Buying your first home is an exciting but overwhelming
process. One of the major steps in buying a home is getting a mortgage. Most
prospective homeowners need a mortgage when buying a home. Knowing about mortgage
and the options available can help home buyers in making the right choice when
selecting the type of mortgage that suits their needs. Prospective homeowners
in Ottawa can consult mortgage lenders who can assist them in making the right
decision. Here are a few things you should know about mortgages before you go
to your mortgage lender.
Types of Mortgage
There are two types of mortgages – open and closed. Open
mortgages offer more flexibility in allowing you to make prepayments, enabling
the homeowner to pay off the mortgage faster. On the other hand, in a closed
mortgage, the mortgage lender may have a set number of prepayments you can make
in a year without any additional costs. However, if you want to make extra
prepayments, there may be a prepayment charge.
Another notable difference between the two types of mortgage
is that an open mortgage generally has a higher interest rate than a closed
period is the time it will take to pay off a mortgage. Currently, the
longest amortization period a mortgage lender can offer is 25 years. A longer
amortization period means lower mortgage payments; however, a shorter
amortization that is affordable can enable you to pay off the mortgage faster
and save money in interest.
A mortgage term can be for up to 10 years. It is the time
period that the mortgage agreement, and interest, will be in effect. There are
short-term, long-term, and convertible mortgages. In a short-term mortgage, the
term is over sooner, and you can renegotiate with your mortgage lender or shop
around and go with another lender without paying any prepayment charges. In a longer
term, you can lock in the interest rate. Mortgage lenders may offer a
convertible mortgage term in which a shorter term can be converted to a longer
term. The interest also gets converted to that of a long-term rate.
Mortgage lenders offer fixed, variable, or hybrid interest
rates. In a fixed interest rate, the mortgage payment remains the same, whether
the interest rate increases or decreases. In a variable rate, the interest rate
varies with the fluctuation in the Bank of Canada interest rate and this
affects the mortgage payments. Hybrid
interest rates are part fixed and part variable. This offers partial
protection in case interest rates increase. In addition, hybrid interest rates
have different terms for each portion – the variable portion may be a shorter
term than the fixed.
Some of the other important criteria to consider are the
down payment, mortgage insurance, payment frequency, and additional costs that
may be associated with a mortgage.
Knowing the basics about a mortgage can assist you in going
to the right mortgage lender for your home financing needs. Mortgage lenders
can help prospective home buyers in Ottawa select the right mortgage product
that is affordable and meets their long-term goals and current