Financing Your Home Purchase
Choosing the right mortgage
Whether you're a first-time or experienced home buyer, choosing the mortgage with the right combination of features is equally important.
This section will help you understand the differences between a variety of mortgage options. As you'll see, each type of mortgage has slightly different features which appeal to a variety of different preferences. For example, some home buyers take comfort in knowing that the interest rate will be the same throughout the entire term of their mortgage. They can also take comfort in knowing what their principal amount will be at the end of the term. Other home buyers may be willing to accept some fluctuation in their interest rate in exchange for the potential long-term savings or the chance to pay off their mortgage faster.
The right mortgage for you is the one that best matches your overall comfort level and fits with your income and lifestyle.
Conventional or high-ratio
A conventional mortgage is a loan for no more than 80% of the appraised value or purchase price of the property, whichever is less. The remaining amount required for a purchase (20%) comes from your resources and is referred to as the down payment. If you have to borrow more than^8% of the money you need, you'll be applying for what is called a "high-ratio mortgage." Here's how it works:
Any purchase where the down payment is less than 20% is considered a high-ratio mortgage, and it must be insured by the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada. The mortgage insurer will charge a fee for this insurance. The amount of the fee will depend on the amount you are borrowing and the percentage of your own down payment. Typical fees range from 0.5% to 2.9% of the principal amount of your mortgage. This amount can be paid up front or added to the principal portion of your mortgage. A Mobile Mortgage Specialist can help you determine the exact amount.
Short-term or long-term
The term is the length of the current mortgage agreement. A mortgage typically has a term from six months to ten years. Usually, the shorter the term, the lower the interest rate.
A short-term mortgage is usually for two years or less. A long-term mortgage is generally for three years or more. Short-term mortgages are appropriate for customers who believe interest rates will drop at renewal time. Long-term mortgages are suitable when current rates are relatively low or borrowers want the security of budgeting for the future. The key to choosing between short and long terms is to feel comfortable with your interest rates and mortgage payments.
Fixed or variable
When you take out a fixed rate mortgage, your interest rate will never change throughout the entire term of your mortgage. As a result, you'll always know exactly how much your payments will be and how much of your mortgage will be paid off at the end of your term.
With a TD Canada Trust variable rate mortgage, your interest rate may vary from month to month. Historically, variable rate mortgages have tended to cost less than fixed rate mortgages when interest rates are fairly stable. When rates change, your payment amount remains the same. However, the amount that is applied toward interest and principal will change. If interest rates drop, more of your mortgage payment is applied to the principal balance owing.2 This can help you pay off your mortgage faster.
Open or closed
Open mortgages can generally be paid off at any time without compensation.1 They are suited to homeowners who are planning to sell in the near future or those who want the flexibility to make large, lump-sum payments before maturity.
Closed mortgages are commitments for a specific term. If you want to pay off the mortgage balance, you will need to wait until the maturity date or pay compensation.
We're here to help
As you can see, choosing the right mortgage really depends on your needs. All of these options and variations were created in order to give you the broadest possible range of choices.
