Choosing The Right Mortgage For You -

Home
>
Mortgage Refinance
>
Choosing The Right Mortgage For You

Choosing The Right Mortgage For You

This article will help you understand the differences between a variety of mortgage options. There are many different mortgage products offered by the various lending institutions in Canada, so you may not know what features to look for.

As you'll see, each type of mortgage has slightly different features which appeal to a variety of different preferences. For example, some home buyers take comfort in knowing that the amount of their mortgage payments will be the same throughout the entire term of their mortgage. Other home buyers may be willing to accept some fluctuation in the amount of their mortgage payments in exchange for the potential long-term savings or the change to pay off their mortgage faster.

The right mortgage for you in the one that best matches your overall comfort level and fits with your income and lifestyle.

Conventional or High Ratio

A conventional mortgage is a loan for no more than 75% of the appraised value or purchase price of the property, whichever is less. The remaining amount required for a purchase (25%) comes from your resources and is referred to as the down payment. If you have to borrow more than 75% of the money you need, you'll be applying for what is called a "High-Ratio Mortgage". Here's how it works:

You must have at least a 5% down payment when you buy a home. Any down payment between 5% and 24% is considered a high-ratio mortgage, and the mortgage must be insured by the Canadian Mortgage and Housing Corporation (CMHC) or GE Capital Mortgage Insurance Company (GEMICO). 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 0.5% to 3.75% of the value of your home. This amount can be paid up front or added to the principal amount of your mortgage. A Mortgage Specialist or Mortgage Broker can help you determine the exact amount of the fee.

Fixed Rate or Variable Rate Mortgage

When you take out a fixed-rate mortgage, your interest rate will never change throughout the entire term of your mortgage. As a result, you will always know exactly how much your mortgage 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 the lending institution's Mortgage Prime Rate at the beginning of each month. In other words, it will 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 depending upon the interest rate that month.

If interest rates drop, more of your mortgage payment is applied to the principal balance owing. The can help pay off your mortgage faster. However, if interest rates rise, more of your monthly payment is taken up by your interest payment.

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 5 years. Usually, the shorter the term, the lower the interest rate.

A "short-term" mortgage is usually for two years of 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 term 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 rates.

Open or Closed

Open mortgages can be paid off at any time without penalty and are usually negotiated for very short terms, 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 the end of the term.

A closed mortgage has a locked-in interest rate for the full term of the mortgage. Most first-time home buyers prefer a closed mortgage because they want to enjoy the comfort of steady, predictable mortgage payments. If you want to re-negotiate your interest rate, or pay off the balance, you will need to wait until the maturity date or pay a penalty.

About The Author

John Carle & Sharon Gregresh are Realtors with Royal LePage - ArTeam in St. Albert, AB. They pride themselves on providing more than just real estate sales and listings. Their clients benefit from a much larger spectrum or real estate services. Contact them any time at information@workingtogether.ca or through their website at www.workingtogether.ca. They can be reached by phone at (780) 458-5595

In The News:

Mortgage Refinancing Points to Consider
Corsavoo.com, France - Sep 6, 2008
Though it is probable to attain a no-cost refinance mortgage from a mortgage loan lender, remember that these lenders are out there, trying to earn a ...

Wall Street Journal
Washington's Fannie And Freddie Plan: Why Now?
Forbes, NY - Sep 6, 2008
Any announcement would come just weeks before the two companies have to refinance $225 billion of mostly short-term notes. Fannie and Freddie sell debt to ...
Video: Feds Take Over Mortgage Giants AssociatedPress
Questions, and Hope, on Plans for Mortgage Giants New York Times
Government bail-out for US mortgage giants FannyMae and FreddyMac domain-B
Nolan Chart LLC - HULIQ (press release)all 3,538 news articles

Understanding Mortgage Refinance Rates
SheKnows.com, AZ - Sep 4, 2008
Mortgage refinance rates are the lowest rates, homeowners can get when trying to refinance their mortgages. Simple, isn’t it? Maybe so, but obtaining the ...

The Associated Press
Troubles spread to prime Md. mortgages
Baltimore Sun, United States - Sep 6, 2008
... interest-only mortgage with an adjustable rate. The rate kept rising until it was just too much, and he was told he couldn't refinance because the value ...
Report says 3.1 percent of Conn. mortgages overdue Newsday
Home loan troubles break records again The Associated Press
Foreclosures, Overdue Mortgages Increase Again Wall Street Journal
Bloombergall 684 news articles

Business Wire (press release)
Risky mortgages threaten to keep housing market down
Detroit Free Press, United States - 12 hours ago
They can't refinance because housing prices have nose-dived, and lenders are demanding full documentation of income and assets. Losses on liar loans could ...
Fannie, Freddie fallout felt Asbury Park Press
all 12 news articles

Five reasons the Fannie/Freddie bailout should not happen -- and ...
BloggingStocks - 4 hours ago
High cost to refinance monthly debt. Bloomberg writes that as of "mid-August the companies had $223 billion of debt to refinance by the end of the quarter. ...

Houston Chronicle
Baytown woman sues lenders, says she was a victim of predatory ...
Houston Chronicle, United States - Sep 4, 2008
Nanette Lewis refinanced her mortgage to get peace of mind. Instead, she says, she got a bait-and-switch, predatory loan and heartbreak. Now far less naive, ...

Mortgage Refinance Options to Think About
3x24 - Your Newspaper and News Magazine, Germany - Aug 26, 2008
Very few people in the world can afford to purchase a home in one payment so the world of mortgages and mortgage payments ‘came to be’. Mortgage refinance ...

Today's Law: Mortgage Help
WKYC-TV, OH - 3 hours ago
Under this program a borrower in danger of losing his home can refinance into a more affordable government insured mortgage. The program does not begin ...

What’s A Divorce Got to Do with Your Mortgage Refinance?
Corsavoo.com, France - Aug 25, 2008
When you’re the aggrieved partner, you silently wish that things will suddenly take a better turn, especially with an unpaid mortgage. Refinance plans have ...

mortgage refinance - Google News