There are different types of mortgages in Canada, but before you think about that, you must think about one more thing, and that is choosing the right mortgage broker for your needs.
If we specifically talk about Canada, mortgage funding is usually done by three types of lenders:
- The traditional lenders like banks, monoline lenders, and credit unions.
- Alternative lenders/B-lenders.
- Private lenders.
In the Canadian market, traditional lenders like big banks control most of the market share, however, this does not mean you should consider other options of mortgage lending.
In the case of credit unions and monoline lenders, there are chances that you might find the best mortgage product suiting your needs at a lower interest rate and lower penalties. It is important that you explore the market to find the best suitable mortgage broker and then the broker will help you in finding the best suitable mortgage lending product. In case you belong to Vancouver/surrey, British Columbia, Astra Mortgage will be of your help indeed.
Now, let us discuss the types of mortgages in the Canadian market and how they apply to you:
Conventional Mortgages:
In these types of mortgages, you need to make the least down payment of 20 per cent. The lending will be done for 80 per cent or less of the property. As the lender is financing the property purchase, you do not have to buy mortgage default insurance. However, if the lender makes it a condition for lending that you purchase home insurance, then you might have to.
High Ratio Mortgages:
If the required down payment for the purchase of property is less than 20% of the total property value, this type of mortgage is known as a high ratio mortgage. In such cases, the mortgage loan amount is usually more than 80% of the value. Here, you are required to get mortgage default insurance. This insurance usually gets rolled into your mortgage and is paid along with the regular mortgage.
Open/Closed Mortgages:
In an open mortgage, you can pay a mortgage in full without incurring any penalty. These mortgages usually come with a higher rate of interest.
On the other hand, in a closed mortgage, you are allowed to pay only a limited amount towards the mortgage. These mortgages usually come with pre-payment privileges.
Fixed-Rate Mortgages:
As the name suggests, here your mortgage rate stays the same throughout the mortgage term. Mortgage terms can be anything between one to five years. Usually, people prefer to have five-year fixed-rate mortgages as this ensures them that the mortgage rate will be the same for five years.
These mortgage rates depend on the government bond yields.
Variable Rate Mortgages:
As the name suggests, in this type of mortgage lending, the mortgage rates can vary throughout the mortgage term. Here, the rate of the mortgage is usually lower than the fixed-rate mortgages, however, the rate might go up depending upon the benchmark rate decided by the Bank of Canada. If you do not believe in taking risks, this type of mortgage is not for you.
Portable Mortgages in Canada:
Portable mortgages can be transferred from one property to another without reunification or facing a penalty. These mortgages are available with very specific terms and conditions and not every mortgage lender in Vancouver offers them.
HELOCs:
That is “Home Equity Line Of Credit”. This means you can borrow equity from your home. In this type of mortgage, you can borrow up to 65% of your property value on the condition that the HELOC and mortgage do not go beyond 80% of the property value.
Cash Back Mortgage:
Here, you get cash upfront. However, you can use these funds anywhere except as the downpayment for the property or moving expenses or furniture, etc. Here, the rate of interest is usually high and if you break the mortgage fund during the decided term, you have to pay back the cash in divisions.
Renovation Loan:
Innovation mortgage is used to add value to the property. It can be used for anything like basements, decks, windows, remodelling, etc.
Reverse Mortgage:
In alternative mortgages, reverse mortgages are acquired. Here, homeowners above the age of 55 can borrow against the equity in their home, and receive the mortgage money in one go or on a monthly basis. This is the best option for those who are senior citizens earning a fixed income and who are not eligible for HELOC.
Apart from the above, there are two more categories and a few more types of mortgage available in the Canadian market:
- Private mortgages
- Bridge Mortgage or bridge financing.
- Second Mortgage.
- Commercial Lenders
- Construction Lenders.
As seen above, there are a number of mortgages in the market that may be fit for your funding needs. However, you need to find the best and most affordable mortgage and this is where you need the help of a professional and experienced mortgage broker company.
