Everyone wants to buy a home. It is one of life’s biggest dreams and achievements. However, if you are looking to buy a home in Canada, chances are you will need a mortgage. If you are already on the hunt for mortgage options canada offers a number of choices to pick from. However, it is always wise to seek expert help if you are unsure about mortgages. You can find more here about why you should hire professionals to guide you.
Let’s list down the types of mortgages available for aspiring homebuyers in Canada.
1. Conventional Mortgage
Conventional mortgages can be used to buy your home or vacation property. However, they are not insured by the federal government. With this type of mortgage, the interest rates are higher, but the overall borrowing costs are slightly lower than other mortgages. Here’s what you need to know about conventional mortgages.
- They are of two types: non-conforming and conforming loans
- Requires a Private Mortgage Insurance (PMI) payment for less than 20% of the property’s price.
- PMI can be canceled once you’ve reached 20% equity
- Requires a payback of only 3% on down loans backed by Fannie Mae or Freddie Mac.
- Requires a Debt-To-Income (DTI) ratio of 45-50%
- Requires documentation verification of income, employment, and assets
- Ideal for those with a 3% down payment, stable income, and job
2. Fixed Rate Mortgage
A fixed-rate mortgage is where you pay off your mortgage over a fixed duration at a fixed rate of interest, regardless of the fluctuations during that period. In other words, your monthly mortgage payment remains the same. These mortgages are given in terms of 10, 15, 20, 30, and 50 years. The notable features of the fixed-rate mortgage include:
- Payment of higher interest with long-term loans
- Allows you to design your monthly budget and expenses
- Monthly principal and interest remain the same
- Ideal if you plan to live in the same house for more than 7-10 years
3. High Ratio Mortgage
A high ratio mortgage is when your down payment is less than 20%, in which case the property’s loan value goes above 80%. High mortgage ratios require mortgage default insurance to protect your mortgage lender if you fail to repay the money. The insurance is attached along with your mortgage, and the payment is added to your regular mortgage amount.
4. Variable Rate Mortgage (VRM)
As the name implies, your mortgage rate can change during the mortgage term with this type of mortgage. The change in rate occurs when the bank changes its overnight lending rate, causing your lender to modify the prime rate. Therefore your mortgage rate will fluctuate throughout the term. The VRM is a little risky, although it has the potential to save money.
5. Portable mortgage
Most institutional mortgages offer portability that allows you to transfer the mortgage from one property to another. During such a transfer, you do not face any hassles like penalty and requalification. However, portable mortgages come with many terms and conditions. Hence always seek professional advice before signing the documents.