4. Type of Mortgage
Open mortgages allow you to pay off your mortgage, either in part or in full, at any time without penalties. They are better suited for mortgages with shorter terms, usually ranging from 6 months to a year and are typically associated with higher interest rates due to their flexibility.
Alternatively, closed mortgages require you to stay with the payment schedule for the duration of the term, which the option of making a payment towards the principal at a specified time. If the additional payment exceeds a certain limit or if the loan is repaid in full before the end of the term, a penalty will usually be applied.
Fixed rate mortgages have the same interest rate for the entire term of the mortgage and are usually closed. The mortgage payment is also fixed, but the amounts that are put towards interest and principal will vary from each payment. You may consider a fixed rate mortgage if you think interest rates are going to rise and if you prefer having the same payments, rather than different payments each month.
On the other hand, variable rate mortgages usually offer lower interest rates than fixed rate mortgages, although the interest rate can fluctuate depending on market conditions. Some variable rate mortgages have a fixed payment for the term, meaning that the amount of the payment applied to the principal will fluctuate with changes in interest rates. Other variable rate mortgages have payment options that will vary depending on the current interest rate. You may consider a variable rate mortgage if you think interest rates will go down and are comfortable with fluctuations in your payments and interest rates. You may also require greater flexibility because of a potential need to break your mortgage term before full maturity.
A minimum cash down payment will be required when purchasing a home. Using a conventional mortgage, a lender will provide up to 80 percent of the appraised value or purchase price of a property, whichever is less. However, under a high-ratio mortgage, it can be financed up to 95 percent of the property’s appraised value or purchase price. By law, this type of mortgage must be insured against non-payment by the Canada Mortgage and Housing Corporation, Genworth Canada or Canada Guaranty.
It would be ideal to have a down payment of at least 20 percent so you will qualify for a conventional mortgage and will not be required to pay the mortgage insurance premium. With a larger down payment, it will be easier to organize a mortgage, lower the amount of interest you pay and you will accumulate more equity in your home.