Types of Mortgages

There are several different types of mortgages available to home buyers. Each type of mortgage works slightly differently, so it’s important to be aware of their difference before committing to a financing plan. With careful preparation and professional support, you can find the mortgage that works best for your lifestyle and financial situation. Here is some more information on the various types of mortgages available to home buyers.

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 NHA mortgage because it may be entered under the provisions of the National Housing Act 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.

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. An open mortgage may be preferable for home buyers with a higher income, whereas closed mortgages may be the better option for buyers who want a more consistent payment schedule.

Short Term vs. Long Term Mortgages

The term you select for you mortgage is important to consider as well. 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. A long term mortgage may be especially useful for first time homebuyers, who may still be working towards long-term financial planning.

Fixed Rate vs. Variable Rate Mortgages

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. First time home buyers may feel more comfortable with a fixed rate mortgage, whereas buyers looking for the lowest rates possible may want to consider a variable rate mortgage.

Make Your Mortgage Work For You

The type of mortgage that works best for you will depend on your income, proposed spending budget, and future financial planning.

Specialty mortgages creatively combine the best of all worlds, so you can create your own custom financing plan that works for your income and budge. At Mortgage West – The Mortgage Centre, we’re here to provide you with all the information and support you need to get your home ownership started on the right financial foot. With years of experience and a large number of satisfied clients, Rose Blankenagel can help you find and secure the mortgage that works best for you. For more information about our mortgage services and to book a consultation, contact us today.