Types
of Mortgages
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Conventional and High Ratio Mortgages
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To qualify for a conventional mortgage, you simply have
to have a 25% down payment of the purchase price, with
the mortgage not exceeding 75% of the appraised value.
If
your down payment is less than 25%, then you qualify for
a high-ratio mortgage. This type of mortgage requires
loan insurance, which can cost an additional 0.5% to 3.75%
of the mortgage amount. With this type of mortgage you
could also be limited to a maximum house price.
Second
Mortgage
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Of course, if you cannot add on to your mortgage, you
may consider a second mortgage. Each mortgage uses your
home as security and gives the mortgagee the right to
take your home if you default on your loan. The first
mortgagee gets paid first in cases of default and has
the best chance of recovering all of its money. So it
only goes to figure that subsequent mortgages usually
come with a higher interest rate.
Mortgage
Features
Here are some mortgage options you should know about:
Every lending institution is different, and each will have
their own customizable mortgage options. When you're hunting
for a lender and a home, see how the following features
could be beneficial to you.
Prepayment
This is a wonderful option if you receive regular bonuses
or if your income fluctuates throughout the year. With a
pre-payment privilege, you have the right to make payments
toward the principal portion of your mortgage over and above
the monthly payments. A mortgage with a pre-payment option
is closed. An open mortgage means you can pay the entire
principal sum without notice of bonus.
Portability
If you still have time remaining on that fantastic loan
you negotiated, portability is one option you'll want to
discuss with your lender. Quite simply, it means transferring
the balance of your current mortgage at the existing rates
and with the existing terms and conditions, to your new
home.
Assumability
Let's say that the vendor has negotiated a dynamite mortgage.
With an assumable mortgage you, the purchaser, simply assume
the obligations of the mortgage. This is a wonderful feature
especially if the terms are more favourable than the existing
market conditions would allow. Remember, when it is time
for you to sell, you may still be liable for any mortgage
you allow the buyer to assume. This means if the buyer stops
making payments, you could be accountable for the payments.
Be sure to have the subsequent buyer approved for the assumption
of the payments, thereby avoiding this potential land mine.
Expandability
If you need additional funds down the road, will your mortgage
terms allow you to increase the principal amount? Usually,
your new rate will be a blended amount of the initial mortgage
rate and the prevailing rates. It's a great option to discuss
with your lender if you foresee large expenses in your future
like renovation or education costs.
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