Not sure what mortgage products would work for you? Here’s a breakdown:
Overview: This type of mortgage is for those that are self-employed and would like to own their own home, but may not have the ability to do so since many business owners minus their expenses in place of extra income.
Advantages: Your approval is based on your credit history and not your business history. There usually is a very simple application and easy approval process. Best of all, many institutions don’t require you to prove your income.
Considerations: If your credit history isn’t strong it will be difficult to get approved, and many institutions require you to have a certain equity percentage (typically 25 per cent) before they will consider your application.
Suitable for: Self-employed entrepreneurs
Overview: The term for this type of mortgages is usually three or more years and is best used when current interest rates are practical.
Advantages: This is a good alternative if you value peace of mind or if you are looking for a long-term investment.
Considerations: You may end up paying more over time if interest rates decrease while you are still locked in.
Suitable for: Buyers who would like to budget for the future.
Overview: With a term of two years or less, this mortgage option offers a viable alternative to breaking a long-term mortgage.
Advantages: You are offered lower interest rates so this alternative is ideal if you aren’t planning on holding onto the property for a long period of time.
Considerations: If interest rates increase at the time of renewal, you may end up paying a higher borrowing cost.
Suitable for: Borrowers who feel that the lower interest rate initially far outweighs the risk of rates increasing at time of renewal.
Cash back option
Overview: This option allows you to receive cash back on the date your mortgage is advanced. It is available on a variety of terms. The cash back amount is contingent on the amount of the mortgage, with average rates at 4, 5 or 7 per cent of your mortgage.
Advantages: The cash that you receive can be used immediately for things like renovations, legal fees, moving costs, etc.
Considerations: You must carry out the entire term of the mortgag, regardless of circumstances.
Suitable for: First time homebuyers, and those that are in need of extra cash at time of purchase.
Overview: This is a risk-free way to pay your mortgage since all or a portion of it is set at an fixed interest rate.
Advantages: Currently, this option is a good idea since interest rates are low.
Considerations: Statistically speaking, this choice has been proven to cost you more in the long run (approximately $15,000). In the case that rates drop, you won’t benefit. Also, you can be penalized if you pay off your loan before the due date.
Suitable for: Those who are worried that interest rates may rise and who like to have a set plan for budgeting.
Overview: With this selection, rates will vary and are based on the present interest rate. For a given amount of time your mortgage will be a certain amount, and as soon as that term is over it will change to another amount, whether higher or lower.
Advantages: You are allowed more flexibility. It’s been proven historically that with a typical 25-year mortgage you can save approximately $15,000 with this option. Also, sometimes the rate can be set so that it doesn’t exceed a certain amount.
Considerations: You are expected to pay the current interest rate, even if it increases, which makes it hard to budget.
Suitable for: Borrowers who are comfortable with their mortgage payments being an unstable amount, and who want to make a profit.
To read more about fixed vs variable mortgages see Mark Davids article on Fixed vs. Variable.
No down payment mortgage
Overview: If you don’t have the funds for a down payment, this option allows you to skip it by including the down payment in your mortgage. The main requirement is that you must have money for closing costs and you must have an excellent credit history.
Advantages: You can start building your home equity right away. If you fix your interest rate, you will be protected from market fluctuation.
Considerations: Monthly payments are often higher than you would pay if you had a down payment.
Suitable for: Borrowers who would like to act now and become a homeowner.
High ratio mortgage
Overview: This term is applied to mortgages that are 80 per cent greater than the value of the property.
Advantages: There are various terms and rates offered and it is similar to a regular mortgage.
Considerations: You are required to pay an insurance fee or premium that can be paid upfront, or added to the mortgage. Remember that the greater the loan-to-value ratio, the greater the insurance premium.
Suitable for: People that have the funds for a down payment, and also for those who would like to purchase a second home.
Mortgage life insurance
Overview: With this product, you are able to keep your home secure in the case that you pass away, have a terminal illness, or suffer an accident. There is normally a maximum of two people covered and payments depend on your age.
Advantages: This option can cover your entire outstanding mortgage balance, usually with a maximum of up to $500,000.
Considerations: You are typically required to answer questions regarding your health status, and sometimes it can take time to be approved.
Suitable for: Those who are looking for peace of mind in the event that something unfortunate happens.
Overview: Potential buyers who might not be able to afford a house can now do so with an extended mortgage that makes your monthly payment cheaper by extending the typical 25 year mortgage to 30 to 40 years.
Advantages: This alternative makes your monthly payments more affordable.
Considerations: You will be in debt longer and there are higher interest rates meaning that over the term of the loan you will pay more.
Suitable for: Buyers who have a job and are expecting a rapid pay increase. This way, you can eventually increase your monthly payments and cut back on interest.
Home Equity Line of Credit (HELOC)
Overview: Similar to a regular line of credit because you can borrow and pay back as needed. The main difference is that it is registered as a mortgage, and your collateral is your property.
Advantages: This option allows you to pay lower fees since you are only expected to make a minimum monthly payment, usually just interest. Also, with a regular mortgage you must discharge the amount once paid, so if you need extra cash one month, you must go through the whole borrowing process again and pay the legal fees. HELOC allows you to skip this entirely.
Considerations: The interest rate is variable, so over the specified ‘draw period’ (the length of the loan which is typically 5 to 25 years) it will be difficult to budget. Since your home is your security, if you are unable to make a payment it could result in foreclosure.
Suitable for: Buyers who are comfortable with a variable interest rate, and who would like the option to borrow and pay back at will.
Overview: This option is often mistaken for a loan that is taken out on a second property. However, it is actually a loan that is borrowed on top of another loan against the same property.
Advantages: Sometimes there are penalties for breaking and refinancing your first mortgage, which is where this alternative is a good solution.
Considerations: There is a higher interest rate than the first mortgage. If the loan goes into default, the first mortgage is always paid off first.
Suitable for: For those in need of extra cash flow for things such as renovating, medical expenses, children’s education, etc.
Additionally, you can use our compare home loans feature to help you decide on your plan of action.
Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage. Click here to get help choosing the best mortgage rate