Types of Mortgages
There are lots of mortgage options, and finding the one that's right for you can be confusing. A Libro Coach can help explain all of the differences and find the mortgage that's best for you.
- Fixed or Variable Rate Mortgage
- Open or Closed Mortgage
- Conventional or Collateral
- High-Ratio Mortgage
A fixed rate means your interest is set for the entire term of the mortgage. You'll always know what your mortgage payments will be and how much of your mortgage will be paid off at the end of the term. A variable rate mortgage can change with the markets because the rate is based on prime rate, which moves. Rates start at prime and go up from there. Your payment stays the same each month, but the amount going to interest and principal changes.
Open mortgages can be paid off anytime without a penalty, they provide the greatest amount of flexibility, but a rate premium may be included. Closed mortgages cannot be paid off early (without paying a penalty), but can offer a lower rate overall.
A conventional mortgage is tied to the property and can't be altered. If you want to make any changes, a new mortgage must be set up. A collateral mortgage is more flexible. It's like a blanket loan over your whole property and can include lines of credit. A collateral mortgage can be up to 80% of the value of your home. The other 20% is your down payment.
A high-ratio mortgage is always conventional and occurs when the mortgage is more than 80% of the purchase price of your home. That means you have less than a 20% down payment and require additional insurance from the Canada Mortgage and Housing Corporation (CMHC) or Genworth. For additional cost, you can get a mortgage for up to 95% of your home's purchase price.