgage
Conventional mortgages are a common choice for most Canadian home buyers. These mortgages are an alternative to high-ratio mortgages. If you make a down payment of 20% or more, this is the right mortgage option. There is no requirement to take any mortgage insurance if you are paying a good down payment. This way, these mortgages are termed "Uninsured mortgages."
3. Private Mortgage
For people who do not get approved for a loan by a bank or other mainstream lender. Private mortgages are one such home loans that a buyer can use. Both individuals and institutions offer these loans. In private mortgages, the commercial interest rates in Canada are generally high and come with a short loan term. But the approval process is much faster.
4. Fixed-Rate Mortgage
If you are a home buyer who wants a fixed interest rate and cannot afford fluctuations in their monthly expenses. Then a fixed-rate mortgage is the best for you. But you do not get this stability for free, you have to pay the loan with higher commercial mortgage rates, and it comes with a significant pre-payment penalty.
5. Second Mortgage
Second mortgages are for home buyers who already have a mortgage and wish to take a loan on their property. A second mortgage can be used to convert home equity into cash, but taking one out means having to make payments on two mortgages at once, which is not for everyone.
6. Variable Rate Mortgage
In variable-rate mortgages, interest rates in Canada fluctuate depending on how the Bank of Canada moves its overnight rates. The higher the commercial interest rates move, the more the monthly payments, and the lower the rates get, the less the monthly payments. This type of mortgage comes with a risk but is generally lower than fixed-rate mortgages. This is the reason why many borrowers find this mortgage attractive.
7. Reverse Mortgage
For homeowners who are 55 years or old, this type of mortgage is for you. A reverse mortgage in Canada allows property owners to borrow money against the equity they've built up in their homes. The maximum amount for a reverse mortgage is 55% of the appraised value of the residence. This path allows ageing homeowners to generate cash without selling their property. But compared to a regular mortgage, a reverse mortgage in Canada may have a higher commercial mortgage rate.
With the help of the above guide, you should now have a good understanding of what mortgages are and how they work. As a homeowner, you must understand the various mortgage types in Canada and choose the one that best fits your financial situation. Remember that it is always best to seek professional advice if you require any assistance or guidance in selecting the best mortgage for your needs. So, brace yourself and prepare to embark on a new chapter of homeownership in Canada!