Selecting the Right Mortgage
Mortgage options include:
Conventional vs. high-ratio or insured mortgages:
A conventional mortgage is a mortgage that has a principal amount that is no more than 80% of the appraised value or purchase price of the property, whichever is less. The principal amount of a high-ratio or insured mortgage is usually more than 80% of the appraised value or purchase price. An insured or high-ratio mortgage may also be referred to as an National Housing Act (NHA) mortgage because it may be entered under the provisions of the NHA and in many cases must, by law, be insured. In general, the borrower pays the insurance premium as well as application, legal, and property appraisal fees. The insurance premium is added into the principle borrowed and is included in your monthly payment.
Closed vs. open mortgages:
Closed mortgages generally offer lower interest rates than open mortgages of the same term, but open mortgages let you pay off as much as you want, any time, without paying a prepayment charge.
Short term vs. long term:
The term you select is important. Short term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future — this may be especially important for first time homebuyers.
Fixed rate vs. variable rate:
You can choose a fixed or variable interest rate. A fixed rate mortgage makes it easier for you to budget for whatever term you select. A variable rate mortgage fluctuates with the market.
Regular vs Collateral Charge:
A regular mortgage gives the client more control as it is a traditional charge that can be moved from lender to lender at no cost and the security is the house. A Collateral Charge gives less control to the client and is exclusive to the lender. This means that a client would have refinance charges if they wanted to transfer the mortgage.
While a Collateral Charge is registered against the house, the main security is the client. Should a client default under other lending facilities, the bank is offering (credit cards, overdraft, lines of credit, etc.) then the bank can attach this to the Collateral Charge as means for collection.
Under a Collateral Charge, with the client’s permission, the lender can register for over 100% of the value of the home. The idea is to give a client future access to the equity in their home without legal fees, however, this can only be accessed when the home has more than 80% equity position. Under a Collateral Charge, lenders may have the ability to offer different terms including fixed, variable, and home equity lines. We strongly recommend that First Time Buyers with limited down payment do not take a Collateral Mortgage.
Specialty mortgages creatively combine the best of all worlds. Your Mortgage Centre specialist can help you determine the options that are best for you.