When it comes to getting a mortgage it is good to know that there are several different mortgage types you can get based on your own specific needs. Whether buying your first home, renovating your existing one or making that final dream home purchase, there are options available to you. Below we have given a brief explanation of the different types of mortgages available.
Fixed Rate Mortgage
One of the most popular mortgage types is a fixed rate mortgage. A mortgage with a fixed rate that does not change for the term of the mortgage. Payments stay the same and do not change during that period. Giving you the security of knowing what your payments will be for that entire time.
Variable Rate Mortgage
A mortgage with an interest rate based on the prime rate. Usually, that means it is the prime rate plus or minus a specific percentage. For example Prime -0.25 or Prime + 0.25. As the Prime rate changes so do the amount of interest charged. Monthly payments may fluctuate should the prime rate change. This gives you the ability to watch the market and take advantage of the lowest rates available.
An open mortgage gives the borrower the opportunity to pay any amount above the pre-determined monthly payment without penalty. One can put a little extra on the mortgage or pay it out entirely without incurring any penalty for doing so. Typically this rate is based on the prime rate.
Capped Rate Mortgage
A capped rate mortgage is also based off of the Prime rate however it has a guaranteed cap. Meaning that should the Prime rate move you will have a pre-determined maximum that you will incur on the interest rate. This is a great way to take advantage of a low Prime rate variable mortgage without the risk of the market changing and the prime rate moving up too much.
A convertible mortgage means you have the option to convert from one rate or term to another. For example, if you had a 2-year term and saw the market changing and rates going up you would have the option to lock your rate in for a longer period of time with your current lender. Or if you have a variable rate mortgage and you are no longer comfortable with that you may lock into a fixed rate for the remainder of your term. Keep in mind you can only do this with your current lender for existing balances. No new money can be taken in this situation.
Though purchase plus is not a type of mortgage, it is however available to the purchaser in the event you are buying a home that needs some improvements. Unlike a regular mortgage where you need a down payment and would borrow the purchase price minus the down payment, you are able to borrow additional funds above the purchase price. This is used for situations like the home needs a new roof. You need to have proof of the cost of repairs or upgrades and can only borrow a specific percentage above the purchase price. Talk to Team Jardine today should you be interested in this. We can explain the finer details of how it works, however knowing it does exist may help you in your search for a property.
A ‘refinance’ is not necessarily a type of mortgage but more of how you can borrow against your current property you already own. Again it is good to know what can and can’t be done. Refinance is based upon the market value of your home and the equity you have remaining. Presently one can borrow a maximum of 80% of the value of their home once they have purchased it. This means if your home is valued at $100,000.00 you cannot borrow any more than $80,000.00 against the home. A refinance is often used to get a better rate from a different lender or take extra funds to do repairs in your home. As your mortgage broker, we can assist you in determining if this is a good fit for you.
You may be able to borrow more than the 80% cap should you have repairs you need to do to the home. As with the purchase plus you may qualify to have a refinance plus improvements. Again you need proof of the cost of repairs and the value it will add to your home. Call us today to discuss should this be something you are interested in.
Equity Take Out- ETO
An ETO is one of those mortgage types that you take cash out of your home. Again this will apply to the rules of how much you can borrow against an existing owned property. Whether you need a new car, have a child going to school or just need some extra cash this is a way to make the equity in your home work for you. Depending on the value of your home and balance of any mortgage against it will determine how much cash you can access.
A reverse mortgage is when you take a loan against the home and it does not need to be repaid until the home is sold or changes ownership. Otherwise known as the Canadian Home Income Plan or CHIP for short. This is not something that is for everyone, however, can be beneficial in certain situations. We can help you decide if this option is a good one for you.
Home Equity Line Of Credit- HELOC
A Home Equity Line Of Credit is a line of credit taken against your property in which the property is used as security. As opposed to a mortgage it is a revolving line of credit. As you make payments to the loan, funds become available for use. Some lenders will allow you to have a mortgage and a home equity line of credit. This is often used when people are doing extensive renovations to their home. Giving them the opportunity to make purchases, pay them off or down and reuse the funds. The benefit of this is the line of credit is greater than a typical line of credit you would traditionally get from a bank with no security.
Here at the Mortgage Center we understand all the different mortgage types and know that all of this can seem overwhelming but we are here to help you understand exactly what you need for your own personal situation.