Mortgages are a popular financial tool for Canadians looking to purchase a home. With so many different mortgage types available, it can be difficult to know which one is best for your individual situation. To help make the decision a little easier, here is a breakdown of the most popular types of mortgages available in Canada.
Fixed Rate Mortgages:
Fixed rate mortgages are one of the most popular types of mortgages in Canada. With a fixed rate mortgage, the interest rate is locked in for the entire duration of the mortgage term. This means that you won’t have to worry about interest rate fluctuations affecting your monthly payments. The downside to a fixed rate mortgage is that if interest rates drop, you won’t be able to take advantage of the lower rate.
Variable Rate Mortgages:
A variable rate mortgage is a type of mortgage that has an interest rate that can fluctuate based on market conditions. This means that if interest rates drop, your monthly payments could decrease as well. The downside to this type of mortgage is that if interest rates increase, your monthly payments could also increase.
Adjustable Rate Mortgages:
Adjustable rate mortgages (ARMs) are a type of mortgage that has an initial fixed interest rate that lasts for a certain amount of time. After the initial period is over, the interest rate can change based on market conditions. This type of mortgage can be beneficial if you plan to move or refinance within the initial fixed period, as the lower interest rate could save you money. However, if interest rates increase, you could be stuck with a higher interest rate for the remainder of the mortgage term.
High-Ratio Mortgages:
A high-ratio mortgage is a type of mortgage that requires a down payment of less than 20% of the purchase price. This type of mortgage is often used by first-time home buyers, as they usually don’t have the funds available to make a larger down payment. The downside to a high-ratio mortgage is that you will be required to purchase mortgage default insurance, which can add to the overall cost of the mortgage.
Open Mortgages:
Open mortgages are a type of mortgage that allow you to make lump sum payments or pay off the entire balance of the mortgage at any time without incurring a penalty. This type of mortgage is ideal for those who may have a lump sum of money available, as it allows them to pay off the mortgage quickly and save on interest costs. The downside to an open mortgage is that you may be charged a higher interest rate than other types of mortgages.
Closed Mortgages:
Closed mortgages are a type of mortgage that requires you to keep the same interest rate and repayment terms for the duration of the mortgage term. This type of mortgage is ideal for those who want the security of knowing their payments will remain the same for the entire mortgage term. The downside to a closed mortgage is that you are unable to make lump sum payments or pay off the mortgage early without incurring a penalty.
Understanding the different types of mortgages available in Canada can help you make the right decision for your individual situation. Be sure to speak with a mortgage broker to discuss all of your options and find the right mortgage for you.
