The Different Types of Mortgages

When people decide to buy a house the first thing that hits them is that they need a mortgage; and the second thing, is deciding what type of mortgage they need. This is why we have compiled a guide of the different types of mortgages available.

Fixed Rate

With fixed rate mortgages the rate is set, and then it’s locked in for the entire term of the mortgage. Mortgage lenders offer different pre-payment options in order to allow for repayment of the mortgage loan faster – either full-repayment or partial.

Variable and Adjustable Rate Mortgages

Variable rate mortgages and adjustable rate mortgages are different than fixed rate mortgages because the mortgage rate can change during the mortgage term. Generally, in the beginning, these types of mortgages are set up just like standard loans and the rate is based on the current interest rate.

Specific intervals are chosen for the mortgage to be reviewed, and if the interest rate has changed, the lender will alter the mortgage repayment plan. The interest rate is affected if the amount of the payment, or the length of the amortization period (or both) changes.

Conventional

A conventional mortgage is available for home buyers if they have at least 25 per cent of the purchase price available for the down payment. So if the selling price of the home is $250,000 and the purchaser has $62,500, they may qualify for this type of mortgage.

High Ratio

A high ratio mortgage is available for people who can put down between 5 per cent and 25 per cent of the purchase price. These types of mortgages usually have to be insured through the Canada Mortgage and Housing Corporation (CHMC). By purchasing this insurance, potential home owners can still buy a home if they don’t have 25 percent on hand for a down payment.

CHMC Program

Originally, the CHMC mortgage program was for first time homeowners only; but it’s important to note that there is a maximum purchase price allowable. It’s different from province to province so you would have to check what’s allowable where you live.

Open

An open mortgage allows purchasers to pay off a partial amount of their mortgage, or the entire mortgage amount whenever they want, without incurring penalties. However, interest rates tend to be higher with these mortgages.

These are the most common different types of mortgages available, but there are other types. If you don’t think you can qualify for any of the mortgages listed here, you can speak to a broker or lender and provide them with more details about your situation.

One last thing to note is that buying a house can significantly change your tax situation and the deductions you’re eligible to claim. So you should get your taxes done professionally by an accountant the year you buy your home.

At AF Accounting we’re experts at income tax accounting. For more information, or to contact us, visit our website.

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