If you're looking to buy a home, you'll probably need a mortgage, since most people cannot afford to pay the full price of a home. The mortgage principal is the amount you'll need to borrow (purchase price minus your down payment and any required mortgage insurance).
To suit your personal finance needs, there are a variety of mortgage types.
Down payments on homes are required, but a large down payment is usually recommended anyway to qualify for a better rate and reduce the overall interest paid.
A minimum 20% down payment is required for a conventional loan. With this percentage, your mortgage is lower-risk and eligible for a conventional mortgage. Otherwise, your loan is considered higher risk and requires insurance. The premium is added directly to your mortgage amount. People who can't afford large down payments, or want to take advantage of good rates or prices can benefit, with a minimum 5% down.
The Canada Mortgage and Housing Corporation, similarly to the US Federal Housing Finance Agency, sets requirements like this; it's also involved in mortgage insurance rates and policy on housing affordability and accessibility.
The mortgage term is the period your mortgage contract is in effect. Payments are based on amortization. All details are outlined in the mortgage agreement. Terms range from a few months to 5 years or so. In the end, you'll probably have to renew for another term, until you're able to pay off the debt completely.
The amortization period is how long it takes to pay your mortgage fully. A shorter amortization means a higher monthly payment but less interest paid. In Canada, down payments of 20% or more let you amortize up to 30 years; otherwise, the maximum is 25 years.
Monthly mortgage payments are common, but more frequent payments, like a bi-monthly payment, let you pay down mortgages faster and reduce interest. It may also be required that property taxes are automatically deducted through the financial institutions.
A higher interest rate means higher mortgage loan payments. Rates change when you renegotiate and renew mortgage terms.
The interest rate is like a lender's fee for borrowing money. A minimum credit score is required. Mortgage loans are secured; if you fail to pay, your mortgage lender may take possession. On the other hand, you get lower interest rates compared to unsecured loans.
Mortgage rates are impacted by your term length, credit history, employment situation, whether it's for a home loan or investment property, as well as other factors.
A fixed rate mortgage is likely to have a higher rate than a variable rate. With a fixed interest rate, though, your payments stay the same throughout and interest payments are consistent. Fixed rate mortgages are better if you are more conservative and want the security of consistent rates.
Also known in the US as adjustable rate mortgages, these have variable interest rate fluctuations during your term. Typically, variable rate mortgages have lower rates than fixed. You can choose fixed payments, which stay the same, despite the varying actual interest, or adjustable payments so your payments change with rates.
Hybrid or combination mortgage rates have fixed and variable interest rates, sometimes with different terms for each. The fixed portion partially protects when interest rates rise, while the variable portion partially helps when rates fall.
Mortgages can be portable, where you keep your mortgage when buying another property, or assumable, when you pass your existing mortgage to someone buying your property. There are different types of mortgages available.
An open rate is usually higher than on a closed mortgage with a comparable term length, but it allows more flexibility if you may make extra payments.
A closed mortgage interest rate is usually lower than a comparable open mortgage one. Closed term mortgages usually limit the amount of extra money, or pre-payments, you can put toward your mortgage.
These allow the type of mortgage to change, usually to allow you to start with an open mortgage and then lock into a closed mortgage. It offers lower rates than an open mortgage with the flexibility to switch to a closed term.
A hybrid mortgage allows more than one type of mortgage to be covered in one contract.
If you're 55 and own your home, you can convert home equity into lump sum or monthly payments by borrowing against your home equity.
Buying a home is a huge investment. At Circle Mortgage Group, we protect your best interests, and understand your financial situation and goals are unique.
If you're self-employed, a first-time buyer, or looking for commercial or second-home mortgages, finding your perfect solution is especially complex, but we'll guide you through the mortgage process for your home loans. We can also help you with a renewal, remortgage, or reverse mortgage.
Whether you need a traditional mortgage or something more complicated, we'll get you better rates so you pay off your mortgage balance faster.