Buying a home is something that very few people can do outright. This is where taking out a mortgage comes in for those who want to get onto the first rung of the property ladder, but don’t have the money to pay for more than a deposit.
The most notable types of mortgage options available for anyone who wants to buy a home in Canada, whether it is for the first, second or even third time are listed here:
1. Repayment mortgages
The most simple and common type of mortgage, you make regular monthly repayments on the original amount loaned plus the interest, until it is paid off in full over the term of the load.
The advantage of this type of mortgage is that they are easy to understand, however they do not offer a great deal of flexibility for those who may struggle to pay in full over a set period of time.
2. Interest-only mortgages
If you take an interest-only mortgage out, your monthly repayments will only go towards the mortgagees interest on the sum loaned and not on any of the capital that you loaned, which works out cheaper over time than a repayment mortgage.
However, you will still have to pay the full amount at the end of the interest repayment period.
For any homeowners desperate to get much-needed capital, this is perfect. A re-mortgage is where you repay your current mortgage with the takings from a new mortgage with a new mortgagee. This can be somewhat risky, but it’s done in order to secure a better deal with an alternative lender.
There are also some fees involved which can make it expensive in the long run. Re-mortgages are best for anyone who wants to buy a home and then let it out to tenants; it is essentially best suited for those wanting to buy an investment property. This can yield a regular source of income, but the quality of the property and its proximity to local amenities will have an impact on whether someone will want to live there and pay rent.
4. Fixed Rate mortgages
In taking out one of those, you can secure a favorable mortgage interest rate until you have paid it off.
This is one of the least risky mortgage types around, but if interest rates in general were to fall below the current rate that you were quoted, you could be getting a poor deal by paying more than the average market rate.
5. Capped rate mortgages
This is also known as a mix of a varying rate mortgage and a fixed one. With this type of mortgage, you will see your monthly repayments either go down or up depending on the base rate set by your national bank, however there is a cap on the interest rate, so it will never go above a set point.
In theory, they sound like a good option, as they do offer some flexibility; however, this flexibility in the rate of repayment will also mean you will have to a little forgo repayment security.
When looking for a mortgage that is right for you, you may need to use a mortgage calculator in order to work out what you can and cannot afford, and also to figure out what type of mortgage is best suited to your particular situation.