Types of Mortgages
Mortgage Loan

Types of Mortgages

The word mortgage, which literally means “death contract” in French, is more commonly known as mortgage loan these days. A mortgage loan is basically a loan that is secured by real property, for instance your house. This is usually done through the mortgage note which provides evidence that the loan and the secured property actually exist. There are a numerous kinds of mortgages available; it is best to go through all the clauses and rules of the mortgages and choose the one that best suits the situation you’re in. The different kinds of Mortgages are explained below: Pre- Approved Mortgages: A pre-approved is basically a deal that lets you know before you sign the offer about how much you can actually afford to borrow, based on your pay structure and the wealth you have accumulated. It usually has the longest rate guarantee period that can be extended up to 120 days. For instance if the interest rates rise, there would be no effect on the rate of a pre-approved mortgage for a particular period of time. Conventional Mortgages: This type of mortgage does not usually have insurance by default and a conventional mortgage loan does not exceed 75% of the purchase price or appraised value of the home, whichever is less than the other one.

High-Ratio Mortgage – CMHC Insured / GE Capital Insured: A high-ratio mortgage is usually above 80% and up to 95% of the purchase price or appraised value of the property. These mortgages are insured against loss by CMHC or GE capital, which happens to be a private insurance company. Fixed Mortgages entail the first debt registered against a property, i.e. a first charge on theproperty.The first lender has first right on the outstanding interest costs and all the other costs incurred during the process. Then comes the second mortgage, which is a debt after the first mortgage has been registered. Generally the interest charged on second mortgages is higher than the first one, but it is better than high costs of the CMHC/GE Capital Insurance premium. Open Mortgages are flexible and allow you to repay the mortgage at any time without a penalty.

They are generally only available in short term periods of time, for instance 6months-1 year. These are best for situations which involve selling of the property. Their interest rate is only a little bit higher than that of closed mortgages. Closed mortgages offer the security of fixed payments for periods of 6 months to 10 years. These sorts of mortgages generally have penalties for late payments. Then there are the fixed-term mortgages, where the interest rates and other conditions remain constant throughout the term. Adjustable Rate Mortgage (A.R.M), Secured Lines of Credit, Equity Mortgages, Multiple Term Mortgages, All-Inclusive- Mortgage (A.I.M) and bridge financing are some of the kinds of mortgages. You need to check the pros and cons of all the different kinds of mortgages before deciding upon which one of those fits your situation best. Keep the interest rates and other conditions in mind whilst choosing the type.

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