The Mortgage Consultation Process Explained
The mortgage consultation process can be difficult to navigate. It is important to learn about the process up front, so you know what to expect. There are several different types of mortgages available for consumers.
Different types of mortgages:
Conventional or high-ratio mortgages
A conventional mortgage is a mortgage where the borrower makes a down payment equal to 20% or more of the purchase price and does not require mortgage insurance. The borrower will be charged a higher interest rate than with a high-ratio mortgage.
A high-ratio mortgage is where the borrower needs to put down 5% or less of the purchase price, and requires mortgage insurance. The borrower will be charged a lower interest rate than with a conventional mortgage.
Open and closed mortgages
An open mortgage is always available for the buyer to take up and pay off. The bank does not restrict how much can be borrowed, and the borrower can repay the loan by regular deductions from their salary.
The borrower may also be able to borrow additional funds later on, or choose not to repay any of the loan. This type of mortgage offers flexibility over which repayment plan best suits them, but it can also lead to negative equity if loans are not repaid in full every month.
A closed mortgage is where the amount borrowed is predetermined by the bank or building society at a set interest rate, which cannot change for as long as the mortgage lasts (and usually this is between 20-25 years).
Fixed interest rate mortgage:
If you have a fixed interest rate mortgage, it will have a set interest rate for the duration of your loan. This means that you'll know the exact amount of your monthly payments and total cost of your home. The downside to this is that if rates change, so do the terms of your mortgage.
Convertible or variable-rate mortgages:
In this type of mortgage, the interest rates fluctuate from time to time. Your monthly payment might go up or down as a result. The benefit here is that if rates decrease, your payments may also go down as well as the amount of money you've borrowed over time.
The Ontario government has introduced new home buying initiatives to help make homeownership more affordable. These include a new, streamlined mortgage process that allows people to buy their first home with just 10% down payment.
There are also special features for first-time buyers who need help getting into the market. The province is introducing a program that will provide low interest loans of up to $35,000 for single detached homes and $250,000 for condos or townhouses .