There are many mortgage options to choose from and it is important to pick the one that works best for you. The different types of mortgages have features that meet different needs and it is important to understand them when you are shopping for a mortgage.
Open mortgages allow you to pay off your mortgage at any time without incurring any penalties. Interest rates are higher on open mortgages compared to a closed mortgage that has a comparable term length. You can expect shorter terms with an open mortgage, and they are really designed as temporary solutions. E.g When you know you will be selling the property very soon.
Closed mortgages cannot be prepaid, renegotiated, or refinanced before maturity, except according to its terms. If you do end up prepaying the loan, or refinancing before the mortgage is up for maturity, you will incur prepayment penalties. With closed mortgages, you are limited to the amount of extra money you can put towards your mortgage each year on top of your regular mortgage payments without incurring a penalty. Mortgage contracts will include a limit to the amount of extra money you can put towards paying off your mortgage. This is referred to as a prepayment privilege. Not all closed mortgages allow prepayment privileges, so it’s important to give us a call to discuss your options.
With fixed-rate mortgages, your interest rate is determined and locked in for the length of your mortgage term. Lenders can offer different prepayment options to pay off your mortgage quicker and for partial or full repayment of your mortgage. A benefit with a fixed-rate mortgage is if the market interest rates go up your interest rate stays the same for your chosen term length.
Variable Rate Mortgages
With variable mortgages, your interest rate can fluctuate during your mortgage term based on the prime rate of your lender (which is usually the same as the Bank or Canada Prime Rate). Choosing a variable rate mortgage can lead to a lower interest rate compared to a fixed interest rate. If the interest rates rise your payments will increase along with it so it is important for you to be able to adjust your budget if your payments increase. One of the advantages of a variable mortgage is that the interest is generally lower upfront, and you will incur less of a penalty if the mortgage is broken (only 3 months worth of interest).
Low Ratio/conventional Mortgages
Low ratio/conventional mortgages are mortgages where the down payment is equal to or greater than 20% of the property value or purchase price. With low ratio mortgages, you are normally not required mortgage default insurance.
High Ratio Mortgages
With a high ratio mortgage, the borrower is contributing less than 20% of the value or purchase price as the down payment. With a high ratio mortgage, you must have mortgage default insurance through Canada Mortgage and Housing Corporation (CMHC) Genworth Canada or Canada Guarantee. These are the three mortgage default insurance companies in Canada.
Contact The Mortgage Force Team
Contact Sunny and The Mortgage Force Team today to go over what mortgage will be the best option for you. When choosing an Edmonton mortgage broker nothing comes close to the quality and service from The Mortgage Force Team, your independently-owned, family-run Dominion Lending Centres office.