A Mortgage That’s Right for You
“Customizing your mortgage product will help you save time and money!”
Types of Mortgages
A conventional mortgage is a mortgage loan that is equal to, or less than, 80% of the lending value of the property. The lending value is the property’s purchase price or market value — whichever is less. For a conventional mortgage, the down payment is at least 20% of the purchase price or market value.
If your down payment is less than 20% of the home price, you will typically need a high-ratio mortgage. A high-ratio mortgage usually requires mortgage loan insurance. CMHC is a major provider of mortgage loan insurance. Your lender may add the mortgage loan insurance premium to your mortgage or ask you to pay it in full upon closing.
The term of a mortgage is the length of time you are committed to a particular lender. If you break your agreement, typically there will be a penalty cost. Most lenders offer 1 to 10-year mortgages and choosing the right length of term can help you save unnecessary penalty cost in the long run. A longer term (for example, five years) lets you plan ahead. It also protects you from interest rate increases. Think carefully about the term that you want, and don’t be afraid to ask to figure out the differences between a one, two, five-year (or longer) term mortgage.
Amortization is the length of time the entire mortgage debt will be repaid. Many mortgages are amortized over 25 years, but longer periods are available, up to 35 years. The longer the amortization, the lower your scheduled mortgage payments, but the more interest you pay in the long run. If your mortgage term is five years, and the mortgage is amortized over 20 years, you will have to renegotiate the mortgage four times (every five years).
Fixed or Variable
A Fixed Rate Mortgage locks in the rate of your mortgage for a given term. If your mortgage is a 5-year Fixed Rate Mortgage at 3% then your mortgage will be guaranteed at 3% for 5 years. Pretty straight forward. A Variable Rate Mortgage Fluctuates with the “Prime” rate and can change at any time, subject to the Bank of Canada and the individual lender. The benefit of choosing a Variable Rate Mortgage is that the rate can gradually decrease and save you interest over the long run but there is also up side rate risk.
Open or Closed
An open mortgage is flexible. That means that you can usually pay off part of it, or the entire amount at any time without penalty. An open mortgage can be a good choice if you plan to sell your home in the near future but unsure exactly when. It can also be a good choice if you want to pay off a large sum of your mortgage loan at anytime. Most lenders let you convert an open mortgage to a closed mortgage at any time, although you may have to pay a small fee.
A closed mortgage cannot be paid off, in whole before the end of its term. With a closed mortgage you must make only your monthly payments — you cannot pay more than the agreed payment. A closed mortgage is a good choice if you’d like to have a fixed monthly payment. With it you can carefully plan your monthly expenses. But, a closed mortgage is not flexible. There are often penalties, or restrictive conditions, if you want to pay off a large amount. A closed mortgage may be a poor choice if you decide to move before the end of the term, or if you want to benefit from a decrease of interest rates. However, some lenders offer pre-payment privileges such as: allowing 10% lumpsum payments per year and doubling up on your monthly mortgage payments all without penalties. Please ask us for details on the pre-payment privileges of your lender.