This week we are going to take a simplified look at mortgages so you can meet with your mortgage provider with some basic knowledge of your options…
Mortgage is the name given to loans used to purchase a home. These get broken down into high-ratio vs. conventional mortgages.
Conventional Mortgages are used when someone has more than 20% of the purchase price saved.
High-Ratio Mortgages are for people who want to buy a home but do not have at least 20% saved for a down payment.
With a high-ratio mortgage you can borrow up to 95% of the purchase price however there will be a CMHC (Canadian Mortgage & Housing Corporation) insurance applied. This insurance is mandatory for any federally regulated lender & protects the lender should you ever default on your mortgage while allowing qualified buyers to get into home ownership without the 20% downpayment.
To determine the amount you would owe on a high-ratio mortgage, check out the CMHC Premiums table. For most lenders, this total would be dispersed into your mortgage & your monthly payments would cover the total cost over time.
For many, saving enough for a conventional mortgage is a hard decision… check out this post to help you decide if you should take the leap or keep saving.
Once you determine if you are a high-ratio borrower or a conventional borrower, the next break down is a fix mortgage vs. a variable mortgage.
Fixed rate mortgages allow you to lock in at a specific interest rate for 5 years. That interest rate will be determined by your credit history & where the prime interest rate is. Your mortgage payments would be the same over the 5 year period after which you need to go in & renew your mortgage (possibly at a higher rate).
Variable rate mortgages (sometimes called adjustable rate mortgages) typically have lower interest rates. However, as the name suggests, these interest rates can rise or fall depending on the market. It’s a bit of a gamble so talking with your mortgage broker to ensure you understand the risk before you decide is imperative.
The next step in the equation is all about amortization & we will cover that here….
Remember that financial advice on mortgages can be complex & speaking with a trusted mortgage broker is always a good idea when you start thinking about buying a home.
If you are local to the Halton, Hamilton-Wentworth or Brant areas it would be out pleasure to help you connect with some great professionals in the area.
Keeping is Genuine,
The Edwards Team