Now that you’ve decided to purchase a home, mortgage financing is something you need to think about. Just looking at all of the different types of home loans can hard to understand. Fixed, variable, conventional, and high-ratio are just some of the options available. By breaking down some of these mortgage financing options, you’ll be able to see which one might be the right choice for you.
Fixed-Rate Vs. Variable Rate
One of the first choices you’ll make in regards to what type of loan you want is either a fixed-rate or a variable rate mortgage (VRM). All it means is the type of interest that will be attached to your monthly mortgage payment.
With a fixed-rate mortgage, the interest rate will not change during the entire length of the loan. This can provide some stability with your monthly mortgage payment, because you will always know exactly how much to pay; however, if interest rates do go down, you are still locked into the rate until you are eligible to refinance. The rate is set with the lender before closing.
A variable rate mortgage, on the other hand, means that the interest rate could change depending on market trends. If interest rates go down, so will your monthly payments; however, if rates go up, your payment will too. It’s often risky to choose a variable rate mortgage, and only in rare cases does it pay off.
Conventional Vs. High-Ratio
A conventional home loan means that you have 20% or more of the purchase price to put as a down payment on the house. The money is then deducted from the overall price, resulting in a lower monthly payment for you. By putting the money down, you are considered by the banks and other lenders to be a low-risk investment.
A high-ratio mortgage loan means you do not have the 20% to put down. With a high-ratio loan, you are required by Canadian law to also take out mortgage protection insurance. This gives the lenders a little extra peace of mind that you will pay back the loan. Don’t worry, though, getting the mortgage insurance is actually an easy process, with the paperwork for it all being right there in the closing documents. The good thing about the insurance is you can choose to pay it upfront or have it rolled into your monthly mortgage payment. Also, once you buy the mortgage insurance, it stays with you even if you move into another home down the line.
For more answers to this or any other of your home mortgage financing questions, be sure to contact Steven Owens at www.mymortgagebroker.com or 403-870-2669. You can also take advantage of the life chat feature on the website. He can discuss all of the available options and get you started on the right path toward mortgage financing.