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TYPES OF MORTGAGES

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Page 1 Conventional Mortgage vs. High-Ratio Mortgage
Closed Mortgage vs. Open Mortgage
Short-Term Mortgage vs. Long-Term Mortgage
Fixed Rate Mortgage vs. Variable Rate Mortgage
Zero Down Mortgages
Mortgages for the Self-Employed
Page 2 Home Equity Mortgage Loan
Debt Consolidation Mortgage Loan
Secured Line of Credit
Commercial Mortgages
Non-Resident Mortgages
Page 3 Reverse Mortgages


Your basic choices in selecting a mortgage include:

Conventional Mortgage vs. High-Ratio Mortgage

A conventional mortgage equals no more than 75% of the appraised value or purchase price of the property, whichever is less. A high-ratio mortgage is usually for more than 75% of the appraised value or purchase price.

Often referred to as an NHA mortgage because it is granted under the provisions of the National Housing Act and must, by law, be insured through CMHC (Canada Mortgage and Housing Corporation, a Crown corporation that controls 70% of the market), for which the borrower pays the insurance premium as well as application, legal and property appraisal fees.

Closed Mortgage vs. Open Mortgage

A closed mortgages usually offer lower interest rates than an open mortgage of the same term, but an open mortgage let you pay off as much as you want, any time, without penalty.

Short-Term Mortgage vs. Long-Term Mortgage

The term you select is important, too. Short-term mortgages are appropriate if you believe interest rates will be lower at renewal time. Long-term mortgages are suitable if you feel current rates are reasonable and you want the security of budgeting for the future. This may be especially important for first-time homebuyers.

Fixed Rate Mortgage vs. Variable Rate Mortgage

You can choose a fixed or variable interest rate. A fixed rate mortgage allows you to budget precisely for whatever term you select—from one to as many as 25 years. A variable rate mortgage fluctuates with the market.

Zero Down Mortgages

As a result of the sub-prime mortgage lending disaster in the United States, and the possible implications for Canada, the federal government announced a number of changes affecting the mortgage industry in Canada.

The announcement was made on July 9, 2008, and is effective from October 15, 2008.

The main change is a requirement that all mortgages have at least a 5% down payment. Recent competition in the mortgage industry had allowed consumers to put zero money down on a home and still get a competitive rate.

The government also introduced a requirement that insured mortgages have an amortization period of no longer than 35 years. In the past two years, the amortization period has stretched from 25 years to as much as 40.

Any consumer with less than a 20% down payment on a home is required to obtain mortgage insurance if they are borrowing money from a financial institution covered by the Bank Act of Canada.

A government release said that “The government sees these moves as a responsible and measured approach by the government to ensure Canada's housing market remains strong and to reduce the risk of a housing bubble developing in Canada, similar to the United States."

"The Canadian government has modestly tightened mortgage lending rules. The changes are more about optics," said Derek Holt, vice-president of economics with Scotia Capital.

The amortization rules will only slightly affect monthly carrying costs, and affect only new government-backed insured mortgages, not existing mortgage holders.

The government will also require a purchaser of an insured mortgage to have a minimum credit score, and the new rules will also require new loan documentation standards.

Mortgages for the Self-Employed

The essential difference between a self-employed and an employed mortgage applicant is that the self-employed applicant may have a more irregular income stream from year to year, and in many cases will tend to show a lesser yearly personal income.

This is because the self-employed applicant may run her or his own company, possibly from home, and show significant deductions on their corporate returns, thus allowing for a lesser income.

The major banks do not like dealing with those who are self-employed. They like the security of knowing you have worked for XYZ Company for the past 12 years. This is complete rubbish and in so many cases it is the self-employed person who has more real security.

This is an area in which using a mortgage broker can prove quite beneficial.

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