Even if you know something about mortgages, it doesn’t hurt to have a little refresher on the subject once in a while, especially if you are thinking of purchasing a property.
The first thing to consider is how much money you have to put down on the property. A down payment of 25% or more of the property’s value is considered a low-ratio mortgage, while anything under 25% is considered a high-ratio mortgage. High-ration mortgages must be insured through one of the two mortgage insurance companies in Canada – the Canadian Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. Insurance premiums are calculated based on the mortgage amount and can be paid up-front or added to the mortgage amount.
The second mortgage decision is whether to go for an open or closed mortgage. The difference is that open mortgages, which are usually for a shorter term and at a higher interest rate than closed mortgages, allow you to pay off any part of the principal amount at any time without penalty. Closed mortgages do not usually allow this flexibility.
Last but not least, the decision to lock in your interest rate for the full term of your mortgage (“Fixed Rate”) needs to be compared to the risk you are willing to take with a loan that is based on the current interest rate, which may rise or fall as the market fluctuates (“Variable Rate”).