PRIMARY MORTGAGE TYPES
Conventional mortgages are home loans that are not insured by the Canadian government. Conventional mortgages are the most common type of mortgage and come in two variations: conforming and non-conforming.
Most conventional mortgages are classified as conforming loans, which simply means that the amount of the loan is within the limits set by the government agencies that back most Canadian loans. Loans that are greater than these limits are called non-conforming loans. Jumbo loans are the most common type of non-conforming loan.
Conventional mortgages are common because most prospective homeowners qualify for them. They are a great type of home loan for home buyers that don’t have special financing needs and just want a straightforward mortgage that doesn’t require extra reporting requirements for approval. However, with this type of loan, you will likely be required to pay for mortgage insurance on top of your monthly mortgage payments if you cannot put down 20% of the cost of your home at the time of purchase.
As briefly discussed above, jumbo mortgages are conventional home loans that exceed federal loan limits. You’re unlikely to qualify for, or even need, a jumbo loan unless you’re pursuing a home in a particularly high-cost area. Jumbo loans can be advantageous for buyers looking to borrow more money than conventional home loans can offer, and because their interest rates tend to be competitive with those of conventional loans. However, due to the high sum of money involved, jumbo loans often have steeper, more specific requirements for qualification, such as a down payment of 10% to 20%, proof of a significant amount of assets, and an excellent credit rating.
In 2019, the Canadian government introduced the First-Time Home Buyer Incentive Program to help first-time home buyers with their down payments. If you’re eligible for the program and placing a down payment equal to or less than 15 percent of the home, the government can subsidize five to 10 percent of the total down payment, to be repaid over a period of 15 years.
To learn more about eligibility requirements and discover more government affordable housing initiatives, call Lisa Johnson Mortgage Services in Prince George today!
Fixed-rate mortgages are home loans that maintain the same interest rate over the life of the loan. That means for whatever term length you choose, the conventional options being 15, 20, and 30 years, your monthly mortgage payment will remain the same.
This type of loan provides the advantage of stability. By being able to count on the same mortgage payment and interest amount every month, you can more precisely budget for your other month-to-month expenses. However, fixed-rate mortgages typically come with higher interest rates than adjustable-rate mortgages, meaning you’re likely to pay more in interest over time and take a longer time to build equity in your home. If you plan to stay in your home for at least seven to 10 years, the stable monthly payments likely make this a good mortgage option for you.
Unlike stable fixed-rate loans, the interest rates of adjustable-rate mortgages fluctuate with the market. While they lack the stability of a fixed interest rate, adjustable-rate mortgages provide a path to build equity in your home more quickly. Plus, most adjustable-rate mortgages are a mix of both adjustable and fixed rate: many adjustable-rate mortgages have a fixed interest rate for a few years before the loan resets to a variable interest rate for the remainder of the term. For maximum benefit, you should seek out an adjustable-rate mortgage that caps how much your interest rate or monthly mortgage rate can increase, so you don’t take too much of a risk in interest rate fluctuation and wind up in financial trouble when the loan changes to a variable rate.
Adjustable-rate mortgages present many advantages, including a low fixed-interest rate in the first few years of homeownership, and a significant savings on interest payments over the life of the loan. However, adjustable-rate mortgages also present significant risk: your monthly mortgage payments could become unaffordable if the interest rate fluctuates too wildly, and refinancing or selling your home could prove difficult if the value of homes on your market drop substantially.
CHOOSING THE RIGHT MORTGAGE BROKER
Now that we’ve reviewed the most common types of mortgages, it’s time to briefly discuss what to look for in a mortgage lender. You’ll want to evaluate potential brokers on the following factors:
- Application Process Efficiency
- Available Rates
Ultimately, you’re looking for a mortgage broker who has the experience and transparency to guide you through the process to find you the perfect mortgage at competitive rates. You’ll want a mortgage lender with decades of experience, like Lisa Johnson Mortgage Services, to clearly outline the qualifications and approval timelines for the mortgages you’re interested in applying for. The Prince Geroge housing market is competitive, and you can’t waste time waiting on the approval of a lender who doesn’t have their ducks in a row. If you’re ready to get started financing a new home, call Lisa Johnson today!