Different Types of Mortgages

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Just like there are different types of apples, there are different types of mortgages in Canada.  When it comes to mortgage types, there may not be 7500 types like them apples however, there are nine different options we look at in this mortgage blog. Some are a little sour and some are sweet but all in all, there is a little something for many mortgage shoppers.

Let’s take a closer look at what is the best type of mortgage to get in Canada.  Before we start, lets look at the definition of the term mortgage:

-        a mortgage is an agreed upon contract between a financial lender and a property owner.  The property owner pledges the property being financed as security which is becomes a guarantee to pay back the mortgage debt amount in scheduled repayment amounts.

Assumable Mortgage
The current property owner (the seller) is the holder of an existing mortgage that can be assumed by the new property owner (the buyer).  The new property owner would then take full responsibility for the mortgage term and payments.

Blended Mortgage
Put it in the blender!  Let’s take one-part higher interest mortgage, then add one-part lower interest mortgage to create a blended mortgage.  The idea of the combining the two rates is to create an mortgage interest rate in the middle as an overall average.

Closed Mortgage
A mortgage with agreed upon features from the start with not too many options for flexibility.  Meaning this type of mortgage can’t be renegotiated, refinanced or prepaid for the length of the term.

Conventional Mortgage
In this type of mortgage, the buyer can obtain a loan amount up to a 80% of the value of the property without the lender requiring loan insurance.

First Mortgage… Second Mortgage
A first mortgage is used as security for the original property when additional mortgages are obtained/approved against the same property.  The additional mortgages on the same property are referred to as a secondary mortgage.  Recently I posted a quick overview on how a second mortgage works and if it’s worth applying for one.  Click to view blog.

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High Ratio Mortgage
Unlike a conventional mortgage, a high ratio mortgage is one that is over 80% of the loan-to-value ratio and must be covered by additional insurance.  This insurance would be provided by Canada Mortgage and Housing Corporation (CMHC) or a private insurance company to cover the mortgage lender against any payment issues that may arise from the borrower.

Open Mortgage
Unlike a closed mortgage, an open mortgage provides options for the borrower.  This means a borrower has the chance to renegotiate or prepay amounts at any time during the term without paying a penalty.  However, these flexible options could mean the mortgage rate is more than double of a closed mortgage until this type of mortgage is locked in again.

Reverse Mortgage
This popular mortgage option is designed for Canadians that are above the age of 55 and own a primary property they live in.  They have the option to turn the property equity into tax-free cash up to a ratio of 55% of the home equity amount.  See my previous blog to discover the benefits of a reverse mortgage.

So, how you like them apples?!  In summary, these are just some of the different options available from Canadian mortgage lenders.  Determining which mortgage type is best for you will be determined by your credit history and goals to ultimately setup your new buying power.  My goal is to create the best case for your lifestyle in order to secure the best mortgages rates in Canada for your needs.  I invite you to connect with me at anytime to start building your own Bespoke Lending Solution.

All the best,

Sukh Sangha

 

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Mortgage Refinancing in Canada

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Key costs to be aware of when buying a new home