If you don’t have the money to buy a property outright, you can apply for a mortgage from a mortgage lender to help cover the costs. A mortgage is a legal agreement between you and the lender that supplies a loan secured against a property. You can get the loan traditionally from a bank, or from private mortgage lenders. It comes with various terms, like making regular payments and paying interest rates. There’s also mortgage insurance to consider.
Acquiring a mortgage requires a minimum down payment of five percent of the property’s purchase price. You typically need a credit history check and an adequate credit score. There are many lenders and many mortgage terms, which can make the whole thing a minefield. This is especially true for those who are unfamiliar with the process. That’s why understanding your mortgage options is vital.
This post covers the different mortgage types available to help you pick the best mortgage for your circumstances.
Types of Mortgages in Canada
It’s necessary to shop around for a mortgage. More importantly, you should understand the key features, such as interest rates and payment frequency. Mortgage lenders can charge penalty fees if you breach your contract; for example, if you were to pay off your mortgage early. So, selecting the appropriate one is necessary for securing your future.
Here are the different types available in Canada:
Open mortgages
You will come across open and closed mortgages. An open mortgage is a flexible option that allows you to pay off part or all of your mortgage before the term ends. It means you can increase your monthly payments or make accelerated payments, allowing you to pay your mortgage off quickly. The interest rate is usually higher, but it grants you maximum flexibility.
It’s a good option if you want to complete your mortgage as soon as possible, have the extra money to make a larger payment on occasion, or simply want to avoid prepayment fees.
Closed mortgages
A closed mortgage usually has lower interest rates but less flexibility. It includes a pre-determined interest rate you pay back over a specified period. It may be a fixed or variable rate mortgage, and you’ll usually have to pay prepayment penalties if you pay off the remaining mortgage payments before the end of the term.
However, not all closed mortgages stop you from making additional payments. Most mortgages have a prepayment clause with an option to prepay 10% to 20% per year.
Portable mortgages
With a portable mortgage, you can transfer your existing mortgage to another property. It means you can move house and continue with your current mortgage balance and interest rates. You can discuss with your lender if your mortgage is portable.
Assumable mortgages
An assumable mortgage allows you to borrow to purchase a new home by taking over the seller’s mortgage. The original terms and conditions of the loan remain the same. It can be beneficial if interest rates have risen since the seller originally bought their home.
This option applies to most fixed-rate mortgages but not variable-rate mortgages. A fixed rate mortgage means the interest rate stays the same for the duration of the contract. A variable rate mortgage means you have a variable interest rate that may go up or down based on the prime rate. Acknowledging the contract details is crucial to ensure you understand your commitments.
Convertible mortgages
A convertible mortgage enables you to transfer to a closed mortgage with a longer term without paying penalties.
Reverse mortgages
A reverse mortgage comes later, but it’s worth knowing about. This mortgage type allows homeowners aged 55 or over to relinquish their home equity in exchange for a lump sum or regular cash payments. It could contribute toward living expenses or retirement earnings.
Discuss Mortgage Options With Your Pickering REALTOR®
No matter the type of house you want to own, you may need a mortgage to make it happen. Bansal Team can help you understand your real estate goals. We build a custom strategy to guide you toward the best opportunities when buying property for you and your family. Before starting, we review the whole procedure for buying a home with you. This is a good chance to discuss any questions you have about your budget.
Browse Homes for Sale Pickering
Get pre-approval and start searching for homes for sale in Pickering and the Durham Region. Contact Bansal Team today and discuss your options thoroughly with a Pickering REALTOR® to ensure you obtain your property at the best possible rate.