Different Types of Mortgages in Edmonton
Finding a mortgage that meets all your needs
There are numerous different types of mortgages available to Edmonton home buyers, each with its own set of pros and cons. By understanding the kids of mortgages available to you, you'll be able to choose the mortgage that best suits your needs.
A conventional mortgage requires a down payment of at least 25% of the home's purchase prize. For individuals who can afford them, a conventional mortgage is often the best choice because it doesn't require mortgage insurance (the costs of which can be significant).
Low Down Payment Insured Mortgage
This type of mortgage allows buyers to purchase a home with only a 5% down payment. These mortgages must be ensured by a third party, which makes them more expensive than a conventional mortgage. However, the insurance costs are rolled into the total mortgage loan, making it much more manageable on a month-to-month basis.
An assumable mortgage allows you to take on the existing mortgage for a home, essentially assuming ownership of it. Although you may still need to qualify, assumable mortgages tend to be more time-efficient and the rates are sometimes better than those of the current market. Alberta is the only province that currently has an assumable mortgage option.
Vendor Take Back
A vendor take back mortgage allows the vendor to be a lender, making the vendor resonsible for some or all of the mortgage. These vendor loans can sometimes be offered at a better rate than the bank's mortgage loans, so they're worth looking into.
Open, Closed & Convertible Mortgages
For those who crave flexibility, an open mortgage allows you to pay part or all of the mortgage off at any time, without any fees or penalties. Open motrgages tend to have shorter terms and the interests rates also tend to be higher for open mortgages than closed mortgages.
A closed mortgage locks in the interest rate for the term of the mortgage, allowing buyers a certain peace of mind. The length of the terms range from 6 months to 25 years, although the interest rates tend to increase with the length of the term. Breaking a closed mortgage will result in a fee and/or penalty.
A convertible mortgage in another type of closed mortgage. The difference is that it can be converted into a longer term without fees or penalties.
Fixed vs. Variable
Once you've determined the type of mortgage you want, it's time to determine whether you want a fixed or variable interest rate.
A fixed interest rate will remain the same throughout the entire term. This is perfect for people who want to know exactly what their monthly principle payments will be, or if there's concern that interest rates will rise in the near future. Fixed rates typically have higher rates than variable rates, but can occassionally be close enough to make it a no brainer.
A variable mortgage has a fixed monthly payment as well, but the amount that gets applies to the principle amount will vary as interest rates fluctuate. The lower the interest rate, the higher the amount that's applied to the principle balance. Variable rates are generally recommended when interest rates are predicted to remain low for a significant period of time.