Are you about to embark on your ? If that’s the case, learning the jargon can help when discussing mortgages. Once you’ve mastered these phrases, you’ll be able to confidently assess the many best mortgage rates in Canada options accessible. Don’t worry, you’ll be settled into your new residence in no time!
What Is a Mortgage, Exactly?
A mortgage is a loan that is used to buy or maintain a home, land, or other sorts of real estate. The borrower agrees to pay the lender over time, usually in a series of regular instalments split evenly between principal and interest. The property is used as security for the loan.
A borrower must apply for a mortgage with their preferred lender and meet several criteria, including minimum credit scores and down payments. Before they reach the closing stage, mortgage applications go through a thorough underwriting process.
Types of Mortgages
- Open Mortgages
An open mortgage is for you if you wish to make significant payments on your mortgage or pay it off completely without penalty. An open mortgage gives you the most freedom. These homeowners are willing to accept some interest rate volatility in exchange for the ability to pay off a portion of the full mortgage before the term ends.
- Closed-Term Mortgage
Although you cannot repay the entire mortgage debt early without penalty with a closed term mortgage, most closed term mortgages do provide prepayment options that help you to pay down your mortgage faster. Closed term mortgages have the best mortgage rates in Canada than open term mortgages since they are less flexible.
- Mortgages With A High Ratio
A high-ratio mortgage is the polar opposite of a normal mortgage, in which the borrower puts down less than 20% of the purchase price/value. Mortgage default insurance is required for certain types of mortgages from one of Canada’s mortgage insurance firms, such as the Canada Mortgage and Housing Corporation (CMHC), Genworth Financial, or Canada Guarantee which provide the best mortgage rates in Canada.
- Mortgage With Adjustable Rate (Arm)
There are numerous ARMs available. The main concept is that their interest rate changes over time when the mortgage refinance in Canada amount matures. The variations in interest rates are a reflection of the economy and the cost of borrowing money. The 5/1 loan is a popular ARM in which the interest rate is fixed for the first five years and then fluctuates for the remaining 25 years.
- Fixed-Rate Mortgage
Fixed-rate mortgages have the same interest rate throughout the life of the loan, ensuring that your monthly mortgage payment remains consistent. Fixed loans are normally 15 or 30 years in length, while some lenders enable borrowers to choose any term between eight and thirty years.
- Mortgage with Cash-Back
A cash-back mortgage pays you a percentage of the value of your home in cash upfront. Except for the down payment, this money can be spent on anything (moving expenses, furniture, the dentist, a trip, etc.). A cash-back mortgage is best suited for those who require a cash infusion after purchasing a home because the interest rate is higher.
- Lines of credit for home equity (HELOC)
A revolving line of credit secured by your home is known as a home equity line of credit. You can borrow up to your credit limit, which is normally a proportion of the value of your home. A HELOC is a type of home equity loan that allows you to borrow against the difference between the value of your property and any outstanding mortgage refinance in Canada.
- Blanket Mortgage
These mortgages are secured by the entire property and are commonly found in housing cooperatives, though they can also be found in condominiums. The unit owners will assume their portion of the mortgage with a blanket mortgage, either by qualifying for their piece of the blanket mortgage (as in a co-op) or by qualifying for and securing their mortgage refinance in Canada.
Take the next step
Now that you know what kind of loan you need for your home purchase, it’s time to choose the perfect mortgage lender to help you get it done. Every lender is different, so it’s crucial to look around for the best terms that meet your budget. There are numerous options available, ranging from local banks and credit unions to online-only mortgage businesses.