Loan Articles

A large variety of mortgage types are offered in Canada, featured in hundreds of combinations. Among these are closed and open mortgages, preapproved mortgages, multiple term mortgages, conventional mortgages, and many others.

A conventional mortgage, for example, is a type of mortgage whereby the amount loaned does not exceed 75 percent of the home’s appraised value or purchase price, whichever is less. Financial institutions do not require that borrowers insure the mortgage against default. Another type of mortgage is the equity mortgage which is assessed based on the market value of the property less the mortgage’s amount (the equity of the home). The amount loaned can be as high as 80 percent, and this type of mortgage is normally offered to borrowers who fail to meet the normal credit qualifying and income requirements. Equity mortgages are a good choice for borrowers with less-than-perfect credit, the self-employed, and those who have no or less income verification. Another type of mortgage to look into is the multiple term mortgage, which is offered with lower rates of interest and longer terms. This mortgage loan can be split into five parts, and each of them can have different amortizations, rates, and terms. The monthly payment will be only one, with borrowers spreading the risk.

Most people are familiar with fixed-term and adjustable rate mortgages. The fixed rate mortgages variety comes with a set rate of interest so that the interest and principal amount stay the same over the mortgage’s term. Borrowers know how much they are paying, regardless of interest rate fluctuations. The variable rate mortgage, also known as tracker mortgage and ARM is a type of loan offered with an interest rate that fluctuates. This mortgage loan is different from the graduated payment mortgage which comes with a fixed rate of interest and changing payment amounts. During the first year, some financial institutions feature interest rate concessions or initial accounts, which are basically promotional aids. In general, this type of mortgage is intended for borrowers who seek to reduce the amount of their initial payments. ARMs may be less expensive for borrowers, but they bear a higher risk because of interest rate fluctuations.

Another type of mortgage is the high-ratio mortgage, which is between 80 percent and 95 percent of the appraised value or purchase price. Borrowers are required to purchase insurance against loss from GE Capital or the Canada Mortgage and Housing Corporation. Some financial institutions in Canada offer high-ratio mortgages. TD Canada Trust is a good example, offering mortgage loans to clients who have saved between 5 and 20 percent of the required amount. Payments can increase by up to one-hundred percent, and no charges will apply. There are different payment options, including bi-weekly, weekly, and monthly. Mortgages of this type are subject to GEMICO or CMHC insurance premiums.

Finally, the open mortgage allows borrowers to repay the mortgage loan without penalty and whenever they choose. Open mortgages are offered with shorter repayment terms – between six months and one year. Moreover, the rate of interest is higher compared to closed mortgages. Applying for an open mortgage is a good solution for persons who intend to sell their homes.

Other mortgage types to look into are interest only mortgages, balloon payment mortgages, negative amortization mortgages, and others.