Understanding Mortgage Interest Rates

Understanding Mortgage Interest Rates

So you've decided to begin your search for a new home, or perhaps you've already found the home of your dreams and are ready to make an offer? Congratulations! Now is the time to consider your mortgage options. With so many different choices, there can be some concern about choosing the right kind of mortgage for your needs. To demystify the experience, we're going to explore different mortgage interest rates and explain everything you need to know.

Conventional vs High-ratio Mortgages

Conventional vs High-ratio Mortgages

A conventional mortgage is a mortgage loan which can be up to a maximum of 80% of the lending value of the property. This means that you, as the home buyer, will have made a down payment of at least 20% of the purchase price or market value of the home. A high-ratio mortgage, on the other hand, is a mortgage loan which is higher than 80% of the lending value of the property and can go up to a maximum of 95%. So, if your down payment is less than 20 percent of the purchase price, you will typically need a high-ratio mortgage. These mortgages will have to be insured (by Canada Mortgage and Housing Corporation, for example) against payment default.

Fixed, Variable, or Adjustable Interest Rates

Fixed, Variable, or Adjustable Interest Rates

When you choose a mortgage, you have to decide whether you want the interest rate to be fixed, variable, or adjustable. A fixed-rate will be locked in for the entire term of your mortgage. With a variable rate, your payments remain the same each month, but the interest rate fluctuates based on market conditions. For adjustable-rate mortgages, both the interest rate and the mortgage payments vary based on market conditions. As you can already tell, there are pros and cons to each option. However, we highly recommend talking with a mortgage professional to find out which option is right for you. As a tip, be sure to evaluate the impact that an increasing interest rate can and will have on your monthly payment.

Open or Closed Mortgage

Open or Closed Mortgage

What is the difference between an open or closed mortgage? With a closed mortgage, you'll end up paying the same amount each month for the entire term of the mortgage. There will usually be some flexibility to repay principal through lump-sum payments should you come into unexpected money. Closed mortgages are a good choice if you want a fixed payment schedule and you don't plan on moving or refinancing before the end of the mortgage term. 

An open mortgage allows you to make a lump sum payment at any time. This type of mortgage can be paid off prior to the end of the term without penalty. This can be a good choice if you're planning to sell your home in the near future or if you want total flexibility to make large lump-sum payments. However, an open mortgage generally carries a higher interest rate than a closed one.


Term, Amortization, and Payment Schedule

Term, Amortization, and Payment Schedule

There are a few words you may run into during the process that you may not be familiar with. Here are the most common ones you'll come across during the process:

This quick rundown will have you feeling confident about mortgage interest rates and allow you to be more comfortable during the process of getting your new mortgage. With these definitions in your toolbelt, you'll be well equipped to talk further with your financial advisors. If you find you need more information or would like to learn more helpful tips and tricks for your home, be sure to follow Marina Homes' blog series.