Types of Mortgages

Types of Mortgages
The following are the types of mortgages one will normally encounter.

Conventional Mortgages
When the total loan amount is the lesser of not more than seventy five percent of the purchase price or the approved value of the property, and issued by an institutional lender (trust company, bank, etc.).

High Ratio Mortgage
These mortgages must be insured, as required by The Bank Act. This conventional mortgage loan is for an amount between seventy five and ninety five percent of the lesser of the purchase price or the appraised property value.

National Housing Act (NHA) mortgages are those that are established under the provisions of the National Housing Act of 1954. Many high ratio lenders are shielded by mortgage insurance and thus are willing to issue mortgages with only a low down payment. The Canada Mortgage and Housing Corporation (CMHC) is one of these insurers. The mortgagee risk is lessened as the insurance pays if the mortgagor defaults. Borrowers are required to pay an application fee, an insurance fee that is typically added to the principal amount of the mortgage, and the cost of a property appraisal. Ranging from 0.5% to 3.75% of the mortgage amount, the insurance premiums are hefty and can include other administrative and appraisal fees in addition. To receive up-to-date restrictions, requirements and/or additional information that borrowers will need to meet to obtain NHA backing speak to your bank or mortgage broker.

Second Mortgages

It may potentially be financially beneficial to arrange a second mortgage instead of a high ratio first mortgage, as second mortgages fill the gap between the amount of the first mortgage and the total down payment. It may be advantageous to place a second mortgage on a home when the first is at a very attractive rate for situations like home improvements as they generally have a shorter term and higher interest rates than the first.

Mortgage Options

Assuming existing financing on the property.

Many fees can get reduced or waived if you assume an existing mortgage so it may be to your advantage to look into any opportunities such as these that you come across. If a vendor has an existing mortgage that aligns with your overall financing requirements you may find yourself benefiting in more ways than one. Legal fees and appraisals are lessened, and the vendor may save by not having to pay a penalty for discharging his or mortgage. As most buyers find low interest rates enticing, existing mortgages are a good way to go, though one will likely still have to qualify as a borrower by the lender.

Vendor Take-Back Mortgages

A low interest rate and liberal pre-payment privileges in combination with negligible fees make vendor take-back mortgages very enticing. They can be issued as a large first mortgage or a small second as the homeowner is the one who offers the financing themselves.

You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.