Purchasing a new home is a difficult decision. No matter if you are buying the house for the first time, or have a certain experience. The total number of mortgages in Canada for March 2018 makes 4,767,903. But most people do not even know how many types of mortgages are available to them when buying a new house. That is why everyone should understand the variety of mortgage options to choose the most comfortable and appropriate conditions.
Choosing the mortgage you are able to request for a traditional type if you own 20 percent of the sale price. This sum you may use as a down payment. Financing agencies set different terms, so there may be the one which imposes binding existence of the home insurance.
The open mortgage allows you to repay the loan in parts or its entirety at any time, and without penalties. An open mortgage usually has a six-month or one-year term. This is beneficial for people, who are waiting to receive a big income or those whose income varies. But the main disadvantage of an open mortgage is the interest rate that is always higher than in a closed one.
Variable Rate Mortgage
When you are having a variable rate mortgage, the lender will calculate a principal and interest. Throughout the term, the payments change. Your regular payment stays constant, but the interest rate changes, basing on the current market conditions. This also impacts the amount of each-month principal payment. When the interest rate grows, the less part of your payment will be applied to the principal and the interest. So, when the rate is reduced, you will pay more part for the principal, and the less part will cover the interest.
Capped Rate Mortgage
This kind of mortgage offers a variable rate capped by the lending institution. This mortgage is especially popular in the period of regularly rising interest rates when some of the homeowners turn to online loans Canada to cover the extra costs. When the prime market rate goes up and down, the interest rate is affected accordingly. But the lending institution guarantees that the borrower will not pay more, than a ‘capped’ rate. This type of mortgage can impose a penalty when you try to make a full payment.
As it was already mentioned, closed mortgage generally has a lower interest rate. A fixed-rate mortgage means the borrower can stabilize the interest rate for the loan duration. Some lenders also allow the borrowers to double scheduled payments or make an annual lump-sum payment. These are quite satisfying conditions. So, it is not weird that the most common mortgage type in Canada for June 2018 is 5 years fixed closed mortgage.
In a convertible mortgage, there is a fixed rate for the whole term, which minimizes the risk of fluctuation in the amounts of payments. Also, if the borrower has a convertible rate mortgage, he can fix his rates for an extended period while using the same lender.
The reverse mortgage is a type of loan that lets the older homeowners act as borrowers. Thus the mortgage lets them use the equity in the home as cash and does not require any monthly payments. Conversely, the lender makes regular payments to the borrower. The payment amounts can vary, depending on the borrower’s age (the minimum age is 62). The older he is, the more money is available. But the house owner must be able to keep on maintenance and cover the expenses like taxes or insurance.
Mortgage lenders may offer variable conditions. And these are the most common types of mortgages available for Canadians. It is easy to borrow money, but repaying it can become a tough process. So, choose the best option wisely.
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