Choose the Right Mortgage When Purchasing a Home in Canada
If you’re unable to purchase a house with your own funds, you can obtain a mortgage. There are various types of home loans available in Canada. So, when you want to apply for one, you must find out the types. A sound knowledge of the types will also help you refinance home mortgage in case you find it difficult to make timely payments towards it in future. Some of the major types of mortgages are:
* Conventional mortgage: Conventional mortgages do not exceed 80% of the purchase price or appraised value of the property, whichever is less. You have to pay the remaining 20% as down payment.
* High-ratio mortgage: High-ratio home loans allow you to borrow more than 80% of the purchase price of your property. These loans are insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. You will have to pay a fee for this insurance. You can get the premiums added to the home loan amount or pay it at closing.
* Fixed-rate mortgage: The rate of interest on a fixed-rate mortgage remains the same through out the entire term. Regardless of the changes in market rates, you will have to pay the same amount of premium each month.
* Variable-rate mortgage: In a variable rate mortgage, the rate of interest fluctuates with the market rates. However, the premiums remain leveled. When the interest rates rise, more of your payments will go towards your interest and less towards the principal. When rates drop, more of the payment will be applied to the principal and you can pay off your loan soon.
* Open mortgage: Open mortgages do not have any prepayment penalty and are available for short terms. If you are planning to sell your house in the near future, you can opt for this home loan as it offers you the flexibility of making lump sum payments before maturity.
* Closed mortgage: This type of home loans are available at lower rates of interest as compared to closed loans. However, if you repay it before the maturity, you will have to pay a penalty.
Based on the term of the home loans, they can also be classified into short term and long term loans. Before you obtain a mortgage, you must analyze your situation and shop around comparing the interest rates so that you can obtain a loan at an affordable price, as per your needs.
I am a licensed Realtor in the State of Minnesota. This website is not a multiple listing service, but each Minnesota & Minneapolis real estate agent is a member of the Regional MLS of MN, inc., a provider of the Minnesota MLS.
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