Types of Canadian Mortgages

When shopping for a home in Canada, many first-time home buyers are confused and overwhelmed by the different types of Canadian Mortgages that are available. Being faced with choosing between five primary mortgages can be a daunting task. Home buying in Canada is regulated individually by the provinces, so not every mortgage is available in all areas. When buying a home, it is important to know what options are reverse mortgages pros and cons available and which mortgage will best suit the home buyer's needs.

The primary types of mortgages vary according to the interest rate applied to the loan. These are variable rate, fixed rate, and capped rate mortgages. A variable rate mortgage is popular because it allows the home buyer to begin the loan with the lowest possible rate. The initial interest rate is usually the prime rate minus .25%. The interest rate is adjusted monthly in accordance with reverse mortgages pros and cons market fluctuations. As a result, the interest rate can increase or decrease erratically.

A fixed rate mortgage is a standard loan that can be used to finance up to 75% of a home's value. This mortgage does not offer the initial low interest of the variable rate mortgage, but the rate will not fluctuate, remaining fixed throughout the life of the loan. The advantage of this type of loan is that the stability of the interest rate eliminates sudden changes in the amount of the reverse mortgages pros and cons monthly payment.

A capped rate mortgage is a common ground between the variable and fixed rate mortgages. At the time of signing, the capped rate mortgage will set a maximum interest rate that will never be exceeded. Like variable rate loans, the interest rate will be adjusted as market rates change, but it will never exceed the maximum interest rate agreed upon at the time of signing. The home buyer will pay the prime rate or the capped rate, which ever happens to be lowest at the reverse mortgages pros and cons time. This type of mortgage allows lower initial rates and prevents sharp increases often found with variable rate loans.

Another option is the money saver mortgage, which is a variable rate loan that is adjusted quarterly instead of monthly. This is very much like the variable rate mortgage, but the three month adjustment period will allow homeowners to guess at how market rates will affect the interest rate on their loans.

Another option for qualified home buyers is a reverse mortgages pros and cons mortgage insured by the Canadian government. The Canada Mortgage and Housing Corporation (CMHC) is a government agency that is responsible for the housing market in Canada. The CMHC can help home buyers obtain a low-cost mortgage by insuring the loans against default.

With all the options available in Canada, it is imperative that a prospective homebuyer know which mortgage is best for his or her needs. Hopefully, this article will give a homebuyer an idea of how best to approach reverse mortgages pros and cons the market when shopping for a home.

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