The Different Types Of Mortgages Available To You
Are you planning to buy a new house but don’t know where to begin when it comes to financing it? If you’re struggling to make sense of the mortgage system and the different options available, you’re not alone. Mortgages can be complicated if you aren’t aware of how they work. Moreover, it isn’t easy to make the right decisions based on your needs and capabilities if you don’t understand what your choices are. To help you make sense of mortgages, Keith Uthe Demystifying Mortgages has explained the different types of mortgages available to you.
When you choose to work with me, the first thing I do is ensure that I know your timeline for obtaining mortgage financing, and what your long-term plan is. Based on these details, I will present to you the best type of mortgage for your needs.
Types of mortgages
When it comes to mortgage financing, you must understand that there is more than one type of mortgage, and the interest rates for each one are different. Currently, there are five different mortgage financing options available through a broker:
1. High ratio insured
A high ratio mortgage is one under which a borrower can offer less than 20% of the total purchase price as the down payment. Another way to describe this mortgage is a financial product that offers a loan to value ratio of more than 80%. When availing of high ratio mortgages, they must be insured by the lender through one of Canada’s three mortgage insurers. The rules for the stress test qualifying interest rate for insured mortgages are changing on April 6, 2020.
2. Conventional insured and insurable
Conventional mortgages with mortgage insurance are those where the down payment required is more than 20% yet the mortgage is still insured by one of the three Canadian mortgage insurers. These mortgages have a maximum 25-year amortization which gives you access to the best conventional rates available and the insurance premium may be added to the mortgage if required.
3. Conventional uninsured
Conventional uninsured mortgages are those that cannot be insured. These mortgages will have higher rates than insured mortgages, however, they also come with benefits like up to 30 year amortization period. The stress test for conventional mortgages is contract rate +2% or the 5-year benchmark rate, whichever is higher.
4. Home equity line of credit
A Home Equity Line of Credit (HELOC) is a mortgage that gives you access to cash based on the value of your home. It can be used to access capital for other investments that build your retirement wealth. Plus, if you use this money, you get the benefit of writing off 100% of the interest you pay on the funds used to invest in your tax return.
However, you need to remember that a HELOC is excellent when you are not carrying a balance on it. If you are carrying a balance on one, it can cost you a lot in additional interest. For example, over a period of five years, a $300,000 HELOC will cost you an additional interest of about $25,000 - $30,000! That is money out of your pocket and into the bank’s! When you work with me, I can advise you on how to ensure this money goes towards your requirements and not into the bank’s pocket.
5. Reverse mortgage
Often, parents who have a home that is free and clear like to gift a down payment to their kids using their home. A reverse mortgage is a great way to do this and not incur any ongoing payments as those costs are paid out to the lender in the future when the parents no longer live in the house.
From the five mortgages mentioned above, lending banks only offer high ratio insured mortgages, conventional uninsured mortgages, and home equity lines of credit. In most cases, home buyers start off with a high ratio insured mortgage. But, if you have a 20% down payment or more, then there is more than one possible option to be considered.
The challenge mortgage borrowers face
The most common problem borrowers face when it comes to mortgages is not understanding the various options that exist and which one or ones apply to their situation. You may have started a new business, and wish to buy a new home, but find it challenging to identify the ideal mortgage for your needs. As a knowledgeable mortgage expert, I can advise you on the options that exist for you to fulfill your dream of homeownership.
To ensure you know all your options, ensure you speak to more than just banks or one mortgage broker. Banks only have their own lending products, as a mortgage broker, I have access to many more. But, unlike me, not all mortgage brokers have access to a variety of lender options. Many lenders limit access to their products only to high volume brokerages. As Enrich Mortgage Group finished at number one in Canada with Mortgage Alliance in 2019, we have access to every lender we could possibly need.
Besides first-time mortgages, I also assist with mortgage renewals. If your mortgage is coming up for renewal, give me a call at (403) 614-8843, and I will let you know if your lender is offering you the best rate currently available in the market. Don’t just sign your renewal letter and send it to your current lender as there may be a better rate or mortgage terms available for you with another lender.