10 Different Types Of Canadian Mortgages To Suit Your Needs
As you are in the process of buying a Canadian home, you may be overwhelmed by the wide array of Canadian mortgage options that are available for you. In Canada, the home buying process is regulated by provinces and not every mortgage type is available in all provinces. Before buying a home, it is essential that you choose a mortgage type that effectively addresses your home needs and suits your long term financial goals.
Open mortgages
Open mortgages are best for persons who find it best suited to repay their mortgages from at least six months to a maximum of one year. These types of Canadian mortgages showcase higher interest rates as opposed to closed mortgages since they offer a prepayment option without penalties.
Closed mortgages
With a closed mortgage, homeowners pay a penalty in the event that they are looking to pay out their mortgages completely in the course of their contractual mortgage term. As the name implies you will be in a better position to lock in mortgage interest rates during the loan term. This way you get to enjoy peace of mind whilst enjoying lower interest rates than those of an open mortgage. Whenever you feel you perceive a potential increase in the level of interest rates, choose a closed mortgage has a long term.
Fixed rate mortgages
Fixed rate mortgages are Canadian loans that have a fixed interest rate over a particular period of time. Conventionally, they are called mortgage terms and are usually between six months and ten years. Your ability to choose between locking in a long or a short term is based upon your financial situation and your ability to tolerate the risk in the market. Fixed rate mortgages enable you to pay off the principal balance amount using partial prepayments in the course of your term however such privileges may vary depending on the lender that you select.
Variable rate mortgages
If you are looking to get the most out of the lowest rates available in Canada then you should go for variable rate mortgages. The variable rates are dependent on your lenders prime rate and are similar to those of the Canadian bank prime rate. Variable mortgages are most ideal in periods when experts presume that the rates are bound to go down or will stay the same for some time. Therefore, as the interest rates reduce a greater percentage of your payment tends to go towards the principal and vice versa. Certain types of variable mortgages usually allow you to pay off the entire amount of your mortgage or a proportion of it with penalties while others do not.
Cash back mortgages
Cash back mortgage are these days popular with most Canadian citizens especially those who are working with limited down payments. Lenders give you a cash back schedule whereby a proportion of the total value of the property is rebated back to you upon closure. The cash back program is particularly handy with closing costs. However, a major downside to using these types of mortgages is that they come with higher interest rates.
Construction course mortgages
In case your home construction processes is already underway, you can opt for a construction mortgage, where about three monetary disbursements are made by the lender towards the completion of the construction process. The lender will appraise the value of the property that is being constructed before advancing funds so as to know the right amount to disburse. Although these home loans demand higher interest rates.
Bridge financing
This form of temporary financing can be used for different purposes but mostly it is relevant in situations where by you have already purchased a new home but have not yet sold your old home or you are still staying in your existing home as the new one is constructed. You must be in position to service the loan the mortgage lender requires.
Second mortgages
Second mortgage finances are measures that come in handy for supplementing to your first mortgage so you can arrange your initial mortgage on more attractive terms. However, second mortgages are usually offered at relatively higher interest rates.
Reverse mortgages
Reverse mortgages give you an opportunity of transferring your home equity into monetary value. There are no worries as regards the sale of your home and you do not have to worry about monthly repayments. You must be above sixty two years or older in order to get the most equity from this type of loan. In the event of the death of the homeowner, the property is sold and the interest rates are paid off using the sales money.
Convertible mortgages
Convertible mortgages give you the chances of converting short six month or one year loan terms into longer terms without any penalties but you are required to stick to the same lender.