If you are a first time home buyer, you have quite a few
mortgage options to choose from. A Canada.com
report discusses mortgage basics that you should be aware of before you
approach a mortgage broker
or lender.
Type of mortgage: A conventional mortgage is one
where a loan amount equaling 80% of the property’s value is made available by
the lender while you have to put down 20% of the home’s market value. In the
case of a high ratio mortgage, the loan amount made available is more than 80%
of the property’s value, the maximum being 95%. Due to the high risk the lender
has to take with such a mortgage, you will have to get mortgage insurance.
Another thing you should decide is whether to go for an open
or a closed mortgage. In a closed mortgage, the repayment schedule is fixed, with
some degree of flexibility to make lump-sum payments towards the principal. In
an open mortgage, you have the flexibility to make lump-sum payments any time
you want and you can pay off your mortgage before maturity without any
pre-payment penalty.
Mortgage interest rates: You have the option to
choose between fixed and adjustable rates of interest. A fixed rate mortgage,
as the name implies, is one which has a fixed rate for the entire term of the
loan. In an adjustable rate mortgage, the rate of interest and mortgage
payments change with fluctuations in market conditions.
