What is the difference between various types of mortgages?
Mortgages are loans that are secured against homes. There are many different kinds of mortgages a person can obtain.
There are three types of mortgages: a closed mortgage, a convertible mortgage, and an open mortgage.
A closed mortgage cannot be changed. In this regard, the buyer is not allowed to prepay or renegotiate the terms of a closed mortgage until the term outlined has been completed. The only way that a borrower may be able to convince the lender to alter the mortgage is by paying an interest penalty.
A convertible closed mortgage is a closed mortgage whereby the borrower is able to change the mortgage from a short-term mortgage, to a long-term mortgage, depending on the financial needs of the borrower.
An open mortgage is one that can be prepaid, paid off, or renegotiated at any time and in every amount without interest or penalty. Usually, even if the term in both the closed and open mortgages are the same, the interest rate on an open mortgage is higher than it is on a closed mortgage.
A pre-approved mortgage is obtained before you go looking for the home you wish to purchase. It outlines how much, based on your qualifications and personal credit ratings, the bank feels you can afford to borrow from the bank. By being pre-approved, you know in advance what funds you will have available in order to negotiate your purchase price. Additionally, if the property is very desirable you can put in an offer without it being conditional on financing and then the sellers may be more inclined to negotiate an offer of purchase with you.
A conventional mortgage is a loan that does not need to be insured against default.
A high-ratio mortgage is a loan that needs to be insured against loss by either Canada Mortgage and Housing Corporation (CMHC), a Federal Government Corporation, or GE Capital, a private insurer. For information about premiums added to the mortgage amount, or the premiums paid at closing, please refer to CMHC Borrowing Costs.
For more information on mortgages and which are best to suit your interests, contact Marilyn Krol, an experienced partner and real estate lawyer at Krol & Krol, at (905) 707-3370.
