Types of Mortgages

The different types of mortgages available in the Canadian Mortgage Market offer a great variety of solutions to a  borrower. The right kind of mortgage selection is, where a Mortgage Broker can help you with.

Based on mortgage rates and repayment options, primarily there are the following 6-kind of mortgages

• Conventional Mortgages
• High Ratio Mortgages
• Open Mortgages
• Closed Mortgages
• Fixed-Rate Mortgages
• Variable Rate Mortgages (VRM) / Adjustable Rate Mortgages (ARM)

Conventional Mortgages

A mortgage where the down payment is equal to 20% or more of the property’s value/purchase price. A low-ratio mortgage does not normally require mortgage protection insurance.

High Ratio Mortgages

A high ratio mortgage is one where the borrower is contributing less than 20% of the value/purchase price of the property as the down payment. These types of mortgages must have mortgage default insurance through Canada Mortgage and Housing Corporation (CMHC), Genworth Financial or Canada Guarantee; the three mortgage insurance companies in Canada.

Open Mortgages

An open mortgage allows you the flexibility to repay the mortgage at any time without penalty. Open mortgages usually have shorter terms, but can include some variable rate/longer terms as well.  Mortgage rates on Open Mortgages are typically higher than on Closed Mortgages with similar terms.

Closed Mortgages

A closed mortgage is a mortgage agreement that cannot be prepaid, renegotiated, or refinanced before maturity, except according to its terms.

Fixed-Rate Mortgages

The interest rate of a fixed rate mortgage is determined and locked in for the term of the mortgage. Lenders often offer different prepayment options allowing for quicker repayment of the mortgage and for partial or full repayment of the mortgage.

Variable Rate Mortgages (VRM) / Adjustable Rate Mortgages (ARM)

These types of loans differ from a fixed-rate mortgage in that the mortgage rate may be changed during the term of the mortgage. Generally, these mortgages are initially set up like a standard loan, based on the current interest rate. The mortgage is reviewed at specified intervals and if the market interest rate has changed, either changing the size of the payment or the length of the amortization period (or a combination of both), the lender then alters the mortgage repayment plan.

mortgage broker Gurbir Sandhu

We can further understand mortgages based on mortgage objectives as follows

Bridging Mortgages

If you are buying a new property whilst you are still looking to sell your existing property, you might want to look into something called a bridging mortgage. A bridging loan is a short-term loan that gives you up to 6 months to sell the existing property, helping you navigate this awkward time as you transition to your new home.

Construction Mortgages

A construction mortgage is a specialized loan that helps you meet the unique needs of ongoing payments throughout the construction process. The key difference between a construction loan and a regular home loan is that it allows you to draw down on the loan balance, whilst a traditional home loan is made available in one lump sum to the borrower.

Mortgages on pensions – age & disability

Whilst it can be difficult to receive a home loan as a pensioner due to being considered risky by lenders, it is still possible to get a mortgage despite the challenges involved. If you are on a pension or applying for a home loan at an older age, you may be limited in the number of funds you can borrow, this is due to a higher risk being associated by lenders when processing the loan application. The types of mortgages available for pensioners can include reverse mortgages, line of credit home loans, and investment mortgages.

Line of credit Mortgages

Once you have owned a property for a while and you have built up some equity by making repayments, you can then apply for a mortgage called a line of credit. This type of mortgage allows you to access the funds whenever it is needed.

This product is a handy and creative way to manage your cash as the money can be used for virtually anything and paid back on your terms. As long you have more cash coming in than going out these accounts can be useful. However, they can be very costly if the balance of the line of credit is not regularly reduced as it can have higher interest rates and reduce the equity in your home.

Reverse mortgages

A reverse mortgage is designed for seniors who currently own a home, a reverse mortgage allows you to access up to 55 percent of the equity in your home without selling it. You don’t make any payments on a reverse mortgage, but the interest on your reverse mortgage accumulates and the loan and accumulated interest are payable when you sell the house or it’s no longer your principal residence.

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