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Jun 5, 2018
A mortgage is unlike any loan you will have. You will be swamped with more than one choice when applying for it and will need to provide more details in order to qualify for it. Mortgage types differ from each other, and whatever you decide, it must be the perfect fit.
So how do you know which is the one?
Lucky for you, we rounded up the most common mortgage types for home buyers in Canada to give you a hand.
Considered the traditional mortgage, this will ask you to pay a down payment of 20% on the property. The bank will lend you the remaining 80%.
Missing that 20% payment is not a big deal. The bank will lend you a larger loan but with one condition. You will need to get mortgage insurance. It might not seem like the most appealing option, but in today’s market, it seems to be popular the choice.
With this mortgage, your monthly payment will be steady. But if the interest rates go down, your payment will go towards the loan and not the interest, helping you pay back sooner than expected. However, you will remain in suspense if the rates begin to fluctuate.
Another benefit of a variable rate mortgage is getting out of it. You only have to pay a maximum of three months interest to your lender if you want to move your mortgage elsewhere.
Maintaining your finances in control might be easier if you choose a fixed interest rate. Typically, these rates have remained unchanged for the last 1-5 years. Home buyers decide on this one to bring them peace of mind when interest rates are unpredictable. However, there is a catch. The interest rate will be higher than a variable rate mortgage rate. Stability does have a price. If you wanted to get out of this mortgage type, you would be subject to higher penalties form your lender.
Imagine you end up winning the lottery one day. Most people would use to pay their mortgage in full. But in a closed deal, this is not possible. The loan must be repaid during the stated time and not earlier than that.
Unlike a closed mortgage, this type will allow you to put that lottery money to good use. The terms of this loan are flexible, and it is possible to pay back before expected. Despite this advantage, the rates tend to be much higher than closed mortgages rates.
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