Types of Mortgages

The basic features to consider when selecting a mortgage include: 

Conventional or high-ratio 

A conventional mortgage is a loan for no more than 80% of the appraised value or purchase price of the property, whichever is less. The remaining amount required for a purchase (20%) comes from your resources and is referred to as the down payment. If you have to borrow more than 80% of the money you need, you'll be applying for what is called a high-ratio mortgage.  Having 20% for a down payment can save you insurance fees(see below).

Here's how a high-ratio mortgage works: 

You can now have no down payment when you buy a home. Any purchase where the down payment is between 0% and 20% is considered a high-ratio mortgage, and the mortgage must be insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial.  The insurer will charge a fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical fees range from 1.00% to 2.75% of the principal amount of your mortgage with a minimum 5% down payment. Where you have no down payment, you must have good credit history and the insurance premium increases to as high as 3.70% on a 40 year amortization.  In most cases this amount is added to the principal portion of your mortgage, however it can be paid up front.  I can help you determine the exact amount. 

Fixed rate, variable rate or a combination rate 

When you take out a fixed-rate mortgage, your interest rate will not change throughout the entire term of your mortgage. As a result, you'll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term. 

With a variable-rate mortgage, your rate will be set in relation to Prime Rate¹. In other words, it may vary from month to month. Historically, variable-rate mortgages have tended to cost less than fixed-rate mortgages when interest rates are fairly stable. 

When rates change, your payment amount remains the same. However, the amount that is applied toward interest and principal will change. If interest rates drop, more of your mortgage payment is applied to the principal balance owing. This can help you pay off your mortgage faster. 

The combination mortgage gives you the best of both worlds, fixed and variable rate.  Some lenders allow you to split the amount of your mortgage into fixed and variable rates. 

Short term or long term 

The term is the length of the current mortgage agreement. A mortgage typically has a term of six months to 10 years. Usually, the shorter the term, the lower the interest rate. 

A short-term mortgage is usually for two years or less. A long-term mortgage is generally for three years or more. Short-term mortgages are appropriate for buyers who believe interest rates will drop at renewal time. Long-term mortgages are suitable when current rates are reasonable and borrowers want the security of budgeting for the future. The key to choosing between short and long terms is to feel comfortable with your mortgage payments. After a term expires, the balance of the principal owing on the mortgage can be repaid, or a new mortgage agreement can be established at the then-current interest rates. 

Open or Closed 

Open mortgages can be paid off at any time without penalty and are usually negotiated for very short terms.² They are suited to homeowners who are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before maturity. 

Closed mortgages are commitments for specific terms. If you want to pay off the mortgage balance, you will need to wait until the maturity date or pay a penalty. 

Amortization

Amortization means the length of the mortgage in number of years.  In an effort to help potential homebuyers with concerns about affordable monthly payments, lenders have started amortization periods of up to 40 years.  Traditional mortgages have been amortized over 25 years or less.

• Rate can fluctuate 
• Some conditions apply.