Ontario Mortgage News– Types of Mortgages Part 4: High Ratio Mortgage vs. a Conventional Mortgage

Are you getting ready to buy a home and obtain mortgage financing? Knowing your options before jumping in is important. This is part 4 of a 4 part series that gives you important Ontario mortgage news and information about the various types of mortgages available in Ontario. Getting a mortgage does not have to be stressful, and knowing what mortgage types are available to you can help keep the search for your perfect home stress-free.

This final Ontario mortgage news blog will look at the high ratio mortgage and the conventional mortgage. First, what is a high ratio mortgage? A high ratio mortgage is a mortgage where the borrower puts down less than 20% of the total purchase price of a home as a down payment. In Ontario, a minimum 5% down payment is required on all home purchases, but you can put down as much as you like. However, if you put down less than 20% you have to get a high ratio mortgage.

So what does this mean? Well, having a high ratio mortgage means that it is necessary to purchase mortgage insurance, usually done by your lender. The premium for this insurance is usually calculated in as a closing cost, or can sometimes be financed through the mortgage.

Why do you need mortgage insurance with a high ratio mortgage? A high ratio mortgage necessitates the purchase of mortgage insurance because the lender is putting forth more risk and wants to protect their investment. If you are putting down less than 20%, there is a higher chance that the lender will not recoup those funds if you default, and therefore the insurance is there for their protection.

So what if you put down more than 20%? This is where a conventional mortgage comes in. Since you have placed what the lender considers to be a large enough down payment on a home, you can qualify for a conventional mortgage and are not required to buy mortgage insurance.

If you are putting down more than 20%, there is more immediate equity in your home and the lender acknowledges that you are less of a risk. Since there is less risk involved on the lender’s behalf, they will often provide much more favourable repayment terms and you may find rates a little more flexible.

So what are the benefits of these two types of mortgages? Simply put, if you want to open the range of properties you can have access to and are willing to put down less as far as a down payment, then a high ratio mortgage might make sense – or if you only have that 5% to put down then you are not prohibited from buying at all. However, if you want to feel more comfortable and put down a larger down payment and skip the mortgage insurance, then a conventional mortgage may be right for you. It all depends on your current and future needs and goals, so talk to your mortgage broker and see what they say.

For other Ontario mortgage news or for more information about high ratio mortgages and conventional mortgages, please contact Paul Mangion of The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com.

Ontario Mortgage News – Types of Mortgages Part 2: Variable Rate Mortgage

Are you getting ready to buy a home and obtain mortgage financing? Knowing your options before jumping in is important. This is part 2 of a 4 part series that gives you important Ontario mortgage news and information about the various types of mortgages available in Ontario. Getting a mortgage does not have to be stressful, and knowing what mortgage types are available to you can help keep the search for your perfect home stress-free.

This second Ontario mortgage news blog will focus on the variable rate mortgage. What is a variable rate mortgage? A variable rate mortgage is a type of mortgage financing that fluctuates according to rising or falling interest rates. This means that, when your mortgage broker finds a lender to approve your variable rate mortgage, your payment is not static and may change if interest rates change. There are many advantages to this type of mortgage.

Firstly, if you tend to follow the philosophy that no risk means no reward, you understand that taking some risks could equal major savings in the long run. A variable rate mortgage can provide this. Since it is based on the rate of interest, if this decreases, so does your monthly payment. If it decreases substantially, then this could equal big savings for you.

Another big benefit to a variable rate mortgage is the fact that variable rate mortgages usually offer the lowest mortgage rates available. Since the bank or lender approving your mortgage recognizes the risks that are inherent in a variable rate mortgage, they offer the lowest rate to you. This means that even if the interest rate does increase slightly over the term of your mortgage, you will likely not feel the sting.

It is important to remember though that as the Canadian economy improves, interest rates may increase if the prime lending rate is increased by the Bank of Canada. That being said, many lenders do provide options with variable rate mortgages that will allow you to lock in your variable rate mortgage if interest rates do increase.

Why choose a variable rate mortgage. If you are not afraid to take a bit of a risk in exchange for the chance to save, or if you are planning of staying in your house for a very short period of time, a variable rate mortgage may provide the best financial solution for you. However, if your plans are more long-term, you may want to discuss the option of a fixed rate mortgage with your mortgage broker.

Mortgages don’t have to be complicated, and you should avoid getting stuck in a mortgage you don’t understand by visiting a mortgage broker and getting them to explain all of the different options available to you.

For more Ontario mortgage news or to find out more about the benefits of a variable rate mortgage, please contact Paul Mangion of The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com.

Ontario Mortgage News– Types of Mortgages Part 1: Fixed Rate Mortgage

Are you getting ready to buy a home and obtain mortgage financing? Knowing your options before jumping in is important. This is part 1 of a 4 part series that gives you important Ontario mortgage news and information about the various types of mortgages available in Ontario. Getting a mortgage does not have to be stressful, and knowing what mortgage types are available to you can help keep the search for your perfect home stress-free.

This first Ontario mortgage news blog will focus on the fixed rate mortgage. The fixed rate mortgage is often the most popular, but what is a fixed rate mortgage? Well, a fixed rate mortgage is a type of mortgage financing loan where the interest stays the same throughout the entire loan period, as opposed to other mortgage loans where the interest rate may adjust. This means that your interest rate is ‘fixed’ and that it does not fluctuate over the course of the term.

There are many benefits to this type of mortgage, and many things to consider when looking for the best mortgage financing rates to suit your needs.

Firstly, a fixed rate mortgage offers you the convenience of a set monthly payment that does not change. Set at the beginning of the mortgage loan period, a fixed rate mortgage will not increase or decrease as interest rates change. This means that there are never any unwelcome surprises when it comes to that monthly withdrawal.

A second, and arguably even more attractive benefit, is that, since a fixed rate mortgage will not change even if interest rates change, that you are protected in case of a dramatic interest rate hike. So, even if two years from now the interest rate skyrockets, your rate will remain the same throughout the entire term of the mortgage, ultimately saving you a great deal in terms of interest fees.

What is the normal length for a fixed rate mortgage? Although term lengths differ from lender to lender, the most common length for a fixed rate mortgage is 5 years. However, most lenders will offer a one year term mortgage, two year term mortgage, three year term mortgage, four year term mortgage, and some lenders may even offer a ten year term mortgage. The term you choose will largely depend on your future financial goals and all options should be discussed with your mortgage broker.

Why choose a fixed rate mortgage? As mentioned, the convenience of a set monthly mortgage payment and a never changing interest rate make a fixed rate mortgage ideal for many. Compared to a variable rate mortgage, a fixed rate mortgage may be a bit more expensive, but it also involves a lot less risk to you (since a variable rate mortgage fluctuates depending on an ever changing interest rate). No hassle means less stress for you!

For more Ontario mortgage news or to find out more about a fixed rate mortgage, please contact Paul Mangion of The Mortgage Centre at 416-204-0156 or visit www.themortgagecentretoronto.com.