Mortgage Features & Options
There are essentially two types
of mortgages, the conventional mortgage,
and the high-ratio mortgage.
The conventional mortgage will
allow the purchaser to receive no more than 75% of the amount
of the home, with a minimum 25% down payment.
The high-ratio mortgage is meant
for those who have less than 25% down payment and who are willing
to assume loan insurance; which can be added into your repayment
schedule.
Depending on the lender, mortgages
may come with a set of standard features that provide flexibility
to the borrower. Such features include:
Assumability: This is when the purchaser can
take over the mortgage of the previous homeowner, in turn, possibly
acquiring lower interest rates
than the current market allows. It my also be used as a selling
feature when marketing your home for resale.
Prepayment: By adding a prepayment clause to
your mortgage you will be allowed to pay down the amount of your
mortgage without incurring any penalty fees. This is ideal for
every mortgage carrier and will allow for a more rapid repayment
of your mortgage, in turn, lowering the amount of interest you
pay.
Portability: By including a portability clause
in your mortgage you will be permitted to transfer your existing
home's mortgage to your next home, if you so chose. This will
keep your interest rates stable over time and will eliminate the
need for applying for a new mortgage.
There are many options when searching
for a mortgage. You have the ability to assume the mortgage of
the vendors, in turn eliminating the need for appraisals, lawyers
and initial mortgage fees. You pay for
the mortgage as a part of the purchase price and take on their
existing interest rate. Another option is the Vendor Take Back
Mortgage (VTB). This is when the seller lends you the money to
purchase his/her home. For example if the house you are interested
in is worth $200,00 and the seller has outstanding mortgage balance
of $100,000 and you have a $50,000 down payment, the lend may
choose to lend you the remaining $50,00, which you can pay in
installments with interest rates usually lower than the bank's.
If you choose a conventional,
or high-ratio mortgage you have several options available to you:
Pre-approved Mortgage: A pre-approved mortgage
is when the lender pre-approves the amount of your loan and gives
you a written document confirming this amount as well as the amount
of time you have to find a home (usually two to three months).
Open Mortgage: An open mortgage is when you
put additional lump sums of money toward the repayment of your
loan without incurring any penalty. If you're buying a home with
the intention of resale an open mortgage is a good choice because,
though interest rates are higher you will have a greater immediate
return.
Closed Mortgage: A closed mortgage is when the
conditions of repayment remain the same throughout the entire
loan period. This type of mortgage offers the lowers interest
rates but also allows for penalties to be placed on the homeowner
if they wish to put lump sums of money toward the loan. Closed
mortgages are ideal for those wishing to stay in their home until
the end of the amortization period. Most lenders will allow you
to switch from a closed to open loan at any time during your mortgage
period.
Split or Multiple-rate Mortgage: This type
of mortgage allows the borrower to split their mortgage up into
two or three different terms,
that way; conditions of each term can be negotiated separately
as they end.
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