Which Mortgage Is Right For Me?
Just like no two borrowers are exactly alike, neither are
two mortgages. Many first time home buyers think that they simply apply for a
specific residential mortgage amount and that’s it, but there are actually
several different types of mortgages available for first time home buyers. Here
are a few of the basics:
-
Variable
Rate Mortgage vs. Fixed Rate Mortgage – The interest rate of a variable
rate mortgage will fluctuate periodically because it changes according to changes
in the national Mortgage Prime Rate. By comparison, the interest rate of a
fixed rate mortgage remains the same throughout your mortgage’s entire term.
-
High
Ratio Mortgage vs. Conventional Mortgage – With a high ratio mortgage, if
the down payment you place on a home is less than 20% of the home’s purchase
price, then you must have your mortgage insured against loan default by a
professional mortgage insurer, like Genworth Canada or the Canada Mortgage and
Housing Corporation. With a conventional mortgage, if your down payment is
higher than 20% of the property’s valuation or purchase price, then you will
more than likely qualify for a conventional mortgage. What this means is that
you are not required to have mortgage default insurance.
- Closed Mortgage vs. Open Mortgage – With a closed mortgage, the borrower is required to make payments at pre-specified intervals, and if they wish to pay more, refinance, transfer their mortgage before the end of term, or renegotiate, they must also pay prepayment compensation. This is also subject to any additional prepayment privileges the borrower might have. In contrast, an open mortgage enables the borrower to pay any monetary amount at any time without being required to pay prepayment compensation.
Even after you have decided which of these options are best for you, there are additional decisions you must make. Mortgages come with a wide variety of features. For example, you’ll need to determine what mortgage term you would like to have, the type of financing needed, what type of payment frequency best suits your budget, and how flexible you would like for your payment options to be. With so many decisions to make regarding your residential mortgage, it can quickly become overwhelming.
The good news is that there are a variety of tools at your disposal that can help you. For example, many major lenders mortgage rate calculators to help you calculate how much of a mortgage you can afford or lifestyle mortgage tools to find the mortgage option that is best suited to your lifestyle.
If you are still having trouble making a decision even with the help of the tools, you also have the option of turning to a mortgage broker for assistance. Mortgage brokers maintain professional relationships with a wide variety of traditional and nontraditional lenders, and the chances that they will be able to find you a great deal on interest rates are quite.
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