When it comes to purchasing a home in Canada, many people rely on mortgages to finance their dream property. However, navigating the world of mortgages can be overwhelming, as there are several types available to borrowers.
Each mortgage type has its own features, benefits, and considerations. In this article, we will explore the different types of mortgages available to you in Canada, helping you make an informed decision.
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Conventional Mortgages:
Conventional mortgages are the most common type in Canada. These mortgages require a down payment of at least 20% of the purchase price. They offer a fixed or variable interest rate and are not insured by the Canada Mortgage and Housing Corporation (CMHC) or other mortgage default insurance providers. Conventional mortgages are ideal for borrowers with a significant down payment and good credit history.
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High-Ratio Mortgages:
High-ratio mortgages are designed for homebuyers who have a down payment of less than 20% of the purchase price. To qualify for a high-ratio mortgage, borrowers are required to obtain mortgage default insurance. This insurance protects the lender in case the borrower defaults on the loan. The insurance premium is added to the mortgage amount, and the borrower pays it off over time. High-ratio mortgages allow individuals to enter the housing market with a smaller down payment.
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Fixed-Rate Mortgages:
Fixed-rate mortgages have a locked-in interest rate for a specific term, usually ranging from one to ten years. The interest rate remains constant throughout the term, providing borrowers with stability and predictability in their monthly mortgage payments. Fixed-rate mortgages are an excellent choice for homeowners who prefer budget certainty and protection against interest rate fluctuations.
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Variable-Rate Mortgages:
Variable-rate mortgages have an interest rate that fluctuates with the lender’s prime rate. This means that your mortgage payment may increase or decrease as interest rates change. Typically, variable-rate mortgages offer a lower initial interest rate compared to fixed-rate mortgages. They are suitable for borrowers who can tolerate some uncertainty and are willing to take advantage of potential interest rate decreases.
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Open Mortgages:
Open mortgages allow borrowers to make prepayments or pay off their entire mortgage without incurring penalties. These mortgages offer flexibility but often have higher interest rates compared to closed mortgages. Open mortgages are beneficial for individuals who anticipate making lump-sum payments or selling their property in the near future.
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Closed Mortgages:
Closed mortgages have specific terms and conditions, including restrictions on prepayments. While closed mortgages offer lower interest rates compared to open mortgages, they limit borrowers’ ability to pay off the loan before the term ends. However, most closed mortgages allow for prepayments of up to a certain percentage of the original principal amount each year.
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Cash Back Mortgages:
Cashback mortgages provide borrowers with a lump sum cash payment upon closing the mortgage. The cashback amount is typically a percentage of the mortgage principal. Although cash-back mortgages can help cover initial expenses, such as moving costs or home improvements, they often come with higher interest rates and limited flexibility.
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Collateral Mortgages:
Collateral mortgages are a type of mortgage where the lender registers a lien against your property for an amount that exceeds the actual mortgage loan. This additional amount can be used for future borrowing, such as obtaining a home equity line of credit. While collateral mortgages offer flexibility, they may limit your ability to switch lenders at the end of the term.
Ingram Mortgage Team
Understanding the different types of mortgages available to you is crucial in making an informed decision about which mortgage is right for you. Whether you’re a first-time homebuyer or looking to refinance your existing mortgage, taking the time to research and compare your options can save you money and help you achieve your financial goals. We at Ingram Mortgage are here to help you. Contact us today!