Types Of Mortgages
In Canada, Buying a new house for the first time is a very overwhelming experience. But many new home buyers get puzzled and excited by the variety of Canadian Mortgages available. It is quite a difficult job when they have selected the best among five primary mortgages. In Canada, home purchasing is controlled by the individual province; therefore every mortgage is not attainable in every province. Before buying a house, it is very important to know the available choices and also about best mortgage that will meet the needs of the buyer.
The primary mortgages differ in accordance to the applied rate of interest to the loan. They are variable, capped and fixed rate mortgages. Among these, mortgage with variable rate are most popular because it permits the buyer to start the mortgage with the lowest rate. The beginning interest rate is generally 25% less than the prime rate. Due to market fluctuation, the rate of interest is adjusted every month which results in unsteady increase or decrease in the rate of interest.
On the other hand, a mortgage with fixed rate is standard type of loan provided for financing up to one third (75%) of the house value. Unlike variable rate mortgage, the fixed rate mortgage does not provide initial low rates of interest, besides there is no fluctuation of rates in this mortgage system. They remain same throughout the duration of the mortgage. They do not change with the variation in market mortgage rates. This fixed rate mortgage provides the benefit of stability of interest rate and eradicates the abrupt fluctuation in the monthly payment amount.
However, a capped rate mortgage has the loan providing system which is balanced between the variable rate mortgage and fixed rate mortgage. The capped rate mortgage sets a highest rate of interest at the initial signing time. As done in variable rate mortgage system, the interest rate is adjusted according to fluctuating market rates, but will not cross the highest rate of interest that was agreed at the initial signing time. The house buyer has the choice to pay either the capped rate or the prime rate, which ever come about to be the lowest at that time. The capped rate mortgage provides lower starting rates to the home buyers and avoids sudden increase, which is the characteristic of variable rate mortgage.
The home buyers have another option of money saver mortgage in Canada. This is very much alike variable rate mortgage. The only difference is that it is payable in three months instead of every month. This quarterly adjustment period enables the owners of the house to figure out the affects of fluctuating market rates on their mortgage.
Canadian Government has insured another mortgage choice for eligible house buyers. The Canada Mortgage and Housing Corporation (CMHC), a government agency, which is responsible for controlling the Canadian housing market, can assist home buyers in obtaining mortgage at low cost and insure the mortgage against default.
It is important for the home buyer in Canada to know and decategory_IDe correctly, among all the choices of mortgage available, which mortgage will provide most benefits according to his/her needs. The information provided in this article should be helpful for the house buyers to avail the best market when purchasing a house.