It’s important to have an understanding of your mortgage options because the type of mortgage you choose matters and will have different levels of risk flexibility and costs.
The most commonly used mortgages fit in two categories; high-ratio and conventional.
Curious about mortgage affordability? Try our buyer calculator right here.
High-ratio Mortgage
A high-ratio mortgage is ideal for someone who is purchasing a home for under 1 million dollars and is putting less than 20% down. This is a more common option for a first time home buyer who might not have a large down payment.
Pros: They can purchase a home with limited savings ( a minimum of 5% ) and this type of mortgage can help someone get their foot in the market sooner than having to wait for a larger down payment.
Cons: Require mortgage default insurance through CMHC ( Canadian mortgage and housing corporation) and will be paying an insurance premium ranging from 2.8%-4%. There is a maximum amortization of 25 years.
Get more answers to your homebuying questions with these posts next:
- Are You Aware of These Closing Costs?
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- Homebuying Incentives You Need to Know About
Conventional Mortgage
A conventional mortgage is for someone who is purchasing a home with a downtown payment of 20% or more.
Pros: There is no insurance premium required and you can stretch payments over 30 years instead of 25 years.
Cons: Depleting more of your savings
Both conventional and high-ration mortgages have the option to choose a fixed interest rate or variable interest rate. Fixed rates provide predictability, while variable rates offer potential cost savings but come with risk.
Choosing a fixed interest rate give you the peace of mind, knowing what your payments are and that it won’t be changing
On the other hand, if the interest rates drop, you have to stay at the higher rate or pay a penalty to break your mortgage.
Variable interest rates are ideal for those who are risk averse and able to tolerate changing rates and payments. Payments fluctuate but historically, variable rates have outperformed fixed rates.
Download our Buyer’s Guide here for more tips on buying a home.
There is instability in your mortgage payments and potential of your rate and payment changing up to 8 times a year. However, you have the ability to convert your variable rate to fixed at anytime.
There are so many other mortgages and financial tools available that are not mentioned above; HELOC ( Home Equity Line of Credit), portable mortgage, reverse mortgage for those over 55 year of age etc.
A salaried applicant or a commission based applicant will have different options. A single mother or a family with dual income will have different needs.
There is a mortgage tailored for every applicant!
Ways to make your mortgage more affordable
Our trusted mortgage broker Tony shared 2 tips on how to pay down your mortgage and make it more affordable!
One way to do so is by making bi-weekly accelerated payments versus monthly. Alternatively most lenders will allow you to make lump sump payments and pre pay up to 15-20% of the original loan per year for the full term.
Keep reading these blogs next for more insights on buying a home:
- The (New) Economics of Home Ownership
- How to Find the Right Real Estate Agent
- The Truth About Title Search
Housing Affordability
Lenders will determine your housing affordability using these 6 important factors; your income, credit rating, liabilities, down payment, current interest rate and stress test environment.
Our mortgage broker Tony says that in todays environment, the general rule of thumb is that applicants will typically qualify for 3 1/2 – 4 times their current income if they have no debts.
The rules and parameter lenders use to determine your affordability are constantly changing. It’s important to get pre approved for your mortgage in order to understand your housing affordability before you even start your home search.
Ultimately, having your mortgage pre-approval in place before we start house hunting will help you determine your budget, lock in an interest rate and streamline your buying process . When it comes to making an offer to purchase , you can make a stronger offer by not need a financing condition.
A trusted mortgage broker can help you navigate the options and make a well-informed choice!
Looking for answers to your real estate questions? Get in touch with us directly by calling 416.642.2660 or emailing us at admin@torontorealtygroup.com.
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