These are the general types of mortgages available in Ontario, however, there are many variations of these mortgages.
Fixed Rate Mortgages
The fixed mortgage types are structured for people who do not want to tolerate the risk connected with varying mortgage rates and subsequently irregular monthly payments. Ideal if you want the stability of a fixed interest rate and do not want to think about interest rate fluctuations. Fixed rate mortgages are available for real estate purchases or mortgage renewals and come in various term lengths. The longer the term of a fixed rate mortgage, generally means a higher interest rate due to the lender being locked in and susceptible to interest rates going up.
Variable Rate Mortgages
The variable rate mortgage loan is structured for people who can withstand some risk and a possibly fluctuating payment. The rates often tend to be somewhat lower than the fixed mortgage rates, but are being adjusted based on the loan market. rates are adjusted in relation to the prime rate that is governed by the Central Bank. It is possible to pay off your mortgage sooner as your rates are lower, allowing you to put these interest savings towards the principle amount. There is a risk involved as the rates may also go up raising your mortgage payment.
Home Equity Line Of Credit
A home equity line of credit is offered at very affordable interests rate in comparison to traditional unsecured lines of credit. Currently lines of credit are available at a variable rate of close to prime at many financial institutions. You can get a secured line of credit against your home and finance up to 80% of its value including mortgages. A line of credit minimum payment is often just the interest amount owing for that month although you can pay more if you choose. This is an affordable solution for many larger purchases that need financed it should offer a lower interest rate than most loans or credit cards.
Although your mortgage may be amortized over a long period of time it will usually be split up into terms such as 5 years. This means every time your term is up you can renew it and negotiate new terms such as interest. The bank or finance company you are presently with will want you to renew with them, but don’t generally give you the best interest rate. Customers often renew at whatever rate they are offered just because it’s easier, not realizing how much a small interest rate difference can save them.
The mortgage rate that you currently have may not be the best, especially if rates have dropped recently. Often when rates are low, it may be worth the effort and penalties to refinance your mortgage. Penalties are generally three months interest, but if you have years left on the mortgage it will be more than worthwhile refinancing at a lower rate. Check with your current mortgage provider about the additional costs associated with refinancing. You can only refinance your mortgage for up to 80% of the property value since the law changed in 2012.
Loan consolidation is designed to reduce the interest charges on your debt especially credit cards. This will make your monthly payments lower and the old debt will be paid of through a new mortgage or home equity line of credit (HELOC).
Cash Back Mortgage
A cash back mortgage is popular amongst first time home buyers, who need money to finance their moving and closing expenses etc.. The most widely used cash back is 5%. For example on $200,000 mortgage you will get $10,000 cash back. You will need to know that while this may be a great product for some people, a premium loan rate is connected to your mortgage often 1-3% higher than a normal mortgage. The cash-back amount will usually need repaid if the mortgage term is broken, as well as the usual penalties.