Congratulations! You’ve decided to begin your search for a new home, or
perhaps you’ve already found the home of your dreams and are ready to make
an offer. It’s now time to consider your mortgage options. But with so many
different choices available, how can you select the right kind of mortgage for
To help you make an informed decision, Canada Mortgage and Housing
Corporation (CMHC) offers the following answers to some of the most common
questions Canadians have about choosing a mortgage:
o What is the difference between conventional and high-ratio
A conventional mortgage is a loan for up to 80 per cent of the purchase price
(or market value) of a home. With a conventional mortgage, the buyer
supplies a down payment of at least 20 per cent, and mortgage insurance is
usually not required. If your down payment is less than 20 per cent of the
purchase price, however, you will typically need a high-ratio mortgage. High-
ratio mortgages normally have to be insured against payment default.
o What are fixed, variable or adjustable interest rates?
When you choose a mortgage, you have to decide whether you want the
interest rate to be fixed, variable or adjustable. A fixed rate is locked-in for
the entire term of the mortgage. With a variable rate, the payments remain
the same each month, but the interest rate fluctuates in accordance with the
overall market. For adjustable rate mortgages, both the interest rate and the
mortgage payments vary based on market conditions. Talk to your lender to
find out which option is right for you.
o Should I choose an open or closed mortgage?
With a closed mortgage, you pay the same amount each month for the entire
term of the mortgage. Closed mortgages can be a good choice if you want a
fixed payment schedule, and you don’t plan on moving or refinancing before
the end of the term. An open mortgage allows you to pre-pay a lump sum or
even the entire loan at any time without a penalty. An open mortgage can be
a good choice if you’re planning to sell your home in the near future, or if
you want the flexibility to make lump sum payments.
o What about the term, amortization and payment schedule?
The term is the length of time (usually from six months to 10 years) that the
interest rate and other conditions of your mortgage will be in effect.
Amortization is the period of time (such as 25 or 30 years) over which your
entire mortgage debt will be repaid. Lastly, the payment schedule sets out
how frequently you will make payments on your mortgage – usually either
monthly, biweekly or weekly.
(Source: Canadian Mortgage Housing Corporation)
For more information on understanding your mortgage options: Contact
Company: Verico Brokers For Life