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Conventional Mortgage
A conventional mortgage is usually one where
the down payment is equal to 25% or more of the property's value,
a loan to value of 75% or less. A conventional mortgage does not
normally require mortgage loan insurance. Some lenders will require
mortgage loan insurance on conventional mortgages because of the
property's location and type.
High-Ratio Mortgage
A mortgage where the borrower
is contributing less than 25% of the value of the property as the
down payment. The minimum down payment required is 5% of the property
value. High-ratio mortgages must be insured through Canada Mortgage
and Housing Corporation (CMHC) or GE Capital Mortgage Insurance
Canada (GE), the two mortgage insurance companies in Canada.
The insurance premium on high-ratio mortgages is charged only once
per mortgage, when the mortgage funds are advanced. The premium
can be paid up front or it can be added to the mortgage amount.
Insurance premiums are calculated based on the loan to lending value
ratio of the mortgage and are higher when there is more than one
advance.
Open Mortgage
An open mortgage allows
the mortgagor to prepay all of part of the principal amount at any
time with or without notice or bonus. Open mortgages usually have
short terms of six months to one year. Interest rates on open mortgages
are higher than on closed mortgages with similar terms.
Closed Mortgage
Closed mortgages are mortgages that do not allow any
prepayment or early repayment except on the sale of the property,
in which case penalties are required.
Fixed Rate Mortgage
The interest rate is determined and locked in for the term of the
mortgage. Lenders often offer different prepayment options allowing
for quicker repayment of the mortgage and for partial or full repayment
of the mortgage. However, lenders do charge penalties for early
repayment.
Variable Rate Mortgage (VRM) /
Adjustable Rate Mortgage (ARM)
This type of loan differs from a constant payment mortgage
in that the interest rate charged on the loan may be changed during
the term of the mortgage. Generally, these loans are initially set
up like a standard loan, based on the current interest rate. The
loan is reviewed at specified intervals and if the market interest
rate has changed, changing either the size of the payments or the
length of the amortization period (or a combination of both) alters
the mortgage repayment plan.
Capped rate variable mortgage are variable rate mortgages on which
the lending institution has set a "capped" limit. This
means that the interest rate of the mortgage will fluctuate as the
prime rate fluctuates but the lender has set a rate and guarantees
that the borrower will not have to pay interest at a rate higher
than that limit.
Convertible Rate Mortgage
Convertible rate mortgages are fixed rate mortgages for terms of
six months to one year. This product allows a borrower to lock in
or convert to a longer-term mortgage.
Reverse Annuity Mortgage (RAM)
In a reverse annuity mortgage, the lender makes a series of payments
or advances to the borrower over the term of the mortgage. At the
end of the loan term or upon the death of the borrower, the loan
balance, consisting of the accumulated principal advances and the
unpaid interest due. This innovative mortgage has been introduced
in Canada as a means of supplementing aged homeowners income, typically
upon retirement.
Vendor Take-back Mortgage (VTB)
This loan is like a conventional first or second mortgage
except it is the vendor who carries the financing. If the VTB mortgage
rate is different than the market rate, this could affect the sale
price of the property.
Innovative Options
Lenders also offer other options to borrowers, such as
"Cash Back" mortgages. This option gives you cash back
in the amount of a certain % of the mortgage principal. Cash Back
mortgages usually apply to fixed rate mortgages. There are numerous
other offerings available and borrowers must calculate in the benefit.
Mortgage Features
There are several mortgage features available to mortgagors:
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