If you’re in the market for a new home, one of the first things you will need to do is get preapproved for a mortgage. Before that, however, you need to decide what type of mortgage to get. There are a number of different types of mortgages in Calgary, and understanding the basics of the most common ones can help you make the best decision for your needs and financial standing.
Conventional Mortgage
A conventional mortgage is one in which the buyer pays at least 25% of the home’s purchase price or appraised value, whichever is lower, as a down payment.
High-Ratio Mortgage
Also referred to as an insured mortgage, a high ratio mortgage is an attractive option for those who have less than 20% down. High ratio mortgages are insured through either the Canada Mortgage and Housing Corporation (CMHC) or General Capital (GE). The amount you will pay for insurance is typically between 1% and 3% of the purchase price of the home. You can either pay the insurance premium out of your own pocket, or you can roll the costs into the cost of your mortgage, which is what most people opt to do.
Fixed-Rate Mortgage
A fixed-rate mortgage means that when you sign your closing documents, you know exactly what you will be paying each month for your mortgage. The interest rate at the time of your preapproval is locked in and doesn’t change throughout the life of the loan, unless you refinance to a lower rate in the future.
Adjustable-Rate Mortgage
An adjustable-rate mortgage (ARM) is the opposite of a fixed-rate mortgage. Instead of knowing what your interest rate will be for the life of the loan, your mortgage may increase or decrease depending on the prime rate in Canada. While there is more risk to an ARM, such low rates for mortgages in Calgary make it an attractive gamble.
Hybrid Mortgage
Hybrid mortgages combine fixed-rate and adjustable mortgages. A hybrid mortgage typically involves a specific period of time at a fixed rate, then switches over to an adjustable rate mortgage for the remainder of the loan. For example, a 10/1 hybrid mortgage refers to a mortgage that has 10 years as a fixed rate, then resets each year thereafter.
Reverse Mortgage
Reverse mortgages are designed for seniors over the age of 62. Instead of paying monthly mortgage payments, your lender pays you that amount, minus interest, each month. The interest accumulates, and you pay back the payments you received plus accrued interest from the equity of your home. This type of mortgage has costly fees, and seniors are required to consult with an attorney before going forward with a reverse mortgage. However, they do provide seniors on a fixed or low income with additional money without having to sell their homes.
With so many different types of mortgages in Calgary, choosing the right type of mortgage can be a daunting decision. Researching each of your options and discussing them with your mortgage broker can help you choose the best one for you.
