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Different Types of Mortgages Explained

When it comes time to purchase a home, buyers have many different mortgage options. However, for some, this is just as exciting as it is confusing because more opportunities can create more confusion.

Fortunately, these mortgages are not as complex as they seem. Here’s a simple breakdown.

The Most Common Mortgages Available

Whether you’re buying your first home or your fourth, these Canadian mortgage options will allow you to find a home you love:

1. Fixed and Adjustable Rate Mortgages

One of your first choices as a borrower is whether your mortgage will be fixed or adjustable rate. All mortgage loans fit into these two categories.

Fixed-rate mortgages maintain a single interest rate for the entire repayment term. This means your monthly payment stays the same and will never change.

Meanwhile, an adjustable-rate has an interest rate that can change or adjust periodically. Typically, the rate varies each year, after an initial fixed period.

2. High-Ratio Mortgages

High-ratio mortgages are those in which a borrower must pay a down payment of less than 20 percent of the home’s total value. This requires the lender to provide a higher portion of the loan.

People who obtain high-ratio mortgages are required by Canadian law to obtain mortgage default insurance, as well. The premiums for this coverage are typically rolled into a mortgage loan payment. While these loans were once uncommon, they’ve become the norm in a world of low-interest rates and increasing interest in home ownership.

3. Convertible Mortgages

Convertible mortgages are loans that can move from fixed rate to variable rate, or from a longer payment term to a shorter one. These mortgages can change structure at any time, without a penalty. Customers who take advantage of the convertible mortgage option will also see a change in their interest rates at the time the mortgage morphs.

While many people consider this structure undesirable, it’s a popular option for people who want to take advantage of a variable rate presently but expect rates to rise in the future, or who are planning on investing in property and want to keep their options liquid.

Buying a Home, Simplified

Making sense of various mortgage types can be difficult. Fortunately, our team is here to guide you through the process of purchasing a new home, no matter how you intend to do it.

Contact us today to learn more about our investing and advisory strategies. We understand that purchasing a home can be complex, and our team is here to make it as simple as possible for you.