In Canada, there are several types of mortgages available to homebuyers, each with its own features and benefits. Here are some of the most common types:
- Fixed-Rate Mortgage: This is where the interest rate remains the same throughout the term of the mortgage. Fixed-rate mortgages offer stability as your monthly payments stay the same, making budgeting easier.
- Variable-Rate Mortgage: In this type, the interest rate can fluctuate with the market. The rate is usually tied to the bank's prime rate. While there's potential for lower rates compared to fixed-rate mortgages, there's also a risk of rates increasing.
- Adjustable-Rate Mortgage (ARM): Similar to variable-rate mortgages, but the difference is that your monthly payment amount can change, not just the interest portion.
- Conventional Mortgage: Requires a down payment of 20% or more of the property's value. You aren't required to purchase mortgage loan insurance with this type of mortgage.
- High-Ratio Mortgage: If your down payment is less than 20% of the home purchase price, you will need a high-ratio mortgage. This type requires mortgage loan insurance.
- Open Mortgages: These allow you to pay off your mortgage in full or in part at any time without any penalties. They typically have higher interest rates but offer more flexibility.
- Closed Mortgages: These usually have lower interest rates than open mortgages, but they have limited flexibility in terms of paying off the loan early. There could be penalties for overpayments or paying off the mortgage before the end of the term.
- Home Equity Line of Credit (HELOC): This is a revolving credit line secured against your home. You can borrow up to a certain limit and pay interest only on the amount you borrow.
- Reverse Mortgage: Aimed at homeowners aged 55 and older, allowing them to convert part of their home equity into cash without having to sell or move out.
- Portable Mortgages: If you move, this mortgage can be transferred to your new property, avoiding penalties for breaking your mortgage term early.
- Assumable Mortgages: This type allows a buyer to take over the seller’s existing mortgage, subject to approval by the lender.
Each of these mortgage types serves different needs and financial situations, so it's important for homebuyers to carefully consider their options and possibly consult with a financial advisor or mortgage specialist to determine the best fit for their circumstances.