Our Buyers Resources Section is dedicated to walking you through the mortgage process. In it, you will find mortgages defined in a clear manner that people can understand, something we like to refer to as, Mortgages 101

Mortgages 101

A mortgage is a loan that uses property as security to ensure that the debt is repaid. There are two ways to dictate the initial terms of a mortgage;

A mortgage can be used for financing many different things, including:

• Purchasing a new or existing home
• Refinancing to consolidate debts
• Financing a renovation or other investments

Down Payment Options

A down payment is that portion of the purchase price you must come up with yourself. There are two ways to determine the initial down payment terms of a mortgage:

• A Conventional Mortgage
• Low Down Payment Insured Mortgage

A Conventional Mortgage requires a minimum down payment of at least twenty percent and is offered on a fixed or variable interest rate basis. Conventional mortgages have lower carrying costs because they do not have to be insured against default.

Low down payment mortgages are exactly what they sound like. They are offered for both new and resale homes but with lower down payment requirements than conventional mortgages. However, they must be insured to cover potential default of payment and as a result, their carrying costs are higher due to the insurance premium.

Types of Mortgages

In short, there are three types of mortgages:

• A closed term mortgage
• A variable close term mortgage
• An open mortgage

Closed Term Mortgages are an excellent choice if you are not planning on paying off the mortgage in the short term. Interest rates are generally lower. If you wish to renegotiate your interest rate or pay off your mortgage balance prior to the end of its term, you will be required to pay a prepayment change.

A Variable Closed Term Mortgage gives you the same benefits as a closed term mortgage, but it can be converted to a longer, closed term at any time without prepayment charges, should your variable rate no longer meet your needs.

Open Term Mortgages might be suitable if you are planning to pay off your mortgage in the near future. They can be repaid either in part or full at any time without prepayment charges. Open mortgages can be converted to any other term, at any other time, without a prepayment charge. However, this prepayment flexibility results in higher Interest rates.

If you have any questions or to discuss the above mortgage options further, please contact one of our experienced brokers or agents.