Canadian Mortgage Options
Author: Shain Arnott
There seems to be an abundance of information about the different mortgage options available for home buyers and home owners who live in the United States. We read so much on the internet about rate resets, ARMs, Jumbo Mortgages, and NINJA loans. But this kind of information means nothing for those who are looking for mortgage options in Canada. So, for Canadians like me who need to know more about Canadian mortgage options than American options, here is a brief outline of the differences between Variable Rate Mortgages and Fixed Rate Mortgages, the two most common mortgages in Canada.
Extremely popular when the Prime Rate is low, a variable mortgage is any mortgage where the rate will fluctuate depending on an underlying base rate, typically the Prime Lending rate at most banks. A mortgage where the rate is not fixed is a variable rate mortgage and it can be long-term or short-term and can have some, all, or none of the following features:
* a "Cap Rate." This is the highest rate that the mortgage will charge you.
* Convertible option. This allows the borrower to convert from variable to fixed under specific terms mid-way through the term of the variable rate mortgage.
* Rate Reset Period. Some variable rate mortgages will not see a change to the rate until this "reset period" arrives. For example, with a quarterly reset period, the borrower's rate will only change once every three months.
* Spread. This is the amount the lender charges you above or below the base rate that will be charged during the term of the mortgage. For example, when a rate is quoted at Prime + 0.50%, the 0.50% is the spread, the amount above or below the base rate that you will pay.
Unlike a Variable Rate Mortgage, a Fixed Rate Mortgage never changes over the course of the mortgage. That means that when you agree a 5-year mortgage at a rate of say 4%, the rate stays the same for the duration of the five years.
When looking at a mortgage, be sure you understand all of the ins and outs of the product you are taking. Some of the things you shouldask are:
* How are my penalties assessed if I decide to move or repay the mortgage mid-way through my term?
* What is the maximum annual prepayment and must I make prepayments only once per year, or can I pay periodically throughout the year?
* What are my other prepayment privileges?
Whether you want a variable rate or a fixed rate will depend to a large extent on understanding the interest rates and an ability to withstand the risk associated with rising or dropping rates. For these reasons, a variable rate might not appeal to someone on a fixed budget if the variable rate mortgage payments reset with every change in rates. Additionally, a fixed rate mortgage might not be a good idea for someone who believes rates are about to drop.
Extremely popular when the Prime Rate is low, a variable mortgage is any mortgage where the rate will fluctuate depending on an underlying base rate, typically the Prime Lending rate at most banks. A mortgage where the rate is not fixed is a variable rate mortgage and it can be long-term or short-term and can have some, all, or none of the following features:
* a "Cap Rate." This is the highest rate that the mortgage will charge you.
* Convertible option. This allows the borrower to convert from variable to fixed under specific terms mid-way through the term of the variable rate mortgage.
* Rate Reset Period. Some variable rate mortgages will not see a change to the rate until this "reset period" arrives. For example, with a quarterly reset period, the borrower's rate will only change once every three months.
* Spread. This is the amount the lender charges you above or below the base rate that will be charged during the term of the mortgage. For example, when a rate is quoted at Prime + 0.50%, the 0.50% is the spread, the amount above or below the base rate that you will pay.
Unlike a Variable Rate Mortgage, a Fixed Rate Mortgage never changes over the course of the mortgage. That means that when you agree a 5-year mortgage at a rate of say 4%, the rate stays the same for the duration of the five years.
When looking at a mortgage, be sure you understand all of the ins and outs of the product you are taking. Some of the things you shouldask are:
* How are my penalties assessed if I decide to move or repay the mortgage mid-way through my term?
* What is the maximum annual prepayment and must I make prepayments only once per year, or can I pay periodically throughout the year?
* What are my other prepayment privileges?
Whether you want a variable rate or a fixed rate will depend to a large extent on understanding the interest rates and an ability to withstand the risk associated with rising or dropping rates. For these reasons, a variable rate might not appeal to someone on a fixed budget if the variable rate mortgage payments reset with every change in rates. Additionally, a fixed rate mortgage might not be a good idea for someone who believes rates are about to drop.
Article Source: http://www.a1articles.com/article_1179489_33.html